Why Are Buyer Agent Commissions Important?
When selling your home, your first consideration is to keep as much of the selling price as possible. That’s why agencies like ComFree, Help You Sell and other so called commission free agencies prosper. Before you opt for this option one of the most important questions you can might ask yourself is, “Would I work for free and if I did, how much dedication and energy would I put into my job?”
You work hard for a living. Your income is used to support yourself and your family, pay your mortgage and car payments, cell phone charges, food and auto expenses, activities and entertainment for yourself and your family and hopefully invest in a retirement, and savings plan.
If your employer were to suddenly ask you to come to work, work just as hard, be just as loyal, prompt and dedicated, but now you will be working for free, would you show up for work the next day? Would you accept a job offer in the first place that specified this?
Most likely the answer is NO! Yet the agencies that tell you they will save you all your commission and put that sign on your lawn, maybe add your listing to their website, and, for an added fee, put your property in the MLS are suggesting to you that Realtors that are acting as buyers agents are willing to sell your home for without being compensated.
There is a misconception that a Realtor keeps all the commissions that are paid for himself, which simply is false, and very misleading to home sellers and buyers alike. There is a substantial cost born by the Realtor that is representing either the Seller or the Buyer in any transaction.
How are real estate commissions disbursed?
Let’s start with the Sellers Agent; the person who lists your home and puts it on the market.
Many seem to have the idea that all the listing agent does is put the sign on the front of your house. The important thing is to get a contractual agreement with your listing agent up front of exactly what he intends to do for you. If you see an agent that has advertising on bus benches, mailing pieces, newspapers, magazines, radio and/or TV, website development and online marketing. Anyone who has done any of this will know that it has a hefty price tag. That agent most will have developed a large bank of buyers which he will tap into when he lists your property. All that advertising costs money and it is one of the main reasons he will likely be able to sell your home faster and for a higher net to you.
These operating costs are the same for buyers agents. The difference is, the buyer’s agent is not guaranteed a return on his investment because traditionally, there hasn’t been a Buyer’s Agent Contract like there has been for the Sellers Agent. A Sellers agent of course has a contractual agreement which ensures that when your house sells, he will get paid.
The “No Commission” scenario.
Even though the impression is that you are listing your home for “free”, you really aren’t when you go to a “commission free” brokerage. In fact, you are paying an upfront fee, for nothing more than a sign on your lawn. If you want to have your home on the MLS, there’s an additional fee for that. There is no guarantee your home will sell, but whether it does or not doesn’t matter. You’ve paid the fees and they are non-refundable.
Now, let’s take a look at what you’ll be required to do, that normally a realtor would do.
You’ll be taking all the incoming calls.
Realtors are trained sales people. They have usually spent many years and taken numerous training courses to hone their craft. When the phone rings on a sign or an advertisement, they are skilled at exactly how to handle that incoming call. Most home sellers are not sales people. They generally get quite frustrated with all the calls and have no way of knowing if the caller is even qualified or able to purchase their home. Differnetiating between the tire kickers, and the serious buyers is not an easy task. Spending hours talking to someone about your home to who can’t buy it in the first place gets very frustrating in a short time.
What’s even worse is how many of these people will make an appointment, tie up your time, force you to keep your home in tip top shape for showing, and then never show up! This happens more than anyone cares to even mention.
The person who will eventually buy your home may come from an open house in a completely different part of the city, or be someone a real estate agent has been working with for some time. Any realtor will tell you that the chances of selling the house you are sitting in at an open house, are extremely low, but you will sell a house because you will be talking to buyers.
As a home seller, you do not have an inventory of homes to sell, you only have one. So if the buyer who comes to see your house discovers it isn’t the right house for him, that’s the end of that opportunity, and you can’t bring a buyer who looked at another one of your properties to this one, because, well, you don’t have any other properties for sale.
You’ll be doing all the showings
When someone does show up for their appointment, you’ll be the one required to show the house. Showing a house properly is a very valuable skill. The objective is not just to show the house but to SELL it. It’s more than saying “this is the kitchen.” That’s pointing out the obvious. This article isn’t intended for teaching you selling skills. It is said that if you want to get good at anything, you will likely have to invest up to 10 years of your time. The same holds true for high producing sales people. Some of their abilities are natural gifts, but most of it is hard work and a dedication to learning.
In addition, the buyer is going to ask a lot of questions and be speaking to you directly. You probably haven’t considered that he’s looking for your motivation to sell and when he finds that, guess what? He’s going to make an offer reflected on that, if he offers at all. Getting an offer from a buyer isn’t as simple as showing the house. There is a lot of work that goes on behind the scenes that sellers aren’t aware of.
Buyers are saving the commission too.
You listed your home so that you could save the commission right? Now you put hour home for sale on Kijiji or some other online “free” site. Think about that for a moment. What are people shopping on Kijiji.com looking for?
You got it! A DEAL! The same deal you’re looking for. Let’s assume your home is valued at $500,000, and the typical commissions (in Alberta are 7/3% - 7% on the first 100,000 and 3% on the balance) That’s a total of $19,000. So the first thing he will deduct from his offer is the same $19,000 that you are trying to save. That brings the offer down to $481,000. Next will come all the deductions from the offer that he feels he can get (remember he’s looking for a deal too) So he’ll deduct from his offer anything that he feels needs to be replace. If the replacement of a carpet would be $5,000 , he’s more likely to deduct $10,000.
Your buyer may take into consideration that you’re listing with a Commission free company, but most likely he doesn’t care. Your home is priced the same as all the other homes on the MLS that are comparable, except they are paying a commission, so his assumption to reduce the standard commission is justifiable.
Now let’s look at the Buyers Agents Perspective:
You’ve already agreed that you would not go to work or work as hard at a job you weren’t being paid to do, right? Realtors are people too and have the same feeling.
They may show their buyers your home, but what is the incentive for them to work hard to sell it? Is there one? Are you willing to give them one? Would you work harder at a job that you were guaranteed to be paid for doing or one you were being paid nothing? When you go to work each day, would you still go if you had no idea what, or if you were going to be paid?
All Real Estate agents have a responsibility to represent their clients. Seller’ agents are bound by the terms of the listing contract, where their responsibilities are clearly spelled out. Buyers agents do not have a specific contract. The best they have is a Buyers Agreement which states they will represent the best interests of their buyer. Neither Sellers Agents nor Buyers agents are under any obligation to accept every buyer or seller, nor are they required by any law to show every house on the MLS. I’m sure your “commission free” agent told you that just putting your house on the MLS would give it maximum exposure to all the realtors, which is only partially true. The MLS is a listing service, and yes, every licensed realtor pays fees every year to use it. That doesn’t mean he is by law required to sell every house on the MLS or even show every house. If a person said to you, I want you to come to work for me, but you won’t get paid, what would your response be?
What do the statistics show?
Statistics show very clearly, and have for a many years, that more homes are sold by conventional real estate than any other way, and that even with the paying of commissions, the seller nets more and sells his house faster.
You are paying to list your home, even though you’re doing all the work. But listing a home is the easy part, finding the buyer is the hardest part. Think about it, what was harder, putting your house and it’s pictures on kijiji.ca or finding the right buyer to buy your home, negotiate the terms and conditions of the contract, the price, draw up the documents, follow up the entire process to a successful closing?