Let’s be blunt: real estate agents have the residential re-sale market completely monopolized. And because it’s monopolized very few agents must justify their commission fees, and very few consumers know how to validate those fees or confront agents when they have questions regarding them. This is a great situation for me. It’s a pretty sucky situation for you.
But…lucky for you, I’m going to share with you my insights on this topic and you’re going to be a smarter consumer after reading them.
To start with, there are two topics that almost always come up when I discuss commissions with people:
- There is no standard commission. This fact is enshrined in law. So, if an agent says: “I’m charging you 5% because it’s the standard,” then you should say: “Goodbye.” Commissions are negotiable, but the overwhelming average in Southern California does happen to be 5%.
- Yes, I’m aware tech companies are trying to destroy me and offering consumers like you platforms whereby you can completely cut out real estate agents and save a whole bunch of money. Just google Ten-X or Open Listings to get an idea. I think these tech platforms are good. They place more control in consumers’ hands, save consumers money and will force crappy agents out of the marketplace because they won’t be able to compete. But here’s the thing: these platforms work in limited situations. You must be a really savvy consumer and the transaction needs to be perfectly cookie-cutter. And just like everything else in life, you get what you pay for.
Ok – back to commissions!!! So – what the hell are you paying for when it comes to a 5% or 6% (or maybe a 3%) commission?
Sadly, more often than not, you’re paying for relatively little. For instance, most agents do four things:
- They take pictures (and hopefully hire a professional photographer).
- They put your house on the Multiple Listing Service (MLS) which then automatically syndicates it to sites like Realtor.com, Zillow and Trulia.
- They make some flyers with their face plastered all over them (because they’re marketing themselves – not your house – right?).
- They hold an open house or two (hint: open houses generate business for agents and rarely are the contributing factor to a consumer buying your house).
For most agents, the above ‘package’ costs them about $350. And they’re selling your $700,000 home for a 5% commission meaning you’re paying $35,000 to this agent to sell your house and their take is $17,500 if that commission is split with a buyer’s agent (as it usually always is – and if it’s not – your agent is making the whole $35,000). $35,000 is a huge chunk of cash! So, you say: “Wow, $35,000 to sell my house sure sounds like a lot of money,” and your typical agent is going whip out the sob stories: “Well, my broker takes a percentage, and then I have to pay taxes (no kidding…so do the rest of us), and then I have professional fees, and then…,” and the list just keeps on going until you feel so bad for this agent that you’re ready to write them a check just like you do when you see those damn Sarah Mclachlan SPCA commercials with the saddest puppy dogs in the world!
The above example I just gave you – I’ve seen it play out time and time again because I see the stunts agents pull. I would never pay $35,000 for service like that, and neither should you. You shouldn’t pay anything for service like that because that’s really not service at all.
Different agents will give you different answers, but in my opinion, you’re paying for your agent to do four things:
- Position your property
- Market your property
- Clear a path for a successful closing
- DO THE DAMN WORK that numbers 1 – 3 require
Let’s take these one at a time:
- Position Your Property
There are two types of homes: homes that are ready to command their top price point and homes that aren’t. Most sellers have the latter. Think about it this way: If you have two identical cars sitting on a dealership lot, but one has slightly worn tires and is covered with dirt and dust while the other has brand new tires and was just waxed, and they’re priced the same – which car is more likely to justify its asking price? And which car are you – as the buyer – going to try to get for less because of the way it looks?
Sellers can benefit more when their homes are ready for the market and ready to make a good impression on buyers. The carpet that smells like a cat made love to it – clean it. The bathroom cabinet door that’s missing hardware – replace it. The details add up quickly with buyers.
Agents need to bring value to you, and part of that value is figuring out how your home is best positioned in its market place to get you the most money, because at the end of the day it’s always about the money. Sellers want as much as they can get for their home and I certainly can’t blame them. I look at my contracts this way: You’re hiring me to sell your house. That means I do the work. I prepare it, I market it, I negotiate the terms and price you want to the best of my abilities and I get the transaction closed. For a lot of agents, it actually works like this: “Oh, you’re hiring me to sell your house? Great! Here’s a list of 20 things that you need to do to get your house ready for the market.” If you’re doing the work why are you paying somebody else?
