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Commissions Based on Asking Price... Good Idea??

I had a listing appointment on Saturday, and I got asked a question that I had never been asked before. I thought it was an odd question, but the seller was very serious as he has bought his last two houses without a Realtor's help, and has never had to sell a house, so this is his first experience with using a Realtor and with selling.

He asked if the commissions were based on asking price. I looked at him, probably with a startled look on my face, and said no. I then said, you may be on to something there. I think commissions should be based on asking price and then I could list each house for $1M, and have the sellers also sign price reductions the same day. Talk about motivation to sell that house and not let it expire!!

On another side of it, I was thinking this was a good idea because if the sellers had to pay commissions based on their original asking price, they would be less willing to over price their houses. Doesn't that sound grand?? Less people over pricing, more people being realistic, and we'll get this inventory down much quicker than the houses sitting on the market.

What do you think?

Posted by Donna Harris, REALTOR® & ASP - Hill Country Austin Lakeway Homes on 08/14/2007 05:00 PM

Comments (53)

commissions, selling, house for sale, realtor

Originally posted at: Austin TX Real Estate - Hill Country Austin Lakeway Homes for Sale: Commissions Based on Asking Price... Good Idea??

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53 Comments on Commissions Based on Asking Price... Good Idea??

AUG

2007

Sounds good to me, let's start a new revolt on AR. :)

There is a company, quite large in the southeast, that is recommending, can't force of course, thier agents to select certain commissions based on price. Mainly so they can be profitable...

Donna, I like your idea -- not what I expected when I clicked on this post! I have seen commissions before where it is a variable commission depending upon the price of the sale (i.e. sells at list price - 1 commission, at above asking price -- a different, higher commission, and below asking price -- lower commission).

Missy, I'm there with ya!!

Stephen, I'm not sure I understand what you mean? Like the lower the price range, the higher the commission percent? Can you clarify?

Brian, Why would someone take less commission when selling at a lower price? I've seen commissions based on time on the market, but not based on what you've described. Sells in first 30 days, this amount. Seller in 60 days, this amount...

Hi Donna,

This is someting we have actually told Sellers on listing appointments. If they price it at "X", the commission will be "Y" and so on so that they can see the impact the pricing will have on the success of their home selling. We absolutely agree with this and I do believe we have to start thinking more creatively now in the uncertain market we're in.

Donna- I think that is an interesting idea/post. And the comments have made me think too. Brian's commetns and your response to him are ideas that I haven't seen in my marketplace. Hmmm.

Donna,

You made me laugh so hard! I love the idea!!!

What a novel idea!! I'm so tired of sellers not listening to what I tell them the comparisons came up with; their house is worth so much more because of ........... That might work!!!

Its all about convincing sellers of the benefit of a certain strategy. These sellers seem convinced....now apply it to others and report back to us!

Donna, I've never actually participated in such a transaction, and do think it odd. But I guess from the seller's point of view, they're saying "We're making less money and you couldn't sell it at our price, so you should be punished!" I guess whatever listing agents took such deals weren't very good at negotiating their own commissions.

Lisa, yeah for you for already implementing something like this.

Debi, Pricing right and selling in 30 days warrants a higher commissions many times, and some, not all, sellers are willing to do it. I had an 8% listing because of this way of structuring the listing agreement.

Jeannette, I'm glad I could help you burn a few calories this afternoon!

Marchel, Let us know if this works for you!

Kaushik, Thanks. However, it's too late for this seller because I already said no as the question startled me. I can't go back on it now...

Brian, you hit the nail on the head... an agent needs to be able to negotiate their own commission before they're able to negotiate the sales price on someone else's take home money!

Donna, With the commission being based on the original asking price that might indeed help sellers to price them more realistically. Certainly would get them to at least think about it.

I think that is a terrible idea. the listing agent is going to spend the same money to market the home either way. the market will of course control what the sales price will be. what if you do this "plan" and find that your sellers are pigs and the way you saw the house is not the way they keep it when showing start to happen? now your 8% just went down to 7 then 6 then 5. i think there are some cons to your concept. i do like the idea of asking for more if you sell it in the first 30 days.

"my seller if i sell your house in 30 day i want 8% otherwise i will take 6%."

that could be something nice.

Well that would certainly shake the market! Actually, I've found sellers to be very reasonable these days. Just listed a property today and the seller was awesome when it came to the pricing.

Commission based on price is not unheard of for the luxury home market. There are companies out there that will charge X% for $1-2 Million, X% for $5 Million-10 Million, etc. Now usually when the home sells, the commission is based on the selling price. But the concept of a commission based on asking price usually stems from different degrees of marketing. Maybe this is what he meant?

