How to Negotiate Real Estate Commissions

Posted by Steve Vincent on Jan 13, 2014 9:12:46 AM

In percentage commissions, Real Estate Commissions, Sellers

do you hear thatHey! I've got a secret. A secret I'd, like to shout from the roof tops! Percentage based real estate commissions are CRAZY!

Most real estate brokers - what I call 'traditional' real estate brokers - charge percentage based real estate commissions: 5% or 6% or 7% of the final sales price of the property as commission.* Of course, as I've said before, this makes no sense at all.  There is no relationship between the arbitrary percentage charged and what it takes to get a house sold.  Still, percentage based real estate commissions are what most brokers charge . . . because that's what they've always charged.

We at GreatNest have a better, more up-to-date idea.  We charge a Low Set Fee to sell your property.   Our fee is not arbitrary but is based on what we anticipate the actual cost of marketing a properly priced listing in High Point, Greensboro, Winston-Salem and surrounding areas to be, plus a reasonable profit.  The bottom line about our fee is that it is designed to save home sellers money and is always thousands less than they'd pay in typical percentage based real estate commissions to a 'traditional' broker.

I once heard a 'traditional' agent explain to a home seller that the percentage based real estate commission she was charging was a good idea because it would motivate her to get the highest possible price for the sellers!  'When you make more,' she said, 'I make more!'  And that, my friends, is the myth of percentage based real estate commissions as motivator. Let's take a look at that notion for a moment shall we?

First, let's create a hypothetical situation.  Let's assume we have a house worth somewhere in the neighborhood of $200,000 - $220,000.  Agent A - who works for an 'traditional' broker - offers to sell the property for a percentage based real estate commission of , say, 5%.*  If she gets a price of $200,000 for the home that's a commission of $10,000! (go ahead - take a moment to catch your breath), but if she gets $220,000 for it, the commission will be $11,000, or $1,000 more.  Not much . . . but perhaps a little motivating.

But wait a minute.  The vast majority of home sales involve two real estate companies one on the listing side and one working with the buyer and the two companies split the commission. So in our example we're most likely not talking about $10,000 and $11,000 in commission, and a difference of $1,000, we're talking half of that:  $500.  Not quite as motivating.

But, there's more.

What many home sellers don't realize is that the big commission paid at closing goes not to the agent but to the agent's broker who then splits the commission with the agent.    Let's assume our agent is on a 70% split with her broker.  Her take for getting the seller $20,000 more is actually $350.  I think you see where this is going:  the notion that a percentage based real estate commission motivates salespeople to get sellers a better price is really nonsense.

It is 2014.  People are wearing computers in their eyeglasses!  We're trading stock online for a set fee of $7!  Isn't it time your relationship with real estate sales stepped into the new Millennium?  If you are thinking of selling, you owe it to yourself to talk to The Vincent Group at GreatNest before you obligate yourself to a bloated percentage based real estate commission.  We'll provide exciting results and collect only a logical low set fee that will save you thousands!

Still not sure? Check out what our clients have been saying.

*Real estate sales commissions - whether percentage based or set fee - are fully negotiable between the broker and the home seller.  They are not set by law, nor is there a 'going rate.' Commissions used in this example are not real and are purely for purposes of illustration.