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Should sellers hire agents offering lower commissions?

September, 2009

Should sellers use real estate agents offering the lowest commission rates?

Not necessarily, since sellers could face a trade-off. It is crucial to generate numerous interested buyers to increase the odds of negotiations commencing and competitive bidding situations occurring; marketing budgets are proportional to commissions. Smaller marketing budgets could equal fewer numbers of buyers. This is not to say that agents demonstrate less effort at lower commissions, but rather that their abilities are budgeted. Furthermore, the longer a property stays on the market, the greater the difference between the initial asking and sold prices: Fewer buyers means longer sales.

The sale of a property usually occurs between agents, a testament to the number of property owners using our services. Some selling agents offer less than half the total commission to the buying agent. Since commissions attract agents, who represent buyers, it is important to consider what it could mean if your agent offers less than half the commission. While some buyers look for properties independent of what their agents provide, alleviating a potential commission issue, most buyers working with agents prefer their services, which include research.

Sometimes properties have difficulty selling because of their features, location, staging, competition, and price. When you are dealt a “low hand,” sometimes no commission will be effective in selling the property. A good agent can make your “hand” stronger. A “strong hand” is analogous to having knowledge of market conditions, staging and competition, providing amazing listing details and photos, having effective marketing plans, selling and negotiating skills, not to mention numerous contacts and buyers in the field. There is a connection between quality and quantity of service and cost, since it is very difficult to provide valuable services for cheap prices.

It is imperative to understand that the selling agent does not keep all the commission. Half usually goes to the buying agent. Then the broker needs to be paid, usually between 10 and 25 per cent of the compensation. Then there are marketing costs, insurance and real estate board membership fees, government agency fees, and taxes. It is clear why some agents refuse to negotiate commissions.

However, agents’ commissions generally range between five and seven per cent, which demonstrates flexibility. As long as property owners understand the potential trade-offs related to low commissions, they should be able to find an agent willing to sell their property. I generally work for the average, charging lower and higher commissions depending on the goals of the seller. Commissions can be useful in negotiations, but no agent will give away hard work and well-deserved success; agents also lose money when properties do not sell. In the end, the key insight to all of this is that homeowners do not necessarily benefit from agents offering the lowest commissions.

To find out more, contact Daniel Smyth at 514-941-3858.

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