Tuesday, April 8, 2008

Real Estate Commissions In Excess of 6 Percent: Should Investors Consider When Selling House?

In an effort to sell their vacant homes faster, some investors are now offering higher real estate commissions—in excess of 6 percent—to their real estate agents. It is no surprise that sellers are using such desperate measures, but is offering higher commissions really the best use of funds? Let’s look at the pros and cons.

Why to offer higher real estate commissions

By offering a higher commission to your listing agent, you can expect them to offer more services, including more advertising to draw more potential buyers to your property. Selling agents—the agents representing buyers—often have limited time, and if they are trying to choose five homes to show from 20 candidates, a higher commission may be a determining factor in their decision. In essence, a higher commission may mean more traffic from potential buyers.

Why not to offer higher real estate commissions

Good agents find the best house for their clients rather than the house that will net them the highest commission. Agents who are only interested in their own commission are less likely to complete the deal because they likely used a hard sell, which could later lead the buyers to change their minds and exit via one of their contingencies. If this happens, not only have you wasted your time handling the offer, you have lost valuable market time and exposure.

Extra marketing by the listing agent will have minimal effect. Most houses are sold simply because they are on the MLS. Newspaper ads and open houses are better methods of gaining exposure for the real estate agent, than your house.


Instead of offering a higher real estate commission, you would be better off lowering the price of the house. Having worked in the industry, I have seen people give priority to homes that offer higher commissions, but the buyers make the decisions, and they generally aren’t swayed by how much their agent is going to make. A house that is not selling is likely overpriced, and no matter how much a real estate agent attempts to influence buyers, an overpriced house will always be a tough sale. It would also be unethical for the agent to try to influence buyers just to get a higher commission.

There is one thing, in my mind, which may justify a higher commission: If your agent offers staging for your home, but only at a higher commission level, it could be worth considering. Home staging has been proven to help homes sell more quickly and for more money. Depending on the condition and location of your home, paying a little extra for home staging may be a good choice.


Anonymous said...

This is a very good tip. Thank you,

Anonymous said...

in this type of market, why would be buyer pay any commissions at all?

why not ask the seller to pay all them (both seller's and buyer's). wouldn't this help to avoid over paying for the house? if the seller refuses, there's plenty of inventory to go around.

Eric Ames said...

For those who are not familiar with how real estate transactions work, the sellers are typically responsible for all the commissions. This post was speaking to the sellers trying to sell their homes by paying higher than normal commission, just in case there was any confusion.