There are a lot of agents out there who advertise their services at a low discounted rate. I see signs all over town. “Sell your home for 2%.”
But, there are a few things you need to consider before going with such an agent.
1. That fee is listing side ONLY! That’s right, there is a little fine print that they don’t typically include in those advertisements. That fine print is that the 2% commission is only ONE side of the deal.
When a house sells the listing agent gets a certain % of the sale price. BUT they also have to pay the selling agent (that’s the one who brought the buyer).
They will almost NEVER give the selling agent less than 2.5%. That’s because a buyer’s agent will almost NEVER be willing to settle for less. I know I wouldn’t!
So now that 2% has turned into 4.5%. Yes, it’s less than the traditional 6%. But is it worth it considering what I’m going to tell you next?
2. Discount commissions mean discount service! You may not know this, but the costs a real estate agent has to pay to run their business are massive! So when an agent cuts their pay, they have to cut their effectiveness in business.
On average it costs an agent at least $500 a month just to BE an agent. There are desk fee’s, association fee’s, license fee’s, continued (required) education fee’s, MLS fee’s, E & O insurance fee’s, and the list goes on and on.
Let’s make the math simple. If an agent sells a $100,000 house at 2% commission then they make $2,000 (but you spend $4,500 because of the extra 2.5% to the buyer’s agent).
BUT WAIT! Their broker typically takes about half of that. So now they are making only $1000. And, Uncle Sam wants his cut too.
So, how does a discount agent stay afloat? They get as many listings as they can and they do NOTHING with them. They will place them on the MLS and then wait and hope the phone rings.
They can’t afford to do any real marketing for you. It’s simple math. So a low amount of commission gets a low amount of service.
3. If they discount their own value they will discount your value as well! An agent that is willing to take such a low commission to get your business is also willing to take a low offer on your home to get some kind of pay.
Think about it. How good are they really going to be at negotiation and getting you what you deserve if they can’t even get what they deserve? They are willing to lower their price without even being asked! How is that kind of negotiation going to help you in the sell of your home?
4. Training… do they really get enough? For every sale that they make (if they make one) they give half of that $1000 check to their broker. Typically a good agent can close 2 houses a month. So that’s $1000 a month that agent brings his broker. Is that enough for the broker to provide training?
The expenses an agent has to pay are high enough. But, imagine what the broker pays! Just like how the agent has to cut their level of service, the broker has to cut their level of training.
What you end up with is an agent with little training and no reason to do anything more than put your house on the MLS and wait. You get what you pay for!
5. Compare them to an agent making the traditional 6%. That 6% covers ALL sides of the transaction. The agent that makes what they are worth is going to be able to provide a 3% cut of the sale price to the buyers agent. So more agents will want to show your house.
They are going to have the money flow to advertise your house in many more ways than simply putting it on the MLS. They can afford to advertise YOU rather than their “2%” fee.
They don’t settle for less than they are worth, and they know how to negotiate for the best. So you can trust in their ability to get the best price for your home. If they see a low offer they are going to tell you it’s too low. They aren’t going to just “take what they can get.”
And, the simple fact that they bring more income to their broker means their broker has more ability to spend money on their training. So they can guide you through the legal issues that you wouldn’t even know could be a problem!
Bonus: How much money do you really think you could save by going with a discount real estate agent? In total, you spend 4.5% MINIMUM in their commission. That’s 1.5% less than an agent charging the full 6%.
So let’s break it down again with that $100,000 sell. You could pay $4,500 with a discount agent and deal with all of that drama. OR you could pay $6,000 with an agent that can afford to work for your best.
That’s only a $1,500 difference. But it makes a world of difference when you are dealing with the largest financial investment of your life!