Or was the seller's point that a standard percentage may not make sense. If you get 3% commission on a listing for 100K that is a gross of 3K, but on a 1 Million property that same 3% is 30K. Was the seller asking why it was a percentage as opposed to something else like a flat fee.

This is something to think about. In most sales job the commission is based on the price of the sale. If I sere paid the same for each sale there would be no incentive to get the bigger numbers.

There's a cost for paying only if a property sells - the alternative is to pay for advice and time at an hourly rate.

Bill, I'm glad we're on the same wave length there!

Marcus, As with everything, there is a limit. You would have your bottomline commission that you would accept. 8% for this time, we reduce the commission incrementally as the months tick by, but only to a minimum of this amount. In my 8% example, my bottom was 5.5% because I was helping them buy a house too which made up for the difference.

Diane, that's great to hear!

Jennifer, No, he actually thought it was based on asking price because I entered that number on the net sheet. It took a minute to make sure he understood how the numbers worked.

Brian, no, that's not what the seller was asking, but my husband asks that all the time! He's like, "Why do you work so hard for only $3k when you could list more houses in this higher price range and be getting $6k? Or, why isn't there a set fee to sell a house like $2500?" He just doesn't understand as he's an engineer!

Ray, I agree completely. I wouldn't work so hard trying to get into the higher market if I wasn't going to get paid more for it.

Sharon, I know a couple of agents that get paid hourly, and they love it. They feel like it gets rid of the tire kickers.

I don't use a flat commission structure but we do it differently than in the USA.

My full service commission is 7% on the 1st $100,000 and 3% on the balance. If they seller wants a reduced commission, I ask them which services they would like to cut. They don't. Our average home price is $350-400K. This works out to about 4% of the sale price.

On a higher priced listing of say $1 million, the overall commission as a percentage of the sale price is lower at 3.6%. A $2 million dollar listing would end up at 3.2%.

I really like the idea of commissions being based on the orginal asking price. Where do I sign up?

As a Listing agent - I think the commission should be the same in all price ranges. Why would you reduce it for a higher priced property? The higher priced properties are the ones that are more expensive to sell and take the longest amount of time to sell. I have heard of agents that will take a listing in the luxury market with an agreement that if the house expires and is not relisted with the same agent or the sellers take the house off the market - the sellers owe the agent for ad expenses, etc.

Also, if you list a higher priced property at a lower commision and a seller in a different (lower) price range finds out about it - your name would be MUD. The seller in the lower price range would feel that it was unfair and the lower price ranges are easier and less expensive to sell and sell faster.

I must be missing something in this conversation. If a house is listed at $100K and the commission is 7%, then the gross commission is $7,000. If that same house sells for $80,000 then the gross commission is $5,600. But I have spent the same amount of time and money marketing the property. Why would I reduce my commission every time there is a price reduction? If a property sells at a lower price I'm already getting less money.

Of course, if the original gross commission was $7,000 and that's what the agent got regardless of sale price...that takes it away from a percentage basis and makes it a flat fee.

lol. I wonder what was going through his mind. Was he thinking if it sold for more he'd still only have to pay you based on the list price? That would be my guess since every seller I run into wants me to lower my commission so they can net more at closing. I'm tired of this question and I'm tired of people acting like 6% is too much when they tip waiters 15-20% even when they get lousy service. Hair stylists get more than 6%, just about every industry gets more than 6%! That is something they don't mention on GMA though when they are bashing REALTORS.

Very interesting and amusing too! I wouldn't have the nerve to do it but i like your comment that maybe it would keep their listing prices more reasonable lol. I put this question right up there with, if it sells in a week do I still have to pay you a commission...I got that once

I wouldn't try to reinvent the wheel at this point...

Maybe the client thought the commission would be based on how much s/he was netting? What a thought!

Donna- Neat concept but I doubt it would fly. I hear your "overpricing pain" though. I have lost about 5 listings in the last 2-3 months due to other agents doing markets on the same house, and coming in $10-$15k higher than me. The owner gives me the "oh, they think its worth more so we're listing with them." And just as imagined, their homes are still sitting. Some have even gone through a price reduction already. With the current market conditions, If a homeowner wants to list with me at a price I know it won't move, I won't even accept the listing. It's just a way to drain my budget quickly.

Good idea. We've been using variable rates for some years now, based on performance. When that does kick in... we've turned around and shared it with the other agent. That gets a great surprise and creates a lot of good will. Most of our listings here are $1M plus, I like the idea of a higher professional fee for service the more difficult our job becomes. Anything to incentivize more realistic pricing is always a good thing.

We charge LESS if the house is gone in 30 days- less work, less pay. After that, an increase to cover additional time and costs. I do, however, appreciate the laugh- very interesting and creative thought process!

I think these sellers are on to something! What an industry-transforming idea!

Heck of an idea. Reverse psychology at it's finest.

