There are many routes you can take to get your house sold. You can can always attempt to sell it yourself, what many call a FSBO or for sale by owner in which you maybe list the home in the local paper or craigslist and possibly throw a cheap for sale sign in the yard with your phone number so interested parties can contact you. You can probably attempt this for free to under $50 dollars with a cheap local listing and sign materials. This may not result in any market exposure aside from the handful of people that might see your sign driving by or even have any idea you are selling because they happen to check the one publication you are in. On the high end, you can enter into a listing agreement for as much commission as you desire to negotiate with a Broker. These are called Exclusive Agency Listing Agreement (EA) or Exclusive Authorization and Right to Sell. When it comes to how much does it cost to sell a house, in our experience, to low of a commission structure might hurt your chances, but equally, offering to much and you are losing money also.
What does the listing agreement say about commission?
The EA agreement has the following language:
“Compensation to Broker: Compensation is solely a matter of negotiation between Broker and Seller and is not fixed, suggested, controlled or recommended by GLVAR, MLS or any other person not a party to this Agreement. Seller agrees to pay Broker as compensation for services:
If a sale:_____% of the gross selling price of the Property ( ) AND/ ( ) OR $______ (flat fee amount). Seller acknowledges that offers of cooperative compensation are between brokers and are not negotiable between the Seller and Buyer.
So what does this mean? Anyone suggesting that the commission on a sale fee is usually this price or percent or that price or percent is merely negotiating with you as to what they are willing to provide the service for. We will discuss the pro’s and con’s to these listing prices with examples.
Can low commission or no commission hurt my chances of selling my home?
We saw a video in Canada by CBC News Called “Real estate agents caught breaking the law on hidden camera (Marketplace) This 22 minute home is raw footage of what is called “steering” which is when a real estate agent is avoiding certain homes because the commissions offered are either non existent or not high enough for a real estate agent who has buyers to even show the house.
Now why is this video important when talking about how much does it cost to sell a house. Lets assume there are 10 homes in a particular neighborhood and they are all priced relatively similarly. Lets also assume that one of these homes is a FSBO and is offering no commission to anyone who brings them a buyer. What the video shows is that real estate agents have violated the law and will for one reason or another “steer” the clients away from that house. This is also against the law in the United States as much as it is in Canada. There are several lawsuits working their way through courts as we speak that will redefine payment structures because of this. Lets say for example, the sellers who are offering a 6% co-op or commission for the sale of their home in accordance with the above contract language we quoted are giving that amount to the listing broker to decide how much to split with another “buyers agent/broker”
Example: Seller agreed to put a 6 in that “if a sale: ____%” line above. And lets assume the the asking price and ultimately sale price is $500,000. This amount would be $30,000 dollars in strictly the commission. There are other transaction amounts we will discuss shortly, but lets break down this $30,000 first which is coming out of the sellers $500,000 sale price. They would only receive $470,000 dollars and there fore how much does it cost to sell a house = $30,000 before any other transaction fees.
What do I get for the real estate commission I paid?
What did you the seller get for $30,000. Pictures, a sign, listing in the MLS which is the “multiple listing service” which also freely shares the data with all of the syndicate marketing sites like z****.com or red***.com or real**.com which is where buyers will be looking. You might get a 3D model or scan as well as floorplan with a high end camera, maybe some drone shots and an electronic keybox for easy access. Sure you also get some data on the neighborhood or what we call “comps” or “comparables” or “CMA” for comparative market analysis. Who is doing all of this work, on the front end it is the listing agent but if I am being honest, I can get your property entered into the database in under 30 minutes. I have most likely outsourced the photo’s and signage to regular vendors who for under $250-$500 dollars and a phone call get the job done depending on the size of the home – larger properties obviously can take longer to photograph and scan.
The buyers agents end up having to drive clients around all over the city for weeks on end writing multiple offers and going back and forth with clients and sellers agents etc. I would argue that the buyers agents are doing much more exhaustive work showing houses to prospective buyers for hours on end day in and day out. The listing agent put in a few hours on the front end as well as intermittently throughout the process answering questions and doing follow-ups from the office.
How is the real estate commission split?
