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You know I can do simple math, right?

By
Real Estate Broker/Owner with American Foursquare Realty RM423982

You know I can do simple math, right?

Here's the scenario.  We have some pockets around here where home go for much less than the area average.

And it takes about the same amount of work (sometimes more!) to sell an inexpensive house as it does a high priced home.

And some buyer agents resent the lower commissions.  So some listing agents try to prop the commission up by offering a flat fee.

But when does this commission structure get in the way of properly representing a seller's best interests?

Here is what it says in the agent comments of a local listing:

Buyer Broker compensation will be either 3% or $2,000 - whichever is higher.

The home is listed at $89,000.

Well, let me trot out my trusty 5th grade math.  $2,000 divided by 3% equals $66,666.67.  That means for the commission to slip under $2,000, the sales price of the home would have to be less than $66,666.67.

So - if I had a buyer interested in this home, what do you think I would tell them to offer?  Certainly nothing more than $66,666 - as it seems that the owner and his/her agent have already had discussions about what they might accept and how to handle commissions at that level.

To publicize this is to undermine your seller!  No savvy buyer's agent is going to ignore this simple math!  So you just pretty much guaranteed that this home will not get offers in the $80's or even $70's.

We have a fiduciary duty to our clients.  Publishing something that says, "Buyer Broker compensation will be either 3% or $2,000 - whichever is higher," is the same as writing, "I know we're asking $89,000, but we'll take $66,666 or less!

And who would ever advertise that?

 

Posted by
 Richard Strahm is an award winning Realtor specializing in the North Penn areas of Montgomery County -- Lansdale, Upper Gwynedd, North Wales, Towamencin, Hatfield -- and beyond!  Visit him at www.a4square.com or call today at 215-853-2624 for a free and private consultation about all of your real estate needs.
 
 
Richard Strahm
Broker / Owner
Realtor, ABR, CRS, PSA, SFR, SRS, SRES
 
American Foursquare Realty - Lansdale, PA

415 North Broad Street
Lansdale, PA 19446

Direct: (215) 853-2624
Office: (215) 647-0700
Fax: (215) 529-8931

Email:  Richard@a4square.com

www.a4square.com

PA Lic # RM423982

Copyright © 2010-2018 Richard Strahm.   All rights reserved worldwide.

Carol Zingone
Berkshire Hathaway Home Services Florida Network Realty - Jacksonville Beach, FL
Global Realtor in Jax Beach, FL - ABR, CRS, CIPS

Richard, good post, and I see what you mean. I'm almost surprised your local MLS allows that kind of compensation.

Mar 08, 2011 12:07 AM
David Miller
Seacoast Realty, Inc - Melbourne, FL

Good post! That commission structure usually only happens in my area with bank owned properties. I guess their bottom line is just move the house. And it's generally when a home is priced in the 30k's or lower.

Mar 08, 2011 12:08 AM
Todd Anderson
You In Park City group - KW Park City Keller Williams Real Estate - Park City, UT
Park City | Deer Valley Real Estate

Richard, it will be interesting to see if the home sells above the $66,667 price.

Mar 08, 2011 12:13 AM
Nina Rogoff
Boston, MA
Wix Websites for Real Estate Agents

Now that my kids are in Middle School, my math is getting better! LOL! Another good post on "what not to say or do", Richard.

Mar 08, 2011 12:13 AM
Richard Strahm
American Foursquare Realty - Lansdale, PA
Lansdale and North Penn Real Estate

Carol - Our MLS allows us to list a Co-op fee as either a percentage OR a flat fee.  I'm not sure this even falls under their rules . . .

David - REO's are a different animal -- low priced ones often get a flat fee here, too.  But this is a regular sale!  So sad for the owner . . .

Mar 08, 2011 12:14 AM
Richard Strahm
American Foursquare Realty - Lansdale, PA
Lansdale and North Penn Real Estate

Todd - I'm following it out of interest!