2. Market Your Property
If your agent’s marketing plan is to ‘blast your property to hundreds of internet search sites’ then they really don’t have a marketing plan, because as long as they put your property on the MLS then this automatically happens. And news flash – you don’t need an agent to get your property on the MLS. There are plenty of flat-fee MLS services out there.
I can’t tell you the number of times I’ve looked at dark, upside-down pictures on the MLS and real estate search engines that were clearly taken with a smartphone. Just really crappy pictures. And I wonder to myself – does the seller know that that’s how consumers are seeing their house? And if an agent tells you the quality of pictures doesn’t matter than they’re high (on drugs – not life). I’ve had plenty of buyers tell me they’re not interested in a home because they didn’t like the way it looked in the pictures, and I had to explain that the pictures were really crappy and they should still see the home. And then they see the home and they’re like, ‘Oh, this is a nice home – yea, we may be interested.’
A huge part of hiring an agent is the marketing they’re going to do to attract buyers to your house and to entice those buyers to pay asking price. But what kind of marketing? Again, most agents simply upload your property to the MLS and then it automatically syndicates across the internet. That’s cool – nearly every single buyer is searching online, but is the marketing intelligent? In other words, does the marketing have an objective or is it simply to get your house in front of as many people as possible? Because I hear agents tell people all the time that they can market your property to 30 different countries and 30 million people are going to see it online. Great – but if you’re selling a home in Orange County I’ll bet you my first born that someone from Orange County is going to buy it – not someone from Estonia.
Whoever you hire better be presenting you a detailed marketing plan with clear objectives. I always figure out who I think the buyer demographic is. For instance, if I’m selling a home in Laguna Woods I know the buyer is going to be over the age of 55, and I probably need to focus on print advertising because we all know Granny ain’t that quick on a laptop. Likewise, if I’m selling a starter home I know the buyer demographic is going to be younger, and there will be certain features and questions they have. It’s my job to gear the marketing material towards them to make your home stand out from all the others.
3. Clear the Path for a Successful Transaction
Pricing your property right and getting a buyer is typically fairly easy. Negotiating a fair purchase agreement is also fairly easy. Closing a transaction is not always easy. Sometimes it can be downright ridiculous and if your agent isn’t creative or aggressive or tactful or persistent then the transaction could easily fall apart. Personality plays a big role here. When I work on transactions and there’s a competent, smart agent on the other end things go smoothly, even when we run into bumps. When I work with ‘know it alls’ and primadonnas, even slam-dunk transactions can get tense and little issues soon balloon unnecessarily into big issues.
Your agent’s job is to always keep their cool and work with the various parties involved in a transaction to ensure it closes. They’re also supposed to clear a path. If they haven’t done their homework you could run into title or other legal issues that jeopardize the transaction. Most of these are usually easily avoidable – so long as your agent is clearing a path.
What happens if your property doesn’t appraise for value? What happens if the lender has some really restrictive conditions that are holding up underwriting? What happens if half-way through the transaction one trustee out of three trustees is hospitalized and can’t sign documents (yea – this happened to me)? Your agent better have the answers or they better be resourceful enough to find the answers. Often, a lot of this boils down to communication. How good of a communicator is the agent you’re interviewing? Usually, people who are really good at communicating with others are pretty good at solving problems precisely because they’re good at communicating with others.
4. DO THE DAMN WORK Numbers 1-3 Require
Pretty basic idea, right? If you hire somebody to do a job you expect them to do the job. Sometimes helping buyers and sellers doesn’t require a lot of work. Sometimes it requires a whole bunch of work. Regardless, if the person involved in helping you buy or sell isn’t doing everything they can to facilitate and streamline your transaction then they’re shortchanging you on the service that you could be receiving by another agent who actually earns their commission.
Look, there are a lot of great agents out there, and these agents don’t have any problem explaining exactly what they offer and why they earn their commission. There are more not-so-great agents out there, however. Which is why it’s important for consumers like you to make sure your agent is transparent with respect to what they can offer you, what they’ll do and who they are. Then you decide for yourself whether their commission is worth it or not.
Just like Sarah McLachlan’s SPCA commercials – don’t let an agent’s sad puppy dog face guilt you into a commission that they’re not worth.