This is not going to be a bait and switch article.
I’m not going to start out talking about lower commissions and then try to convince you how a good Realtor earns their commission.
I believe that to be true, but if someone has had bad experiences with Realtors who don’t do much to earn their commission, then it isn’t true for them.
I find that any conversation about commission with people who don’t see much value being added by Realtors is taking place in what is called a negative bargaining zone. If I think our services are worth 5% of the sale price and a seller thinks we’re worth a flat rate or a much lower percentage, there often isn’t any room to come to an agreement.
- If I say I’ll discount the commission and it is still 3% higher than what they will pay – no deal.
- If they say they’ll pay more in commission than initially proposed and it’s still $8,000 less than what I earned working hard for my last client – no deal.
When there is no room to come to an agreement (also called a zone of possible agreement), then we have a negative bargaining zone, where one side’s worst case is still higher than the other side’s worst case.
If you’ve ever had a discussion with someone where they keep offering variations on something you don’t want, you know what a negative bargaining zone feels like.
I vividly recall experiencing that when I was travelling in Thailand years ago. I looked at a pair of engraved silver salt and pepper shakers in a shop, thinking they would make a good present for my mother. The cost was about $50 Canadian. It was a little high in my opinion and I left the store. Right outside the store was a street stall where they were selling a pair of shakers that were identical.
I asked the vendor how much he wanted for the shakers and he said $90. I was pretty surprised given I thought a stall should have cheaper costs and therefore prices. I told him that the exact same shakers were in that store right beside him, for $50. He sighed dramatically and told me he would lower the price to $70 but that was it. His lowest price was already higher than the highest price at the store and I wasn’t planning on paying even that $50. (Sorry, mom.) We were in a negative bargaining zone, where his lowest price (worst case for him) was higher than my highest price (worst case for me).
Situations like this definitely occur in real estate. Some times buyers have an absolute maximum price they’ll pay that is still lower than the absolute lowest price a seller will accept. When that happens – no deal.
I would say that negative bargaining zones exist between some sellers and some agents when discussing listing a home. The price a seller will pay to a listing agent is sometimes less than the lowest price a listing agent will charge for their services. In such a case, either one side changes their mind or the two don’t work together on the sale of the property.
For sellers like that who don’t see much value in using realtors, here’s how you pay less in real estate commissions in three handy steps. They actually start from nothing spent on realtors and increase with each step. In all cases, the end result is less money paid out on commissions.
- Skip Realtors all together.
You don’t need to hire a Realtor to sell your house. There, I said it.
A lawyer can write up the paperwork for the sale of real estate. I don’t know what they charge to do that but I’m sure it isn’t a percentage based fee and it’s gotta be the cheapest way to sell your house.
Find a buyer, agree on a price, hire a lawyer, receive the money, give them the keys.
Such sales are called For Sale By Owner and the lawyer does the paperwork and the seller does the rest. Here’s the list of what the seller does.
- Take your knowledge of local market conditions to set an asking price that will attract interest.
- Promote the property to attract buyers.
- Inform Realtors who call that you are not paying any commission and will only deal with buyers without Realtors.
- Answer factual or legal questions about your property from prospective buyers or pay your lawyer to do so.
- Manage open houses and showing the property to prospective buyers.
- Review offers and negotiate terms and conditions and if you’re in an area with high demand, do that with multiple offers.
- Provide the lawyer with all of the paperwork filled out with the sale details.
Not a penny in Realtor commissions, just some legal fees.
- Pay to just get it on MLS.
Within the Toronto Real Estate Board, there are agents and brokerages that focus on what is called a “mere posting”. Comfree and Property Guys are probably the best know but there are literally hundreds of brokerages that offer this service.
The term “mere posting” refers to when a seller pays a flat fee to get their property up on MLS (the public face is at www.realtor.ca) and may not have any other services provided by the listing brokerage.
In terms of commission, some offer a flat rate to purchasing agents who bring a buyer and some offer a typical percentage based commission. Regardless of what they decide to offer, such listings on MLS show a commission of $.01 to the co-operating agent, with a note to call the seller to discuss commission. While a penny may not seem like much, legally sellers have to offer a commission to the purchasing agent if they are to appear on the MLS system. This means some buyer agents don’t bother to show clients such listings or call to find out what commission is being offered. Unethical, illegal and it for damn sure happens.
Such sellers can even hire the brokerage to represent them in negotiations, set the list price and in essence, do all the things you typically pay a listing brokerage and their agent to do. Think of it as a la carte rather than a set menu.
While you can pay for all of the same services as a typical brokerage, these “mere posting” brokerages exist to give sellers who see the value in listing on MLS the opportunity to do so at a set fee.
This means that typically these brokerages let sellers handle everything except getting that listing on MLS. If a purchasing agent has a question, wants to see the place, wants to submit an offer and so forth, they do so directly with the seller.
The cost for using one of these brokerages depends on the level of service you purchase. At it’s lowest price, it is a flat fee (often $999) to post it on MLS. Think of it like buying an ad in a newspaper. The rest is up to the seller.
- Hire a discount agent from a discount brokerage.
The third option for how to pay less in real estate commissions is to hire a discount agent from a discount brokerage.
These brokerages (and there are a lot of them) fight at the low commission end of the listing pool. Whether it is 1% (with a minimum commission of $6,900) split between both the listing and purchasing agents or a higher commission (such as 3.5%, with 2.5%. to the purchasing agent and 1% to the listing agent), these agents purport to do the same job for less money.
Without question, you hire one of these discount agents and you pay less commission. If you believe that they do the same job as a full-service agent, it makes sense. You’ll never know if that is true, because you’ve only got the one house, selling in one market, at one particular time. Could a full-service agent have got you more money on the sale price than you saved in commission fees?
If such a full-service agent can’t show sellers they would do just that, I honestly don’t blame sellers who choose to believe selling a home is a commodity rather than a service that varies widely between providers.
The cost for these agents varies from brokerage to brokerage and even agent to agent. Just like full-service agents, some know what they are doing and some don’t.
If a seller uses any of the above approaches to selling their home, there is an added factor that allows them to pay even less in commission in many cases. After all, with most commission structures being a percentage of the sale price, when you sell your home for less, you pay less commission. Presto!
Now that I’ve followed through on my word and shown how to pay less in real estate commissions, I’ll leave with these parting thoughts.
Banks, governments and insurance companies use appraisals, assessments and valuations to determine how much something is worth.
Manufacturers, retailers and celebrities use packaging, marketing and branding to convince the buying public how much they should pay for something.
Corporations, unions and international organizations use contracts, negotiating and diplomacy to come to an agreement between parties that want different outcomes.
A Realtor should price your property right, market it effectively and negotiate it aggressively.
If you or someone you like needs help in buying, selling or investing in real estate, I’d love to prove how I do all three for my clients. Don’t hesitate to get in touch and I’ll make sure I’m responsible for what comes next.
Never furnish any place with chairs that are identically the same. Choose a variety of different chairs, some big, some small, some softer than others, some rockers, some very old, some new, with arms, without arms, some wicker, some wood, some cloth.
It’s amazing how when you go into any living room or family room, or any space where people spend considerable time together, and each individual has their chair, their spot in the room. There is a tendency these days to make match sets of furniture, which misses the point that people are different sizes, they sit in different ways.
Wherever possible, mix and match the type of furniture you have in a space where different types of people spend time. You’ll find the room becomes the favourite place for gatherings and that each individual happily takes “their” place when they enter.