A real estate agent called complaining that he spoke with one of his buyers who wanted to see a property he found online. When the agent went to check the listing out, he was shocked. The commission stated was for $1.00. Being the professional that he was, he went to show the condo. He sent me a copy of the MLS sheet and lo and behold it was true. Then I contacted the listing agent thinking perhaps they were new and had made an error. Nope, she said, it was correct. The commission was one dollar.
Was this an isolated incident? No, the stories came pouring in from other agents. Another real estate agent showing buyers in a community where home prices start at $500,000 experienced something similar. The commission for the transaction broker was 3%. If you were a buyer’s agent, then the commission was only $1.
Now my curiosity was triggered to find out how many homes were for sale offering 1% or $1 commission. I searched multiple counties in one MLS in Florida, the results found 256 properties offering 1% commission with prices ranging from $25,000 to 12 million. Two were offering $1.
As more and more real estate agents build teams with agents that specialize in working with buyers, this concept can be hurtful. The 1% is often split multiple ways. The commission could be split with the head of the team along with the brokerage. That coupled with franchise fees, transaction fees, errors and omissions insurance along with business expenses could have your commission end up being less than 50% of the 1%. Then when you subtract taxes, the net income gets even lower. For many, this may not a profitable business model depending on the price of the home for sale. 1% of $50,000 is a lot different than 1% of 10M.
What Would You Do in This Situation?
Here is an example of how some real estate agents and real estate teams are handling this concern:
Negotiate – One Team Manager said that he handles this head on. He goes to show the property, and if his buyer is interested, then he asks if the commission is negotiable. Sometimes the agent says no. Even if they say no, he makes the offer.
Present A Written Offer- One agent presents the offer in writing and puts in the contract the commission he is requesting. When the offer is strong along with the other variables, many times it is accepted. This real estate agent claims his success rate is 90%. Why? A motivated Seller along with a skilled agent wants to get the deal done.
Cover Yourself Legally – In order not to have this bite you at closing, make sure the commission is changed in your MLS prior to the offer being accepted. The commission stated in the MLS is what may prevail, should this be brought to court. Remember, the written word, in this case, is stronger than verbal promises.
The Cons of Listing the Home at a Discounted Commission Rate
When the commission listed is much lower than customary, many agents will NOT show the listing, especially in a buyers’ market. When inventory is high and the choice is great, there are many options. Currently, there are multiple areas all over the country experiencing a robust seller’s market. Still, most sales are about making it a win-win for all parties when possible. As a business, both parties (Seller and Buyers’ agents) are interested in making a living.
Get More Information to Gain Knowledge Before Showings
In many MLS’s, you can see whether there is a dual commission, meaning one party is receiving a higher commission. Some listing agents take a higher commission, and, in many cases, a higher commission is offered to the buyer’s agent as an incentive to show the property.
When the commission being advertised is low, in most cases it is because that was the agreement negotiated between the seller and listing agent. The result is that when the property is sold, the commission is divided equally among all parties involved in the transaction.
Are Lower Commissions a Growing Trend?
Discount real estate brokerages have been around for decades. With the growing digital forefront, consumers (potential sellers) are being bombarded with different choices, 1%, 2%, Flat Fee, 45-day listings, etc. for their business.
Check out some of the Google results when searching for a local real estate agent:
- Save $8k in Agent Commissions | Top Realtors Compete for You
- List with a Local Agent for 1%
- No-commission real estate agents sell your home at a fraction of the cost
Sounds scary, right? The bottom line is that no one works for free. How you set up your business model is your choice, and all commissions are negotiable. There will always be someone willing to get paid less. How can you make that work in your favor? It all begins with a mindset. Show your value. People will invest with you when they see your value.
Here Are the Top 5 Ways to Demonstrate Your Value. Why Clients Should Hire YOU!
- Be the real estate agent who is an expert in your area. Know your market statistics. The goal is to be the one that people call to get more information.
- Continually be on top of your game and invest in your education. The world and our communities are changing rapidly. Get involved with your community and check out the classes at your local board and, when applicable, at your brokerage.
- Wow your buyers and sellers by keeping your commitments to them. Many real estate agents fail to keep up with their buyers after they purchase a home. You can build a long-term profitable business by keeping in touch with your database contacts on a regular basis.
- Send out useful and relevant information to everyone you know. Talk to them and find out what is important to them. Get their permission to send relevant information and ask for their communication preference. Some clients prefer e-mails or texts, while others prefer the personal touch via a phone call. Then tailor your newsletters, e-mails or other marketing to what matches their needs and concerns.
- You are what you believe you are worth. Stay strong! There will always be brokerages offering varying commissions to sellers. And there will always be agents willing to say yes or no. Show your value. I promise you it will work. It may not work with everyone. Yet over time, when you look over your business plan and numbers, you will see your success.