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FSBO and Realtor Commission Rates

Many consumers today are baffled with the commission rates associated with selling their homes. Lets face it 5% of the average home can amount to a sizable fee and often the homeowner wonders what exactly they are paying for. Add to that a "hot" market where the DOM is just a few days and homeowners can really start to get frustrated.

I'll be the first to admit that when it came to selling our home, this was our initial reaction. We knew our house was "top notch" and would sell quickly but could we harness enough exposure to get it sold? Only one way to find out, list FSBO.

As previously mentioned in my blog, Adventures in Real Estate - Part I, we got a mix reaction from agents. All this information we were gathering because our plan "B" was to list with an agent and "which" agent depended on how we were treated as FSBO. The list was quickly narrowed down.

When we did come to listing our property with an agent, the commission rate was still a sore point for us. We knew that our house would sell within one week if it had the exposure from the MLS. Should I have to pay the same commission as someone who has their home on the market 30, 45 or 60 days and where the agent had to work 3X as hard?

What struck me was that before the Internet (and housing costs were more reasonable!) both the buying and selling agent had to invest a considerable amount of time researching and reviewing documents. With technology advancing and the introduction of the MLS a lot of the leg work has been cut out. I could be way off base on this one but I am probably not the only one that has this understating of real estate commissions which would account for the growing FSBO market.

So this got me to thinking...is there a way to level the playing field while remaining fair to both the agent and the homeowner?

As an agent, could you possibly offer a lower commission rate to homeowners that are truly motivated to sell, where their home shows well, all repairs are up to date and the house is always sparkling clean. For homes that don't meet certain criteria a higher commission rate is applied.

Wouldn't everyone win in this situation? If a homeowner knew they would pay fewer fees if they properly prepared home, enlist a home staging professional and follow their advice, how would that motivate them? Agents, how much quicker would a property sell if is showed right the first time? How much time do you invest on properties that are only mediocre versus properties that are top notch?

Posted by Lucie Quigley on 06/15/2007 08:56 AM

Comments (13)

realtor, realtors, fsbo, rants, opinions

13 Comments on FSBO and Realtor Commission Rates

JUN

2007

your market may be hot in Whitby, ON but in many many places the market is not hot, it is most definitely cold. I realize you are voicing your opinion but is your goal to win friends and business with your blogs?

Who are your likely people to get you business, the home owners out there that are looking to save every penny by going FSBO or discount Realty, or the full Service Realtors out there whose value you are questioning? Not saying that you don't have the right, not saying what you are writing is wrong, just saying it may not be the most helpful to yourself.

Jim

I think there is a happy medium. If your market is one that only requires the MLS to sell a home, then by all means. "Your home listed at 1% if you meet certain requirements." However, the bottomline here is that there's so much more to the transaction than just putting the home on the MLS.

A hybrid approach to commissions is not something new, in fact, despite what discounters want to fight about, it's been the approach from the beginning. Personally, if I know a home will sell quickly, and I don't need to do anything, sure I'll cut the seller a break, BUT with the caveat that I'm not doing the full marketing that I would normally do to sell a home. Sorry, no open houses, fliers, limited web presence. What I would be doing is more than most discounters, but still less than what is the full service.

Great to read a non-realtor perspective.

Jim has a point, your article may be a bit counterproductive. If every agent decided to do discounting, I doubt you'd have as many referrals.... yikes!

The bottomline when hiring an agent is to make sure they are doing what they say they will do and that they are doing what sells homes. In my market that means more than the MLS.

Lucie- we agree completely, and offer a reduced rate for any home that sells in the first 30 days. It isn't fair, in our opinion, to incur less in costs yet charge the same as we do for a house that sells in six months. It's up to the broker. AND, we do the full marketing. Let's face it- a fast sale costs less, period.

I would love to be in your market if all it takes is the MLS to sell a home. I am worth evey bit of my commission. Exposure is the key to selling homes and here it takes alot more than MLS. If just putting a listing into MLS would sell a home there would not be any houses on the market. A Realtor does more than just advertise the house. What about the contract negotiation, helping buyers get prequal, following up on showing, termit, appraiser, home inspectors, etc???

