Is it Worth Paying a Real Estate Commission

Written by Posted On Tuesday, 21 April 2020 06:08
Is Paying a Real Estate Agent's Commission Worth The Money? Is Paying a Real Estate Agent's Commission Worth The Money?

Should I Pay A Real Estate Agent Commission?

One of the questions you may be asking yourself right now is whether you should try to sell your property as a for sale by owner. The motivation is probably to save on paying a real estate commission, right?

When you are selling your home, the real estate commission can seem like an expense you would be better off avoiding. It is one of the most significant costs of selling a home. But with less than 10 percent of sellers taking the for sale by owner route, is it really a good idea for you? Will you be one of the fortunate ones to have some success?

If you choose not to use the services of a real estate agent, the data has shown that you are more likely to sell your home for less. Though you will save some money on the real estate commission, the money you will lose from a reduced sales price could bring down what you net substantially. So when people ask is it worth paying a real estate commission, the answer is almost always a resounding YES!

When going through the interview process, the commission rate is one of the more frequently asked questions to ask a real estate agent. You will find that there is more to selling your home than you may have realized.

Let's take a look into what is needed to sell your home and what an agent actually does to earn their commission.

How Much of Your Commission Does the Agent Get?

While you can expect to pay around 5 to 6 percent in agent's commissions, they don't get to keep all of that money. When there is a buyer's agent involved, half of that commission will typically go to them.

Both the seller's agent and the buyer's agent will be working for a real estate brokerage who will get some percentage of that commission as well. If you are a newer real estate agent, it could be as much as half the commission. More seasoned producing agents will usually get a more significant percentage of the commission. So, if you think the agent is getting rich off the sale of one home, you're mistaken.

Quite often, real estate commissions are split into four parts.

Don't Forget Agents Have Expenses Just Like Every Other Business

Your Realtor also has to pay membership fees to allow them to operate and have access to the multiple listing service. They have office expenses and the costs involved with running their website to consider as well.

There are going to be costs related to the marketing of your home directly. There are photographers, direct mail, online, and offline advertising to pay for, just to name a few. Keep in mind a real estate agent doesn't receive any money until your home is sold. Real Estate is a risk-reward business. If you do an excellent job, you can earn a really good living. If you don't complete the job, you make nothing. In fact, you actually LOSE money.

Unfortunately, for some reason, many sellers don't look at the bigger picture. Instead, they only focus on their own home. It's strange because they rarely ever do this when it is to other service industries.

Despite the 5-6 percent commission you pay, the Bureau of Labor Statistics estimates that the average yearly wage is just over $58,000 for real estate agents. This is probably less than you would have expected and shows that there are more costs involved in selling your home than it seems.

What Your Agent Does

While you may only meet your real estate agent a few times and speak to them on the phone, they are doing a lot more work than you see. There are so many things that go on behind the scenes that a real estate agent does. Lots of folks wonder what a real estate agent does all day to earn their money. The article at Maximum Real Estate Exposure sums it up well. You will learn precisely what a real estate agent does for buyers and sellers to earn their money.

Here are a few other things a seller's agent does for their clients:

They have to carry out the competitive market analysis to establish the value so that a strategy for selling your home can be created. They can advise you of anything which could be done to improve the selling price and to get more interest from potential buyers.

Your agent will spend time and money marketing your home and adding it to the listing services. They deal with other agents as well as buyers to arrange showings. Then when someone is interested in your home, the agent will negotiate over their offer.

These are only a few of the things an agent will do up until closing. There are countless other tasks involved in the successful sale of your home, which the agent needs to stay on top of during the sales process, keeping them busier than they may appear.

6 Percent Commission Isn't Locked In

The 6 percent rate of real estate commission, we've been talking about, isn't necessarily what you will have to pay. You could negotiate a lower commission with your agent. This might mean you end up paying 5 percent when your home is sold.