Nina - I remember having to help with math homework.  I always heard, "NO!  That's not the way they taught us!"  It seems that my math skills, while accurate, are archaic.

Mar 08, 2011 12:15 AM
Jim Courtney
OklaHomes Realty, Claremore Oklahoma - Claremore, OK
CRS, GRI, AHWD

I'm with David in that I have only seen this kind of "standard" statement on bank owned properties. I can't imagine a homeowner allowing something like that to be public, if they even know at all. :)

Mar 08, 2011 12:49 AM
Anna "Banana" Kruchten
HomeSmart Real Estate - Phoenix, AZ
602-380-4886

Ricard I've never seen this here in my area - not even with bank owned properties.  Somebody's not thinking clearly on this one. I wonder how his/her broker would feel about this?

Mar 08, 2011 12:56 AM
Charles Edwards Bentonville
Coldwell Banker Harris McHaney & Faucette 479-253-3796 - Bentonville, AR
AR REALTOR, Bentonville Real Estate Agent and Broker

Richard, you've done it again you super slueth. That's the way any buyer wants his or her agent to be thinking, and just opposite of the way a listing agent should be thinking.

Mar 08, 2011 01:00 AM
Richard Strahm
American Foursquare Realty - Lansdale, PA
Lansdale and North Penn Real Estate

Jim - that's a good question! The typical homeowner doesn't see the agent only version of the listing.

Anna - We see it a lot with shells.  There's on on the market for $20,000 around here.  Even at a 3% co-op, it would only be a $600 deal.  So the listing has a flat fee commission of $2,000.  It makes sense in a situation like that.  How would the broker feel about a situation in my post?  Shame on the broker who doesn't look at 100% of the listings his agents put up!

Charles - I agree.  All buyer agents should think this way.  And listing agents should never do it!

Mar 08, 2011 01:14 AM
Barbara Hensley
RE/MAX Properties - Rockwall, TX
Homes for Sale in Rockwall County, Texas

Richard, WOW!  This is a great post and states an important issue.  I would never put one of my sellers in this position.  However, if working as a buyer agent, I am sure I would do encourage the buyer to make the over at the lowest price.  BTW - I did hit the "suggest" button on this as it is important for both listing and selling agents to see this.  Good job!

Mar 08, 2011 01:38 AM
The Scott Loper Team Bux-Mont Premier Properties
Keller Williams Real Estate - Montgomeryville - Lansdale, PA

Hi Richard,

Very interesting, it really highlights how careful you have to be about what you say and how you say it so you don't tip you hand.  It does indicate that their is some reasonable expectation that the sales price could fall below $66,666.  Very clever.

Lisa

Mar 08, 2011 01:43 AM
Richard Strahm
American Foursquare Realty - Lansdale, PA
Lansdale and North Penn Real Estate

Barbara - Thank you!

Lisa - I'll admit I used a calculator -- but you are right when you point out that you DO have to be careful not to tip you hand!

Mar 08, 2011 02:54 AM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

The listing agent is a Wiccan, and using the mark of the beast . . . HA HA HA HA HA HA HA HA

Mar 08, 2011 07:38 AM
Richard Strahm
American Foursquare Realty - Lansdale, PA
Lansdale and North Penn Real Estate

Carla -- I thought the same thing! (twice over).  That and our same Senor Wences reaction to Paul Henderson's post make me wonder if we weren't separated at birth . . .

Mar 08, 2011 07:45 AM
Mel Ahrens, MBA, Kelly Right Real Estate
Kelly Right Real Estate - Hood River, OR
Customized Choices for your Real Estate Needs

Many people would not be able to figure out the simple math though.

Mel

Mar 08, 2011 10:18 AM
Richard Strahm
American Foursquare Realty - Lansdale, PA
Lansdale and North Penn Real Estate

Mel - I hear you, but I think our bar of entry into this profession should be higher than grade school math!

Mar 08, 2011 10:30 AM