We promise this isn’t going to be a bait and switch article.
We’re not going to start out talking about lower commissions and then try to convince you how a good Realtor earns their commission. While we do actually believe that to be true, if someone has had bad experiences with Realtors who don’t do much to earn their commission, then it isn’t true for them.
In the years that we’ve been working with clients, we 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.
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 tried to come to an agreement with someone where they keep offering variations on something you don’t want, you know what a negative bargaining zone feels like.
Here’s a story from one of our agents about how he encountered this while travelling in Thailand
Towards the end of my trip, 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. Sometimes 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.
It isn’t just during negotiations between buyers and sellers that negative bargaining zones can exist. They can also appear when a would-be seller is deciding on how to sell their home and is considering hiring a real estate agent to list the property for sale.
If the price a seller will pay to a listing agent is less than the lowest price a listing agent will charge for their services, it’s definitely a case of a negative bargaining zone. In such a case, unless one side changes their mind, 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 real estate agents completely.
You don’t need to hire a Realtor to sell your house. There, we said it.
A lawyer can write up the paperwork for the sale of real estate. While there are fees to do so, it isn’t a percentage based fee it is almost certainly the lowest cost option.
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 Regional 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 the Multiple Listing Service, or MLS, 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 a minimum of $.01 to the co-operating agent, often $1, with a note to call the seller to discuss commission. While a penny or a dollar may not seem like much, sellers legally have to offer a commission to the purchasing agent if they are to appear on the MLS system. With an uncertain commission being offered to the buyer’s agent, some don’t bother to show clients such listings or call to find out what commission is being offered. It’s unethical and illegal but it still happens.
Sellers can even hire these types of 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 primarily want to have their home listed on MLS the opportunity to do so at a set fee. 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 its lowest price, it is a flat fee (such as $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) that is split between both the listing and purchasing agents (so half a percent each) 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, we 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. It is rare to find experienced, successful agents offering their services at below whatever is common in the market, as they simply don’t need to do so. A proven track record of getting sellers the price they want for their homes means that they can justify charging commissions that reflect those desired results.
Now that we’ve followed through on our word and shown how to pay less in real estate commissions, we’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 selling real estate, we’d love to show you how we earn our commissions by getting you the best results. Get in touch with us to arrange a time to talk!