So where did the $30,000 go. The second part of that language is that you acknowledged that amount is not up to you regarding splits, it is between the brokers and not negotiable between the seller and the buyer. So the listing agent has potentially $30,000 to do what they wish with. They can earmark off some money for the photo’s, scanning, MLS entry etc. They do not have to give any amount to any other person unless they agreed upon it in the listing. What we call the co-op essentially. Now back to the video – the higher that co-op was, what did we see those shady Canadian real estate agents doing – they would take the client to where the agent could make the most money. Imagine for a moment that there was three $10,000,000 dollar houses. One was a FSBO and was not offering any commission, the other was offering 3% co-op and the 3rd was offering 10% co-op. The quick math on that is a buyers agent would receive either zero dollars for house A, $300,000 dollars for house B, or 1,000,000 dollars for house C. Why is this important? The subject was “how much does it cost to sell a house?” The rhetorical question is “how many agents with clients in this price range would be recommending house A over house B or C. We are not suggesting that an agent wouldn’t show house A over B and C, but when you look at the payment structure and motivation for other agents to bring a buyer to get your house sold – I don’t see how you can come to the conclusion that house A would get as many interested parties as house B or C when the agents who are trying to earn that commission are responsible for setting the showing appointments.
How much commission is fair?
What we typically see as much as we hate the word “typical” is that the listing agent will negotiate an amount of commission commensurate with the market conditions. We saw plenty of 1-2% commission structures when a home would have 10 people lined up to see it as the sign was being put in the ground, or several “pre listing showings”. Times have changed and homes are back to sitting on the market for months at a time. We would suggest to any client that right now, you’d need to have a lower price than the competition with a higher commission than that same competition. There is a saying that some homes are meant to sell yours.
So what is typical in the market can vary. Everyone has expenses from offices, phones, cars, computers, membership dues, etc. More established firms with larger overheads may charge much more than independent smaller agencies with lower costs. It also is the value of ones time. If you are listing a $50,000 house, and you want someone to do the work for 1% as another example – that is just $500 dollars. I can almost guarantee you will find someone to do this work at this price, but if the market is listing many other properties at higher amounts, I expect to see many agents turning down your listing absent some minimum price. They would have to split the $500 dollars so maybe they are getting $250 dollars if they were to sell this property. Is that worth their time is the question you have to ask yourself?
How much commission is to much?
I always hear the objections from other agents about “well do you trust your property with an agent willing to work for less?” or some other knock at a lower price. Lets go back to the $10,000,000 dollar example. If an agent is offering to take pictures, list, lockbox, scan, clean, open house, drone, floorplan, custom website, paid advertising, the works for 6% – They can potentially make $600,000 dollars with a sale. This is what a surgeon makes in a year. Is this amount worth this agent’s time? I would expect that for this amount, they are only dedicated to your property. It is life changing money and I would personally argue that this amount is to high. People would work 40 hours a week for 52 weeks a year to make 6 figures and be happy. 600k to enter your property into a database and make a few phone calls is just obscenely to much money when you consider our expenses. One of these deals would cover our operating costs for 10-20 years.
Now, not everyone has a 10 million dollar home so when we get to median averages – recent data suggests that commissions have been around 5%~ – just fractionally higher when you are averaging these out. But on a typical home, this amount is still roughly $22,000 in fees. An agent who can sell 5 median priced homes in a year is earning over $100,000 dollars before expenses.
Interview agents and negotiate your commission down.
You can always agree to a lower amount and raise it gradually to see what the sweet spot might be. Sometimes it is difficult to lower the amount from a higher number – why would the broker agree to changing the listing to giving them less money? Give them the listing only if it is on your terms and see who is willing to work for that amount. We often see that the “million dollar agents” do not have time for median priced homes. Who can blame them pulling down $600k for a few hours of work a year.
Other costs of selling your home
Please remember that there are various other fees such as escrow, transfer tax, HOA transfer, inspections, appraisals etc. Each deal is different on what might be asked of you to pay out of the sale price – we always generally advise that this can range from 1-2% or more of the sale price depending on the specific deal and inspections. In a buyers market, you can be expected to be asked to pay for more of this than when we had a full blown sellers market just months ago where you would instantly reject an offer if they asked you for anything monetary.