I think this is not the best solution. It really depends on the scope of services being provided - not the price. I think the emphasis on price is not the best indicator of value of the agent.

This is a novel idea, and should be explored a bit... Work up some spreadsheets to show what is being done for each part of the brokerage fee. The devil is in the details, or so I've heard...

I love that idea! Please choose your list price carefully Mr & Mrs Seller, because what ever you choose, you will pay based on that price, even though you may reduce your price by 25% before it sells!

I'll throw that out to my next listing client and see if it flies (grin!)

Interesting concept. Now where do we get people to sign up for this.

Brilliant!

AUG

2007

Donna - I love this idea! Here'a another twist on this concept. There is a bet that you can make at a sports book in Las Vegas called a lighting bet. I've heard that it's used on basketball games, but I'm not sure if it's done for other sports. The bet works like this - the sports book sets a point total that they expect both teams to score (let's say 100 points total). You place your bet on either the total being above the 100 points or below the 100 points. and an amount to bet (let's say $5 per point). Let's say you pick below 100 points. For every combined point under 100 the house pays you $5. For every point above the 100, you pay the house $5.

To translate this into real estate terms let's use this example. You tell a homeowner that the comps show that their home will support a purchase price of $500,000, but they want to list it at $550,000. You agree to use their price for the first 30 days (the most exciting time for a new listing). During this time, if a buyer is willing to pay more than $500,000, you agree to take 1% less out of your own commission. However, on the 31st day, the price automatically drops to $499,000 and the commission automatically increases to 1% more, and the listing automatically becomes a one-year listing. In this scenario, the co-broke should be paid out as normal, as this "bet" is between the listing agent and the homeowner.

Homeowners are more than willing to overprice their homes and gamble with our out-of-pocket expenses during the first 30 days of a listing (which we all know is the best time to get an offer). Would they be willing to do if they had to be right about their home's value? I wonder?

interesting concept, however you must be able to accurately put a price on the time the listing takes to sell.

So many from overnight that I can't personally respond to all of them... Thank you for all the comments and support.

Adam, I liked your idea. Very interesting. I'm going to put some thought into that and see how things could possibly be implemented. Have you tried it before or were you just thinking out loud based on the Vegas bets?

Carol, I've thought a lot the last couple of weeks about doing flat fees for the $100k listing and below. It makes so much sense and it's hard to run a business making less than $3k a transaction.

While that sounds good and probably works on paper.... there will still be many realtors that will discount. Effectively erasing the extra commission.

I don't think a fee based on initial asking price will reduce the overpricing. After all if a house was "overpriced" by $10,000, the extra commission will be $600 with seller still pocketing extra $9,400 (of course when asking for that $10,000 increase in the price, seller is going to assume that he/she will get it).

Tom, you think Dave will go for it?? He'll be ready to list tomorrow!

Neetu, an overpriced listing isn't going to sell at the overpriced amount so there isn't going to be an extra $9400 in the seller's pocket. This strategy is to prevent overpricing to sell faster and not waste money on marketing a house that can't sell at the higher price.

Donna - I had actually never given it a moment's thought until your blog. You inspired the idea, but it does seem like a way to get people to price it right to start. Most people think that they're right, but when the time comes to put money on it, I bet you that a lot would back down. Of course, it is likely to cause people to choose competing agents as well, but at least it would save us money trying to market overpriced homes.

HMMM...definately has merit. I was asked the other day what incentive I had, as a buyers agent, to get the lowest price and I can definately tell them that I enjoy the negotiation process and want my clients to return to me....but unfortunately I do know other agents that only care about it going into escrow....maybe the system should be changed.

Sounds like you're on to something there! All it takes is for one person to have an idea that catches on, and an entire industry can be revolutionized. It certainly would take away the perception of a conflict of interest that is perceived when a buyer-agent gets paid more if the buyer pays more for a property.

Hmmm you may be onto something here!

I think this is a grand idea and would definitely provide motivation for listing it at the right price if our commissions were based on the "asking price" -- I think I'll suggest this to my sellers who are wanting to list their home above market value!

Donna, basing the commission on the List price sounds great. How about a flat fee based on selling price. Example: 0 - 100,000 = $1000 Same for buyer's agents. 101000 - 2oo,ooo = $2000. Same for buyer's agents. Too Low - then we need to adjust! LOL!

AUG

2007

Kay, those numbers are WAYYYYYY TOOOOOOO Low!

It is an interesting idea... And goes both ways.

"if the sellers had to pay commissions based on their original asking price, they would be less willing to over price their houses."

This way seller will be more realistic on the asking price and selling process would go smother... Never mind to wait for higher commission on a property would never sell.

I agree the price is too low. So, lets raise the price and charge the buyer too. Same as the seller. Wonder how may buyers would fuss about that?

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