Lucie, don't forget that 2.5% of the commission goes to the buyers agent, by law. Your agent does not get 5%, nor does he/she likely get the remaining 2.5%. They have overhead as well, licencing fees, and depending on the brokerage, a percentage of their commission.

As you saw, despite your hard work, going FSBO didn't sell your house, even offering to pay a buyers commission (2.5%). To suggest that your listing agent, who did what you could not do, doesn't deserve his set fee is unfair.

As a stager, are you prepared to return a portion of your fee if the house you staged didn't sell in the first couple of weeks, or for less then asking? Or do you feel you still did your job? Sometimes it is good to put yourself in the others shoes.

While you didn't see what your agent was doing, trust me, he did more than list your house on MLS. He would have a database of realtors that would have gotten early notice of the listing, pre-mls. He could very well have sent out fliers to the entire neighbourhood upon getting the listing. Then there are the negotiations, not to mention all the dozens of phone calls he'd have fielded with questions about the house.

I think perhaps your agent deserves more credit for selling your house than just listing it on mls. Just as staging did not sell your house on it's own, or FSBO would have been successful.

It sounds like you fell into the homeowners mind set, 'my house is perfect and will sell itself'. Remember, your house didn't sell till you had an agent, not a stager. There is a good reason for the 2 to work together.

Wow! I could comment from several perspectives:

SELLING TIMES - faster, smoother sale of better priced and better maintained properties is a major factor. Seller selling under market for fast sale, why not give a break. Repeat customers too?
OUR DATABASE, i.e realtor.com and Mls - THAT alone IS easily worth 1% (1% to buyer and 1% to seller = 2%). you could NEVER assemble that kind of exposure on your own, I don't care how 'pretty' your website is.
ADVICE - I see many homeowners nearly blow a sale due to emotionally charged or irresponsible negotiations - or sales techniques. What is MY knowledge and 22 years experience worth compared to a newly licensed agent?
FEE BASED SERVICE like appraisers: Appraisers get paid regardless of the results they produced. We could get paid whether or not the house sells. You can get paid in stages: A.) marketing, showing b) negotiating, d) setting up the contract etc. NOW, if the sale falls thru due to inspections - condition - appraisal, at least you've been PAID for your effort, so far. Remember we are paid on SUCCESS. WE take the RISK of not getting paid if sale falls thru and have to "GO BACK TO GO".
SHARING FEES: Our fees are usually divided between 2 Agents and 2 brokers. Cut out the Broker's share, let EVERY agent become his own broker, work out of your garage or basement; THAT will save some money! - HA
MEDIAN SALES PRICE - one argument is that we charge some sellers MORE than others (% of sales price). This is a valid argument ONLY if the subject property is SUBSTANTIALLY ABOVE THE MEDIAN PRICE for the MUNICIPALITY in which it is LOCATED. If you want to sell houses in the community you are LIVING, you'll need to sell 23 houses per year to AFFORD to LIVE THERE. This goes for ANY price range. If you only earned the AVERAGE COMMISSION for the AVERAGE home, that would be FAIR. You KNOW the lower priced homes could not AFFORD to pay MORE to make up the AVERAGE COMMISSION.
FAIRNESS - since real estate appreciates at somewhat the same rate (percentage %) for ALL homes in a given community, you are really only charging the LAST YEAR'S appreciation. Your closing costs eat up your 1st year's (Buying costs) appreciation, and your selling costs (commission) eats up your LAST year's appreciation. All other YEARS are the homeowners profit. Mant homeowners could NOT afford to hire us if the had to PAY IN ADVANCE. the market would GRIND TO A HALT. There would be NO APPRECIATION.

So, after I considered ALL this, I really found no way to reduce my fees for service, without some guaranteed fees for service.

The few times I reduced fees, I found the clients DIFFICULT to do business with, they questioned or objected to EVERY 'standard operating procedure'. I spent plenty of extra TIME that I should not have had to spend. One of the sellers 'thanked me' while leaving the closing. I said "for what?" She said "for PUTTING UP WITH ME (her)".

