How much commission should California home sellers be paying real estate agents? Is 6% commission simply insane, or not enough? How have some discount services ended up costing CA homeowners more than traditional Realtor services? What if you want to skip paying commission altogether?
Is the Traditional Real Estate Sales Commission Model Broken?
Some have been arguing that charging home sellers 6% commissions in a world where most home searches are started online is just crazy. However, given that finding a home buyers like is just the first (and easiest) step in the process, some real estate sales people might soon look back and realize they have been crazy for deviating from tradition.
The cost of service in selling a home has traditionally been 6% of the sales price. This is generally split 50/50 between the listing and buyer’s agent. In big brokerage chains, this is often broken down further; giving the individual agent just a 50% split of the company’s 50%. So they might only get $1,250 before taxes and expenses on the sale of a $100,000 home. Take out marketing, travel, and regular business expenses and some agents might actually see a net loss on many transactions. Rumors of CA Realtors being grossly overpaid might not always be justified.
Of course, homeowners normally aren’t worried if their agent has to live on a ramen diet or not. They have been stirred up by the media and discount brokerages to believe 6% is just absurd. Thankfully there are plenty of options for those that are buying into this, or have different priorities. So what are they, and why aren’t leading CA brokers buying it?
10% Real Estate Commissions Are More Than Justified
At the higher end of the luxury market, many real estate agents go beyond the common base rate to command commission rates of 10%. If you are really good, you should get paid more, right?
These top level agents are not only keenly aware of their own worth, and the superior value they can deliver to their customers, but also understand the concept of sustainability. If Realtors don’t draw the line somewhere, they simply won’t be able to afford to stay in business and keep helping consumers with the most important moves of their lives. At a minimum, they won’t be able to provide quality service, and that hurts everyone.
Pros and Cons – Discount Real Estate Services
For those that feel offended by seemingly high real estate commissions, or that simply truly can’t afford them, there are options. Some of these are great for California homeowners willing to pick up the slack. Others can be even more outrageously expensive, while offering a fraction of the help. So what’s right for you?
Flat fee MLS services were one of the first options to become popular. They provide home sellers the option of paying one small, flat fee to get listed on the MLS system. It’s common knowledge that most Realtor sales happen via the MLS. So if you can get in for $500 instead of thousands, it might seem to make sense on the surface. Of course, in order to get the home sold and motivate Realtors to show the listing to their buyer, homeowners will have to offer an attractive amount of commission to at least one side. Remember, the higher the commission, the higher the motivation to sell it. For example; you can bet the seller offering a buyer’s agent 10% commission is likely to get more showings than the one offering just 2%. Remember, the seller has to handle all of their own negotiation, paperwork and transaction management.
FSBO (For Sale By Owner) services offer a similar deal, but often without getting in the MLS. This has been highly controversial, as the owner of the largest of these companies used a Realtor to sell his own home, and the price tag can often exceed real estate agent commissions, with no guarantee of a sale. Make sure to do the math.
More creative real estate brokerages have been creating a whole menu of options. They range from flat fees to hourly rates, and multiple combinations of rebates and credits.
Finding the Service Solution which is Best for You
The best solution is really a personal choice. Sellers need to ask themselves what their top priorities really are. Is it selling the fastest, netting the most money, the least hassle, privacy, etc? Weigh the options against their own expertise and tolerance for getting involved.
For example; if you are an experienced, ex-agent with tons of time on your hand, you might be comfortable just going at it alone. Others might need the privacy of a third party, and just want their home sold for the most possible, no matter how long it takes.
Everything is usually negotiable. You might be able to hammer out a good medium based on your personal combination of needs and wants. Sometimes all you have to do to get a substantial discount is ask.