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

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Real Estate Agent with Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com 0480809

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?                                                 

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Rainmaker
1,317,651
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services
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.
Aug 14, 2007 03:12 PM #34
Rainer
80,957
Patrick Harfst
Realty Executives - Phoenix AZ - Gilbert, AZ
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...
Aug 14, 2007 03:43 PM #35
Rainmaker
139,665
Vicki Lloyd
The Lloyd Realty Group - San Diego, CA
(619)452-9798, Real Estate San Diego California

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!)

Aug 14, 2007 03:55 PM #36
Rainmaker
655,882
Bob & Carolin Benjamin
Benjamin Realty LLC - Gold Canyon, AZ
East Phoenix Arizona Homes
Interesting concept. Now where do we get people to sign up for this.
Aug 14, 2007 04:23 PM #37
Rainer
35,152
Deborah Ryman
Santa Cruz, CA
M.A. Feng Shui Services, Santa Cruz County
Brilliant!
Aug 14, 2007 04:31 PM #38
Rainer
274,613
Adam Waldman
Westcott Group Real Estate Company - Hauppauge, NY
Realtor - Long Island

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?

 

Aug 14, 2007 11:32 PM #39
Rainer
43,385
JR Sangiuliano
CENTURY 21 JRS Realty - Clark, NJ
interesting concept, however you must be able to accurately put a price on the time the listing takes to sell.
Aug 15, 2007 12:08 AM #40
Rainmaker
1,473,510
Donna Harris
Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

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.

Aug 15, 2007 01:20 AM #41
Rainmaker
526,910
Tom Burris
NMLS# 335055 - Baton Rouge, LA
Texas/Louisiana Mortgage Pro - 13 YRS Experience
While that sounds good and probably works on paper.... there will still be many realtors that will discount. Effectively erasing the extra commission.
Aug 15, 2007 01:24 AM #42
Rainer
8,595
Neetu Kainthla
BHHS Caliber Realty - College Station, TX
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).
Aug 15, 2007 01:25 AM #43
Rainmaker
1,473,510
Donna Harris
Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

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.

Aug 15, 2007 01:52 AM #44
Rainer
274,613
Adam Waldman
Westcott Group Real Estate Company - Hauppauge, NY
Realtor - Long Island

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.

Aug 15, 2007 02:01 AM #45
Rainmaker
206,324
Chris Tesch
RE/MAX Bryan-College Station - College Station, TX
College Station, Texas Real Estate
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.
Aug 15, 2007 02:37 AM #46
Ambassador
1,023,799
Margaret Woda
Long & Foster Real Estate, Inc. - Crofton, MD
Maryland Real Estate & Military Relocation
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.
Aug 15, 2007 02:56 AM #47
Rainmaker
123,467
Rebecca Savitski
BSR Real Estate Group - Cary, NC
NC Real Estate Listings
Hmmm you may be onto something here!
Aug 15, 2007 03:25 AM #48
Rainer
44,523
Sondra Sheckler Realtor,ABR,SRES,Historic Home Specialst
Coldwell Banker, Award Of Excellence & Million $$ Producer - Knoxville, TN
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! 
Aug 15, 2007 01:26 PM #49
Rainmaker
918,639
Kay Van Kampen
RE/MAX Broker, RE/MAX - Springfield, MO
Realtor®, Springfield Mo Real Estate
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 15, 2007 02:01 PM #50
Rainmaker
1,473,510
Donna Harris
Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator
Kay, those numbers are WAYYYYYY TOOOOOOO Low!
Aug 16, 2007 12:43 AM #51
Rainmaker
343,558
Arina Hanciulescu
RealtyPros - Las Vegas, NV
RealtyPros

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.

Aug 16, 2007 07:17 AM #52
Rainmaker
918,639
Kay Van Kampen
RE/MAX Broker, RE/MAX - Springfield, MO
Realtor®, Springfield Mo Real Estate
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?
Aug 16, 2007 02:10 PM #53
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Rainmaker
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Donna Harris

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