Continuing the series...
In this episode, we are going to look at seller offered commission to the buyer's agent. At the Redfin Corporate Blog, there was a recent post titled Typical is Boring, but When Selling a Home, Effective.
In the post, they compared days on market and list price/selling price ratios for properties that were shown with buyer's agent commissions above, at and below 3%. The findings were this:
Homes offering a commission higher than 3% actually had a lower sale-to-list price than homes offering a 3% commission, by about 0.82%, or the equivalent of $4,095 on a $500,000 home. We had hypothesized that a higher commission would correlate to a better result for the seller. In contrast, homes offering a commission below 3% did get a better result for the seller: they had a higher sale-to-list price, by 0.54% or the equivalent of $2,719 on a $500,000 home.
The real difference between these groups was in days on market: homes that offered a 3% commission took 68 days to sell, while homes that offered a lower commission took about 30% longer, and homes that offered a higher commission took almost twice as long.
According to our data, setting a higher commission to get better results doesn’t work. It’s best to be typical, with respect to commissions.
I commented on their blog...
There is one major problem with their data. They only looked at closed sales, and not at expired or withdrawn listings. The reason this is a problem is this... We don't know how effective the commission levels were at selling the property. We know that properties sold, but we don't know what percentage of properties sold with each type of arrangement.
Now, let me clue you in from the perspective of a real estate agent. I have worked primarily with buyers, and so this is right in my expertise. When I see a higher commission level for a property, I immediately wonder what the problem is. That's right. It is a red flag. Is the price too high? Are there issues with the property? Bad location? Inspection problems? Ugly? When I see a lower commission, I wonder who I will be working with. Now, keep in mind I have no problem selling a property with a lower commission rate... I talk it over with the buyer. But, my experience has been that both the sellers and the agent are more difficult to work with. Flat out, they want to fight over every penny. If there is a big problem with inspection... they don't want to do anything about it. They often want all issues resolved in their favor. Simply put, if there is an opportunity to screw a buyer, they seem more likely to take it. (**please keep in mind that I KNOW this is not always true, but it is what I often see**). So, I don't look forward to working with those agents.
But, let's put all of that aside. From my observational research, I see more expired properties with lower commissions offered to buyer's agents. I can't give research data, because I don't have time to spend doing research like that. And, I see more properties expire that offer a higher commission.
Apparently I'm not the only agent out there that sees a red flag with a high commission...
Instead of offering that money to a buyer's agent, spend it to make the property look better through staging or minor renovation (paint and landscape would be my suggestions).
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