Can We Still Command Our 3%?

Selling the Difference

In a challenging climate where the value of realtors is increasingly overlooked, residential real estate agents are compelled to proactively defend their commissions and distinguish themselves amidst a sea of competition.

Let’s shake up our approach in this ever-changing landscape! Imagine a strategy where we secure our 3% listing side commission without compromising the co-op fee. Instead of selling the entire commission, let’s focus on selling the buyer’s agent commission (a.k.a. sell the difference). I am in no way saying commissions aren’t negotiable, but think about it. The seller is coming to you as a real estate professional understanding a fee for services will be rendered upon the sale of their home. Because the seller understands a commission will be charged, do we really have to sell them on the entire commission? By doing this, we can provide sellers with more flexibility and transparency, and position ourselves as the agents who truly understand their needs. It’s a win-win for everyone! Embrace this new approach, and let’s take our listings to the next level.

EXAMPLE

Listing Agent: “…While we’re at it, let’s discuss compensation. My brokerage’s fee for services on listings is 3%. How much would you like to compensate the buyer’s brokerage/agent?”

 

Seller: “I’m not sure. I haven’t really thought of that. What do you think?”

 

Listing Agent: “Well, we can compensate the buyer’s brokerage/agent anything you want. We can compensate them zero if you’d like. We can compensate them 2%, 2.5%, 3% or anything outside or in between. It’s completely up to you. Let’s talk about the differences in compensation.

 

—3%—

(Sell your most desired option first.) At 3%, we can almost guarantee that anyone interested in your home will get the opportunity to view it. Just like my brokerage’s fee for services is 3%, some buyer’s brokerages have a similar policy. Therefore, the buyer may not have to compensate their brokerage in addition to the down payment and closing costs for the purchase of your home. Ultimately, this means if the buyer can afford your home as per their lender’s pre-approval, the buyer does not have to pay any additional out-of-pocket expenses not previously discussed with their lender. This will allow you, as the seller, your largest buyer pool.

 

—0% or $0—

At 0% or $0, it may be difficult for many qualified buyer’s to afford. In addition to providing the down payment and closingcosts, the buyer would also be responsible to compensate the buyer’s brokerage/ agent. If the buyer’s brokerage requires a 3% fee for services, the buyer would be responsible for paying that entire amount. For example, if your home was listed at $400,000, the buyer would be responsible for compensating their brokerage $12,000 in addition to the 3.5%/5%/10%/20% down payment and 2% in closing costs. This would severely limit your buyer pool. Think about when you purchased your first, or last, home. Would you have been able to afford your house plus the additional expenses of paying your agent’s commission? How do you think those added expenses would have affected your home search process?

The other option at play is the buyer’s agent could either “discount” your property by including the buyer’s agent’s commission in the offer or offer a price higher than the listing price to cover the cost of the buyer’s agent’s commission. In the event the commission is offered in addition to the list price, your property would then have to appraise at that higher value in order to capture the entire amount of that offer. If your home happens to under-appraise the contractual sales price, this could allow the buyer the chance to renegotiate the sales price or give you the opportunity to cancel the contract and place your home back on the active market. Ultimately, this may lead to your property “sitting” on the market for longer periods of time, potentially causing price reductions or inferior offers that are less than desirable.

 

—2%—

Again, at 2%, we may run into a similar problem on a smaller scale. We should be able to capture more prospective buyers, however, these buyers may still be responsible for making up the difference between 2% and 3% in compensation to the brokerage if their brokerage requires such. With that said, these prospective buyers could be responsible for shelling out an additional $4,000. Just so you are aware, VA and FHA buyers are limited in the additional out-of-pocket expenses they are required to pay. This opens your buyer pool up more, but still prohibits some that cannot afford the additional out-of-pocket expenses.

 

—2.5%—

(Sell your second desired option last.) Lastly, you have 2.5%. At 2.5%, many of the people interested in viewing your home should have the opportunity to do so. Prospective buyer’s may still be required to compensate the difference, however, 0.5% or $2,000 (if 3% is required by their brokerage) is a much more palatable number than the $4,000 previously mention. This will allow for a larger buyer pool but may not be able to capture EVERYONE.

 

So, based on this information Mr. and Mrs. Seller, do you have any questions? What are your thoughts? What would you like to offer the buyer’s agent as compensation?”

Remember, our job is to educate our clients. In this instance, you are able to educate the seller on how the commission structure in real estate works. You have given them a choice as to how “marketable” and “accessible” they would like their property to be to prospective buyers. In no way am are you telling them what to choose, but only the situations that may arise with each scenario. Keep in mind, our brokerage can set a standard or required fee. However, we are not allowed to talk about that fee with other agents or brokers outside of our brokerage. Also, we cannot express that the fee our brokerage requires is an industry standard or a common practice in the marketplace.

SELL THE DIFFERENCE!