A Case for a Seven Percent Listing Commission

Should a seller negotiate a lower than the normal competitive commission, when listing a home with an agent?  For an answer to that question I looked at all the homes sold at a 6 percent listing, and a 5 percent listing, sold through Yosemite Gateway Association of REALTORS®  MLS, for Oakhurst and surrounding areas through all of  2014.  The number sold was 522.

Those listed at 6 percent had an average closing price of 96 percent of listing price.  Those listed at 5 percent had an average closing price of 94 percent of listing price.  The difference: 2 percent of selling price.  But the seller paid 1 percent less to the broker, so, negotiating the lower commission cost the seller only 1 percent.  It’s a shame.

To sell a home at a fair price we need to reach and motivate two groups:  1-Potential Buyers and   2-Selling Agents.  Buyers are motivated by a good asking price, and selling agents are motivated by a good commission.  When a realtor looks at a listing, there is one prominent number that the public cannot see.  It is the “compensation to selling office” or CSO.  Usually that number is 3 for a 6 percent listing and 2.5 for a 5 percent listing.  Wow, an agent might think, I can earn 20 percent more for selling a six per cent listing over a 5 percent listing – Maybe a $6,000 commission rather than $5,000!  Hmm, now let me see, which listing should I show?

Here’s a better idea.  Do your seller a big favor.  List the home at 7 percent, stipulating that the CSO will be 4 percent!  Now an agent can readily see that a commission of one third more can be realized selling that home over a normal 6 percent listing, and 60% more than selling a 5 percent listing – Maybe an $8,000 commission instead of $6,000, or $5,000.  Which of these three numbers will motivate most of the agents that you know?

That 4 percent creates more demand because agents will be more motivated to show it, and it creates lower supply, because it stands virtually alone among other listings.  Economics 101 tells us how higher demand and lower supply affect prices.  It's a no brainer.