Sometimes the house SELLS fast, but the INSPECTIONS, or TITLE problems consume additional time that more that exceeds the time SAVED - and vice-versa. How do you price or charge for that? Do you have a "Supplemental Fee?" Probably not.

I have RARELY walked away from a closing that I didn't feel, my advice, skills, knowledge or service didn't make a difference. And that came AT MY EXPENSE, because you have to "DO WHATEVER IT TAKES" TO GET THE JOB DONE. An Attorney, Auto Mechanic, Electrician would have CHARGED EXTRA for unexpected difficulties OR additional time spent.

Those of you that never door knocked, cold called, canvassed or farmed don't realize that it would take you SIX MONTHS, to find a LEAD, that you would convert to a PROSPECT, that you would convert to a LISTING (Seller), that you would convert to an UNDERCONTRACT LISTING, that you would convert to a BUYER (whose present home is SOLD) before you ever got PAID. Certainly our technology (Mls-Internet) has shortened the SELLING TIME PERIOD, BUT NOT THE WORK. We are simply sharing MORE fees, spending MORE time in the MIDDLE of the transaction (inspections-disclosures-repairs), and followup.

I'm ALL FOR for getting paid in ADVANCE for some services, even if they ARE DISCOUNTED.

The FTC should ALLOW us to discuss SERVICES, and FEES for those SERVICES. That is the ONLY way we'll be able to innovate, sharpen or tailor our skills to better serve the public.

Finally, when the fees are based upon success only, with no guarantee of getting paid, I think twice about the SELLER showing his property, and chance LOSING a sale that I won'y get paid for. If I get "PAID AS WE GO", then is doesn't matter.

I once had a sign in an auto repair shop I managed:

Hourly Rate:
$25 per hour.
$35 per hour if you WATCH
$45 per hour if you HELP

Did ANY of that make sense?

Lucie,

I can understand your question about commissions but have you thought about it this way: If your home sells in one week or less why would you penalize the agent for doing a good job and having a good home to sell (all because it was staged by a pro stager ;))? Didn't your agent do what you hired them to do? To sell your house? Why does it matter if it was one week or one month? Are you saying the agent who took longer to sell your home was worth more? If your home stays on the market 30+ days is your agent not getting the job done? Just some food for thought. :)

JUN

2007

All this BLAH BLAH BLAH, where is the buyer in all your discussions. Your arguments are all on the listing side of the business, what about on the buyers agent side?

JUL

2007

I work with lots of FSBO clients. I have them read this blog so they know what they are getting into:

Go FSBO! Save $20,000! Realtor Tells All!!

JUL

2007

Lucie

This is a type of market here were buyers are golden, Why as an agent should I spend my buyer on you reduced commission home?

What ever repairs are need on a home that is paying a higher fee or is not in tip top condition will be negotiated.

As far as tip top goes it does help to motivate a buyer but, the real work begins in a transaction once the contract is agreed upon.

JUL

2007

Has anyone had experience with a realtor who is demanding 3 percent to an FSBO seller when he did not bring the buyers to the house? There is a couple interested in my FSBO home. They found out about it by driving down my street and picking up a flyer in front of the house. The following day they came to my open house. Three days later they called me and came through again for a second look and said they would like to make an offer.

They had previously been working with an agent who had shown them several properties. Now they are working with this agent to do the paperwork in buying my house. The agent is asking me for 3 percent commission. Since the buyers came to me on their own, I don't think I should pay him a penny. Isn't his request unethical?

Judith

JUL

@ Judith...there are a lot of other factors to be considered in this equation. For instance, is the buyer's agent handling the contract to close issues as well. If so, then maybe a transaction fee would be appropriate. I don't think that a lot of people realize that marrying the buyer with the home is really a small part of what we do as buyer's agents. There is a LOT of work involved in the time frame known as contract to close. In addition, a good buyer's agent is able to anticipate and then work to remedy problems that may come up with the transaction. For instance, appraisal issues, inspection issues, financing issues. You may end up depending more upon the other agent than you think.

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