If you are doing a buy and sell transaction with the same agent, it will be advisable to ask the agent for a commission discount. Any agent with any kind of business acumen would gladly accept this arrangement. A real estate agent would be a complete dope to say no.

By not agreeing to a commission reduction, an agent could lose out on tens of thousands of dollars. Are their some agents who are that stupid - of course, there are. In fact, agents are trained to give you lines of BS like "if an agent is so willing to cut their commission, what are they going to do when an offer comes in, and it's your money?" Don't fall for this line of hogwash. If you hear an agent say something like this, show them the door. You can find a better agent.

You might also get a break if your listing agent is also working with the buyer. Just be sure you don't accept dual agency whereby YOUR real estate agent becomes a neutral party. Your agent should always remain as a "sellers agent." They will be working with the buyer but representing YOU. This is one of the truths about real estate agents you might not realize. With dual agency and agent becomes a neutral party and does not represent you anymore. By law, they are no longer allowed to counsel you or give you advice. Again, something you should never agree to.

Do keep in mind with the vast sums of money involved in selling your home, you will want your real estate agent to be doing their best for you. The more incentive that they have to market your home, the faster it is likely to sell, and the more you will get for it. What I am trying to tell you is don't browbeat the agent into accepting a below-market commission.

Are There Other Commission Alternatives?

You might be wondering if there are any other methods of selling your home besides going with a traditional real estate agent. The answer is yes, there are, but they come with some downsides worth exploring.

One of the more common routes that some for sale by owners traverse is what's referred to as flat fee MLS. With flat fee MLS, an entry only real estate company will put your home in the multiple listing service but do nothing else for you. An entry only agent will charge around $500 to get your home into the multiple listing service.

If you are selling a home without a real estate agent, opting to pay a fee to get your home in MLS could be worth it. It's important to remember, though, that you will still be paying half a real estate commission to the buyer's agent.

Another marketing method that has been gaining traction is what's referred to as an iBuyer. What iBuyers do is present you with a cash offer on your property. The upside is you can close quickly with fewer hassles than the traditional selling method. The disadvantage, however, is that the fees are higher - typically seven to eight percent of the sale price. The fair market value paid tends to be lower, as well. It should be noted that some of the significant iBuyers have pulled back purchasing homes at the moment as well.

Without a doubt, there are pros and cons to both flat fee MLS and iBuying. Don't think for a minute these are the answers to your home-selling prayers. For some, they are a perfect alternative; for others, they will be a waste of time.

Using the Best Local Real Estate Agent

If you live in a large metropolitan area, there are going to be many different real estate agents to choose from. Will all of these agents provide the same level of service and get you the most money for your property? While you will pay similar rates of commission with any Realtor you use, some will be far better than others.

You need to find an experienced real estate agent who has the skills to do the best for you, getting more for your home. With the right agent, you could perhaps receive a few percentage points more and have your home off the market faster. Taking a little time to do some research before choosing a real estate agent could pay big dividends in the long run.

There is more to selling a home than what's evident at first glance. If you find an outstanding real estate agent, they should be able to sell your home faster and for more than would be expected through the for sale by owner process.

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About the author: The above article on paying a real estate commission was written by Bill Gassett. Bill is a nationally recognized Real Estate leader who has been helping people buy and sell property in the Metrowest Massachusetts area for the past thirty-three plus years. Bill has been one of the top RE/MAX Realtors in New England for the past decade-plus.

His real estate advice has been featured on CNBC, RIS Media, National Association of Realtors, Today.com, Inman News, Placester, Credit Sesame, and others.

Bill covers real estate sales in the following Massachusetts communities: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

Reach out for Bill's advice anytime you need it.

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Bill Gassett

One of the top RE/MAX agents in New England over the last decade plus. Providing exceptional real estate services to buyers and sellers in the Metrowest Massachusetts area including the following communities: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

See my real estate website at Maximum Real Estate Exposure - one of the most visited real estate sites in Massachusetts.

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