Real Estate: Low Commission Rate - One Percent Commission Rate? How Much Should You Pay? |Hamilton Ontario| MLS REALTOR|

Real Estate: Low Commission Rate - One Percent Commission Rate? How Much Should You Pay? |Hamilton Ontario| MLS REALTOR|

It's Negotiable?

A lot of homeowners don't realize that commissions are negotiable, and hashing out a mutually agreeable rate should be part of the process of choosing who to give the listing to. Commission rates may vary from brokerage to brokerage. Many home sellers are not used to having to negotiate when they are buying services or products. Therefore, if they are negotiating for a commission rate with a REALTOR who negotiates every day for a living, it’s not hard to see which party will normally win these negotiations. These financial negotiations are often not something your average home owner is comfortable doing. Because they are negotiating with someone who is supposed to represent their best interests in the selling process, the home owner does not want to push too much for fear that they may not get the representation they require throughout the rest of the selling process. And so, the negotiations are often not very satisfactory for the home owner.

An increasingly popular alternative are innovative real estate brokerages that have eliminated the sometimes dreaded commission rate negotiations. These low commission brokerages offer and advertise their low commission rates and therefore the home seller does not have to browbeat a REALTOR to lower the total commission. The strategy of these brokerages is to attract those home sellers that want MLS and REALTOR service, but don’t really see the benefit of overpaying for these same services.

But there's a limit to how low a REALTOR will go. The total commission that a home owner pays to sell the property is usually split between the Listing REALTOR, his brokerage, the buyer’s REALTOR and the brokerage of the buyer’s REALTOR. This means that the buyer's REALTOR must give a cut to their own employer (their brokerage). If the commission rate is set too low, your REALTOR might have a tough time finding a buyer's REALTOR willing to share such a small pot.

When you find a REALTOR that will provide a commission rate that seems reasonable to you, make sure that the share of the commission that will be offered to the buyer’s REALTOR/ agent for bringing the offer is fair and comparable to other listings in the area. You want to be on an even playing field with the other listings in the area to make sure your home is exposed to as many potential buyers as possible. Some low commission REALTORS may only offer a very small commission to the buyer’s agent keeping the majority of the total commission for themselves. Even though the Total Commission may seem very low, if you are not offering a fair and comparable amount or rate to a buyer’s agent, then you may be limiting and restricting your exposure to potential home purchasers.

You should find a REALTOR who gives the majority of the commission to the buyer’s agent (the selling brokerage). Since the vast majority of MLS listings are sold by another REALTOR other than the one that listed the property on MLS, it’s just common sense that you would want to provide as much incentive as possible for the buyer’s agent (the selling brokerage) to show your home and bring an offer. Your Listing REALTOR already has this incentive to sell your home because he will be receiving the listing commission portion of the total commission regardless who brings the offer.

In the past, the Total Commission was evenly split between the Listing REALTOR/Brokerage and the Selling REALTOR/Brokerage (the buyer’s agent). Some traditional Commission brokerages still use this commission sharing structure for the buyer’s agent commission amount. But increasingly, low commission brokerages will provide the vast majority of the Total Commission to the buyer’s agent (the Selling Brokerage). Doing so gives them a greatly superior competitive advantage compared to the traditional commission brokerage. They can provide the exact same incentive to all the other MLS REALTORS from other brokerages in the area to help sell the property and, at the same time, provide an overall lower commission to the home seller compared to a traditional commission approach . It is a very simple yet very effective strategy for both the home seller and the brokerage. The brokerage acquires a great deal more clients than if it employed a high commission rate strategy and the home seller pays less money for the same MLS & REALTOR Service.

Therefore, find a REALTOR who will list for a low commission rate based on your area’s market rates. Then make sure that the amount or rate that will be offered to the buyer’s agent (the selling brokerage) is fair and comparable to other listings currently on the market in your neighbourhood. If the amount left over, from the Total Commission, is enough for your listing brokerage/REALTOR then you’ve negotiated a very good commission rate for yourself. If the amount left over for your listing brokerage/REALTOR is not acceptable to him/her, then you may have a little more negotiating to do. However, you should always maintain the fair and comparable amount or rate that will be offered to the buyer’s agent. Note that the amount you pay to the buyer’s agent (the selling brokerage) shows up on the MLS listing data sheet of all REALTORS. The Total Commission that you will pay and the amount or share of the Total Commission that is kept by the Listing Brokerage/REALTOR does not show up on the listing data sheet. No one other than your Listing Brokerage/REALTOR and yourself will know what the Total Commission is that you will be paying to sell your home.

Before making a final decision, speak to at least three agents to gauge their flexibility, as well as their knowledge of your community. Speak to REALTORS from the largest franchise brokerages in the area and from your area’s low commission brokerage. Ask them about their services, experience, qualifications and whether they are Part-Time REALTORS or Full-Time REALTORS. Then ask them very detailed questions about the Total Commission rates for selling your home on MLS.

Don’t forget to make sure you find out exactly how the Total Commission you pay will be divided between the Listing REALTOR/brokerage and the Selling REALTOR/brokerage (the buyer’s agent). Remember, the most important thing is how much of the total commission that you pay will be going to the buyer’s agent (the selling brokerage). If it is a fair and comparable amount or rate, then your home’s Listing for which you will pay a low commission rate, will have the exact same opportunity to sell as all the other Listings in your neighbourhood that are paying a much higher Total Commission. When you are listed on the MLS, the information for your home will show up on the REALTOR database in the exact same format as all the other MLS listings in your area. The commission offered to the Selling brokerage (the buyer’s agent) also shows up on the information database and if this is not similar to others in the area, this could limit or restrict the exposure that the home will have to potential buyers.

Consider also that, in most cases, your agent doesn't earn a dime until you sell your home. And therefore, this is an excellent incentive for your REALTOR to work hard to market and sell your home. If your low commission REALTOR, or any REALTOR, is asking you to pay up front, non-refundable listing fees to list your home on the MLS, then this incentive may no longer be part of the deal. Upfront fees ensure that the REALTOR has already done his/her job and has already made money listing your home whether you sell your home or not. Yes, the REALTOR may make additional fees if the house sells however, he/she has already made the sale – they’ve sold you a home selling package and the hope of selling your home without paying any additional commission fees. Often, they also advise that you should provide a “fair and comparable” commission rate to the buyer’s agent. Thereby admitting that, more often than not, you will have to enlist the help of a buyer’s REALTOR to sell your home. Even some non –licenced, for sale by owner marketers offer these kinds of packages. So, if you have to pay the buyer’s agent and an upfront non-refundable fee, are there actual commission savings with this concept? You may also have to do a lot of the work that is normally done by your listing REALTOR and pay the fees of a lawyer to review all offers. Make sure to account for these costs and inconveniences when you’re calculating any savings using this approach.

Consider all your options and pick the one that makes the most sense for you. Remember, not every approach is right for every home seller. Some home owners are more knowledgeable and don’t need the unnecessary extras that usually come with the high commission services. Some homes are not as marketable and would generally require more commission to be paid by the home sellers because they require more work to sell than your average home. These may be homes that are in need of a lot of repairs or are in undesirable locations in a town or city. They may be homes that have some unusual and undesired features. And, they may be homes that are improperly priced. The home owners of these types of homes should consider paying a higher commission so that they can get services that are above and beyond those needed to sell a more desirable home. But otherwise, for most homes the sellers should research and consider the services of both the traditional commission brokerages and the low commission brokerages in your area.

For information about our services and commission rates visit www.coronarealty.ca or call us at (905) 525-3311. Corona Realty Inc., Brokerage.

2013-06-03