When Less is Less
Updated: Jan 17, 2020
Paying 1% Commission? You paid too much.
A few years ago, I flew from Las Vegas to Fresno for my Uncle’s 75th birthday. I took my then 5-year old daughter with me to enjoy and spend time with family. My usual airline does not fly into Fresno so we flew a discount airline. We got an unbeatable fair of $59 per seat each way. Awesome! Until the fees got added in.
I had to pay to check-in. I had to pay a separate fee to select my seat which was necessary because my daughter was so young. Would the carrier seriously allow my 5 year-old to sit next to strangers, separately from me? For $10, almost certainly. So I paid that fee too. For both of us. There was another fee for our bags, one for convenience (#irony), and purchasing our tickets online. After the add-ons, it would have been less expensive for Elon Musk to personally fly us on a SpaceX rocket. Let's agree arriving at your Uncle's 75th birthday celebration in a SpaceX rocket is a far better upgrade than what the car rental place offered. It would have been epic.
Fast forward to the here and now and there are brokerages and services that will LIST your home for as little as 1% of the purchase price. That doesn’t mean that’s what they charge to SELL your home. What’s the difference?
Listing vs Selling
Typically, commissions are split between the Listing Agent and the Selling (Buyer’s) Agent. The Listing Agent is actually paid the commission. It is customary for the Listing Agent to offer the Selling Agent a portion of the commission called a co-op in exchange for bringing a bonafide Buyer to purchase the property. In many western states, it is customary for the Seller to pay the entire commission for both the Listing Agent and the Selling (Buyer’s) Agent. With me so far?
Now the Listing Agent will list the property for 1% (their commission) but they never said they’d sell your home for 1%. You’ll still need to pay the Buyer’s Agent. And suddenly your 1% is closer to 4% or more. But wait, there’s more! Fees. There’s more fees.
Some brokerages charge enough in extra fees to make an airline executive blush. Buckle up for: transaction fee, document fee, document storage fee, service fee, technology fee (seriously?!) and there’s a really good chance your bags aren’t flying free either.
That’s sneaky! Why would a real estate agent even try that?! Because:
Statistically, people will work with the first agent they speak with;
They are banking on you using them to purchase your next home;
They are counting on you not reading this blog.
What to Expect for 1%
The advertising from my 1% colleagues implies you’ll get the same great service for less. You’ll have professional photos and your home will be showcased on thousands of websites all over the world. This is a great deal! Five years ago.
Today, many Realtor associations syndicate the MLS data to third party websites. Zillow, Trulia, RedFin and Realtor.com are the most popular with a gazillion other sites trying to be relevant. A few years ago, we had to enter our data manually on these sites for inclusion and accuracy. Today, I couldn’t stop my listing from appearing on a 1,000 different sites if I tried because of syndication. So when a discount brokerage says your home will be listed on 1,000’s of sites, they’re not offering anything different than everyone else. [Side note: being advertised on 1,000’s of sites sounds cool but in reality it’s superfluous when 99% of buyers are looking at one of the four aforementioned real estate sites.]
Big brokerages have big overhead. With big overhead, 1% is only profitable with volume. Volume translates to less service. Less service leads to frustration. Frustration leads to anger. Anger leads to the dark side! That’s right, Yoda, you’ve been reduced to a number. The reality of listing for 1% is inclusion on the MLS and not much more. In the industry, we call that strategy, “Post and Pray.”
But wait! What about the professional photos? I’m in the MLS everyday. I’ve seen the photos posted by these discount brokerages. It seems to me that the photos were taken by someone who may be a professional in a profession that is not photography. I don’t know. Look at their listings and see if you think those look like professional photographs. I don't think they do.
And suddenly “List for home for 1%” doesn’t seem like such a great deal because it isn’t. But more importantly, who wants to entrust their investment to someone who needs to reel in new business with gimmicks that, at best, are disingenuous?
The role of the real estate agent is to represent their clients and their client’s best interest. Would you really trust someone who solicits your business under the guise of low fees knowing they are going to slip in additional fees later?
A Better Way
Commissions are negotiable and an important part of the discussion on listing your property. However, commission should not be the ONLY thing you should discuss.
How will your home be marketed? Do they have a plan that meets your goals? Will the agent represent you or will your transaction be handed off to someone less experienced on their team? In other words, find out what you're getting for your money. A smart marketing plan can net you enough to cover the difference in commission while achieving your goals.
I want you to get the most value for your money! So why not just pay a 1% commission? It’s so tempting! Let me ask you this. Why pay anything at all? Unfortunately, we’ve been conditioned to simply paying agent commissions without understanding what you, as the consumer, are getting for your money. You can spend $800 on a cell phone or $99. But if that $99 phone only has a 4 hour battery life with limited coverage, what’s the point of spending $99 in the first place?
Interview a few agents and ask about what it will cost to sell your home in commissions and fees. A professional will not be offended if you’re interviewing more than one agent. We expect it! Focus on what service(s) you will get and which you actually want. You may feel that a post and pray strategy suits you just fine. Awesome! Run with that discount brokerage! You may find that the time, energy and sweat equity you put into improving your property and investment merits more than a one-size-fits-all marketing plan. Cool! Boutique brokerage could be for you! Maybe you feel more comfortable with a large brokerage with a lot of agents.
Whichever direction you choose, make sure you are getting the best service and representation for your money!