How Real Estate Commission Works - Selling Your Home
Listing Your Home to SELL
You have decided to list your Boston home with an agent of your choosing, and they are recommending a “commission” fee of 6-7%. The “commission” is what REALTOR’s® consider the “Marketing Fee” to list the property. As the seller, you want to net as much as possible at closing, so the Marketing Fee is important for you to factor in. Keep in mind, you get what you pay for.
The Legality of Negotiating
There are several reasons why the Marketing Fee is negotiable. The most important reason, is this it is illegal for real estate brokerages to collude together and charge a "standard" commission rate. This is to protect the consumer.
Each Market is Different
Your REALTOR® will know the market standard. An important factor in listing a property is not to go below the Marketing Fee average for the area. Each area surrounding Boston will have some sort of an average. Those averages may differ if you are selling your home in Hingham, Cohasset or Weymouth.
You do not want to be the house listed at the lowest Marketing Fee. Although, Marketing Fee’s are negotiable, there is a standard in each market. Your REALTOR’® will have the comparable properties in your area to share with you.
An aggressive market, meaning homes are selling in less than 30-60 days, may average at a 6% Marketing Fee. A 7% Marketing Fee may be needed if it is a slower market, near an aggressive market for instance.
You must be very realistic when you compare your home to others on the market. Be able to step back from the love of your home and view it as a property for sale. Is your property updated? Are the properties you are competing against for buyers updated? Most buyers look at the kitchen for updates on counter tops, flooring & appliances. Buyers will also look at flooring, and yard maintenance.
The Marketing Math
The Marketing Fee to sell your home does not go 100% to your listing REALTOR®. REMEMBER, the Marketing Fee is paid ONLY when the property sells. If it never sells, the Listing REALTOR® is never paid. A REALTOR®s only paid by commission.
Assuming the 7% Marketing Fee as an example:
- The Listing REALTOR® will receive 3.5% at closing. Paid from the escrow. This is written as a check from the Title Company to the listing Broker.30%-50% of the Listing agents commission split is paid to the Broker. This covers the REALTOR®s office “split”.
- Then the factor in the expenses that your REALTOR® must spend on professional photography, staging and advertising. Open Houses cost money, and every flier, ad & sign are an expense to the REALTOR®. Cut that again with insurance, fees & dues the REALTOR® must pay.
- The remaining 3.5% will be written as a check to the Broker of the Selling Agent, who represents the Buyer. The same splits will take place as the above.
A REALTOR’® Who Invests Sells Best
Many Real Estate Agents may come in and offer to cut their Marketing Fee by 1-2%. You want a REALTOR® that can afford to Market your listing, afford to spend money on you. A discounted commission that an agent may offer will likely come with discounted services.
Discounted Services, or limited listings, will be a headache for you in the long run, and cost you money. Once you understand how commission works, this becomes more apparent. You will be handling the offers, negotiations and often the advertising. If a Real Estate Agent cuts their Marketing Fee, they do not have the funds necessary to do what is needed to get your home sold. Ask them what resources do they have to ensure your home is sold.
For example, take a 1% difference in Marketing Fee, going down from 7% to 6%. On a home for $150,000 this cut equals $1500.00. The mortgage could be $1500.00 per month, so the longer the property sits, the more the cost to the Seller adds up. The decision between adding the 1% to the Marketing Fee versus the months of mortgage payments must be considered.
Buyer agents are paid from that Marketing Fee, and will be more motivated to work harder on the properties with a higher real estate commission. The property appears to be worth more when listed at a higher Marketing Fee. The buyer may even consider that home is better maintained, and the seller is ready to sell. Professional Real Estate Agents will show buyers all homes they would like to see, as that is their fiduciary duty to their client.
You Get What You Pay For
When negotiation the percentage of Marketing Fee with your REALTOR®, consider the time, money and energy your agent will be investing in selling your property. They will be using their own money, as they are not paid by you until your property sells.
Asking them to reduce their commission by 1-2% is essentially asking them to work for free. Would you want to take less than market value for your home? I would think you would not, so remember that when asking your REALTOR® to take less for his or her work.