Picture curtosy of o'neill advisors inc.
I recently asked over one hundred and thirty “For Sale by Owner” (FSBO) individuals what the main reason was that motivated them to try and sell their home without using professional services. Guess what the big, resounding response was? Hands down, it was commission. Commission has become the big nasty word in the real estate industry and it is also one of the most ranted and raged about. I wanted to get to the core of why there is so much objection to paying commission and so I asked the group of people who were openly advertising their refusal and distaste towards paying it.
The responses I received ranged from, “I need to break even on this one,” to “I was scammed by REALTOR®s who did little for me,” to “I listed with a REALTOR® and sold it myself to a co-worker,” to “do you have $20,000 to throw away,” and to the most common, “why would I pay commission when I can sell it myself?”.
My response to all of these objections boiled down to quality of service, value of time and knowledge. With those that needed to break even, I wanted to know more about their situation, what were the numbers and could I help them make more than even they thought they could get? With those that were scammed by a REALTOR® who did little for them, I reassured them that not all REALTOR®s operate their business like that and sent them a checklist of the services a REALTOR® should offer them if they ever decided to use one again. With those that listed with a REALTOR® and ended up selling it themselves, I impressed upon them that matching your home to someone within your circle of friends and acquaintances is a rare stunt and is not a sure and proven strategy for selling their home again. To those that wanted to know whether I would pay for professional REALTOR® services, I assured them that when I sell my personal property, I hire a REALTOR® to do it for me.
The last objection, the most common of all the ones I received, I am going to address in further detail in Part 2 of this blog tomorrow. Stay tuned!
But first, let’s give some foundation as to how the distribution of a commission happens. NOTE: There is no standard commission; all REALTOR®s have discretion.
Let’s use a hypothetical situation to really get the feel for it. Your REALTOR® sells your $400,000 home somewhere in the Okanagan Valley in three months and the total commission is $16,000. Now, before you scream and scoff and announce how outrageous that is, hold that thought for just a minute. That $16,000 does not go to your REALTOR®, nor does it go to the Buyer’s REALTOR®, it gets split between to the two to be $8,000 each. But wait, there’s more to it than that. Many REALTOR®s split their commission with their brokerage as well, and in this instance $2,400 goes directly to the Brokerage and bypasses the REALTOR® altogether. So now your REALTOR® is sitting at a whopping $5,600, but wait, there’s more. REALTOR®s don't get anything for free, so their office fees (files, folders, printing, paper, etc) are all due every month, even when they aren't making money. And, if they sold your house in 90 days, they advertised it: paid to put a sign on the lawn, printed “just listed” brochures and personally knocked on all your neighbors doors to distribute them or paid to have them mailed out, they made some high quality brochures, paid to list it on the MLS (Multiple Listing Service), paid those crazy gas prices to drive numerous Buyer clients to your property to check it out and if they are really good, they made sure they paid to have a professional webpage developed specifically for your home and linked it to the social media and online advertising that they also created for you; all of which cost them up front to do, another 2-3% of their commission. So at the end of the day, your REALTOR®, who you think is making too much on the sale of your home, is going home with a grand total of $5,360 for three months worth of work ($1787 per month).
Now, none of this is to say that $16,000 is not a lot of money to pay, it is, but it is important to know where that money actually goes and to know that it does not all go to your REALTOR®’s vacation fund.
Visit my blog tomorrow to read up on my response to the most common objection to using a REALTOR®. I will address what it means to sell your home yourself, what you should do and what it will cost you to be successful.
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