When it comes to real estate commissions, are you selling a house or buying your agent a boat?
By Korey Welch, Owner of Boom Realty
and Senior Mortgage Broker, Loan Factory
I like boats. I just don’t think you should have to buy your real estate agent one when you sell your house. Yet judging by some of the listing commissions I still see being charged today, apparently not everyone agrees with me.
Recently, I was representing buyers who wanted to make an offer on a condominium. Certain disclosures needed to be signed and submitted with our offer, but the listing agent had not attached the correct documents to the MLS listing.
I asked her to send them over.
Instead, she accidentally sent me her entire listing package with the seller.
Now, if you know me, you already know there was absolutely no chance I wasn’t going to look through it with a fine-toothed comb.
And what I found nearly made me fall out of my chair.
The seller had agreed to pay the listing agent a 4% listing commission. Not 4% total – 4% just to list the property.
On a roughly $350,000 condo, that equals about $14,000 to the listing brokerage. The seller had also agreed to compensate the buyer’s agent another 2%, or approximately $7,000.
Total potential commission? $21,000 on a $350,000 condominium.
At that point, I wasn’t sure whether the seller was selling a condo or putting a down payment on the agent’s new boat.
The devil is in the details
Here is the important part: the sellers agreed to it. They signed the listing agreement, and there is a good chance they believed that was simply what it cost to sell a home.
That is exactly why homeowners need to shop around.
You compare prices when you buy a car, replace a roof, or install a heating system. Yet when selling what may be the largest asset you own, some people are handed a listing agreement with a percentage written on it and simply ask, “Where do I sign?”
Ask questions.
What am I getting for this fee? What marketing is included? Are professional photographs included? Who handles negotiations? How much am I paying the listing brokerage? And what does all of this equal in actual dollars?
Because “4%” sounds a lot less dramatic than:
“I’m paying you $14,000.”
Now we’re speaking English.
Good agents should be paid
I’m a real estate broker. I absolutely believe good agents deserve to be compensated. There is tremendous value in an experienced professional who can properly price a property, market it, negotiate offers, navigate inspection and appraisal issues, and keep a transaction together until closing.
But there is a difference between getting paid well for professional expertise and charging an enormous percentage simply because that’s what the industry has traditionally charged.
A 2% listing fee? I can understand the conversation. Three percent? Four percent?
In today’s market, you’re going to have to explain to me exactly what you’re doing that costs that much. Preferably with charts.
Your house isn’t harder to sell just because it’s worth more
This is something I have been saying for years.
The core work involved in selling a $300,000 home and a $2 million home is remarkably similar. You determine the price. You prepare the property for market. You hire a photographer. You put it in MLS. You market it online. You schedule showings and open houses. You negotiate offers. You deal with inspections, appraisals, attorneys, and deadlines. And you get the transaction to closing.
Does a $2 million MLS listing take six times longer to enter than a $300,000 listing? Does the photographer suddenly charge six times more? Does the yard sign require a crane?
Of course not.
There can certainly be properties that require specialized marketing or additional attention, particularly at the luxury level. But the basic mechanics of selling the property don’t suddenly multiply because the value of the home increased.
The work doesn’t double. The paycheck does.
And that’s the part I’ve never understood about traditional percentage-based commissions.
If a home sells for $300,000 and an agent charges 3%, that’s $9,000.
If essentially the same service is provided on a $1 million home, that same 3% becomes $30,000. At $2 million? $60,000.
Did the job suddenly become almost seven times harder? Or did the house simply become more valuable? For many longtime South Shore homeowners, property values have increased tremendously over the years. That’s wonderful – but that appreciation belongs to the homeowner. I don’t believe an agent should automatically receive a dramatically larger paycheck simply because your investment went up in value.
The math gets ugly fast
Consider a $750,000 South Shore home.
A 3% listing fee is $22,500.
A 4% listing fee is $30,000.
At $1 million, those numbers become $30,000 and $40,000 – and that could be before any compensation the seller agrees to provide toward a buyer’s agent. At $40,000, I don’t just want a yard sign. I want the lawn mowed and my car detailed before every open house.
There is no trophy for paying the most
Nobody gives you an award at closing because you paid the highest commission in the neighborhood. There is no plaque that says: “Congratulations! You paid $18,000 more than necessary.” The money simply comes out of your proceeds.
For seniors, that could be money for moving expenses, property taxes, retirement, your next home, your grandchildren, or simply money that remains in your bank account.
Shop around
Interview more than one agent. Compare their experience, marketing plan, strategy and fees.
Don’t be intimidated because somebody works for a giant national company or has their picture on every bus bench between Boston and Cape Cod. Ask what they are going to do for you. Then ask what it costs.
I’ve been in the mortgage and real estate business for more than 26 years, and my philosophy is simple: sellers should receive professional, full-service representation without unnecessarily giving away tens of thousands of dollars of their equity.
My listing fee is 1%, including professional marketing, photography, MLS exposure, online distribution, open houses, negotiations and transaction management.
You shouldn’t have to choose between good service and keeping your money.
The bottom line
Selling your home is a business transaction. Treat it like one.
Read the listing agreement. Understand the percentages. Convert them into real dollars. Ask questions and compare your options.
Sometimes the devil really is in the details.
And sometimes, when you finally do the math, you realize you’re not just selling your house.
You’re buying your agent a boat.
Sell smarter!
About the Author: Korey Welch, Owner of Boom Realty and Senior Mortgage Broker (NMLS: 14991) with Loan Factory (NMLS: 320841), is a licensed mortgage broker/real estate broker based in Rockland. For more than two decades, Korey has been helping seniors determine the best fit. For a complimentary consultation, contact him at korey@koreywelch.com, 781-367-3351.
