Today, real estate fees have become an increasingly discussed topic. There is such variation in real estate fees that at times it can be confusing for the consumer. This article is aimed at unveiling the realities of real estate commissions.
In much of the 1980s, the standard real estate fee was 6%. This fee was traditionally split between the listing broker and the co-operating broker (buyers’ realtor). Many companies had strict policies that listings were not to be taken for less than 6% unless the sales representative obtained Broker or Manager approval.
Often times when the real estate market is flourishing there is a wave of discount brokerage firms that surface. Their aim is to generate sufficient volume so that a reasonable profit can be attained. Unfortunately, the service aspect of the business may be compromised. Additionally, the cost to run a real estate business is high and consequently these firms will often times not survive during the lean years. I can think of many discount firms that have come and gone over the years.
In today’s competitive market the non-discounted real estate fee has been reduced to 5%. Of course, each realtor and organization can set their own rates. A recent study conducted in the U.S. shows that the average real estate commission paid was 4.9%.
To complicate matters, there are often times misleading ads that discuss realtor fees. For example, one commonly used slogan states that the maximum commission rate paid is 2.5%. This statement is accompanied by an asterisk, which in small print states “to the selling broker”. Many consumers mistakenly believe this is the total commission structure. The fact is that this accounts only for the buyers’ agent fees but doesn’t incorporate the fee for the realtor representing the seller.
Another area of apprehension for a seller should be when the listing broker states that if they sell the property personally, they will reduce their total fee to 1% or 2%. One must question the motivation of the listing realtor to aggressively market the sellers home when they can sell any other property to a prospective buyer and obtain the standard 2.5% commission rate, which is paid to the selling broker.
As a consumer, I believe you want to pay a fair commission, but be mindful of the value added service you’ll be receiving. There is such a range in quality of service available in the marketplace that a seller should weigh all factors before making a final decision.
Today, when I meet with sellers, I am clear to point out the various options that exist for each seller. I will let them know that real estate fees can range as low as 3.5%. I also want to educate sellers that when they are making a decision they should look at numerous factors including: the commission structure, the advertising and marketing campaign for the seller, the experience of the realtor, references, etc. One should keep in mind that the realtor who is immediately willing to cave on commissions probably won’t be the strongest negotiator when it comes to getting top dollar for your home. I keep my services very competitive on fee structure, but will never compromise on the marketing dollars spent on the sellers home.
Another common practice is for a realtor to take a listing for a lower commission rate and pay the co-operating broker less than the standard 2.5% fee. I think this is a big mistake, as many realtors will not be motivated to show their buyer that prospective listing and ultimately will negatively impact the price the home sells for and the time it takes to sell.
It is important to have competent representation when an offer comes in on your property. Most people are dealing with their most significant asset and it would be prudent to fully protect your interests. Remember the old adage, ‘you get what you pay for.’