Ups and Downs of Real Estate Commission Cutting

February 11, 2010

Residential

Saving Your Pennies?

Saving Your Pennies?

The struggling real estate market has forced sellers to look for creative solutions to squeeze dollars out of their sale to break even or minimize their loss. More and more frequently, listing agents are asked to ?share the pain? and cut their commission to cushion the blow to sellers caused by lower property values. The dollars saved on the lowered commission may appear to be an easy solution. However, there are significant costs to this approach that sellers may not see immediately.

No Standard Commission Rate in Illinois

While there is no standard commission rate charged in the state of Illinois, 2.5% of the selling price is commonly expected by buyers? agents. When a property is offered at a lower rate driven by a lower total commission paid by the seller, buyers? agents may choose to eliminate the property from their buyers? viewing schedule. This is very easy to do in a high inventory market where there are plenty of properties offering higher commission. Is this ethical? Maybe not, but if the buyer still finds a home they like, some buyers? agents believe this is acceptable. Most good buyers? agents do not look at commission rates, but in this environment when agents may find it challenging to fit all available properties into a viewing schedule, commission can be the determining factor when deciding which properties to eliminate.
Listing agents? costs increase in times of slower sales. It takes more time and exposure to sell a property, more effective and costly marketing, and there are usually more showings required to generate a contract. It also takes a significant amount of effort to hold deals together after initial negotiations due to complex and unpredictable mortgage and closing processes. So, while sellers may ask an agent to ?share the pain,? active listing agents may be forced to take short cuts to make a lower commission listing worthwhile. Additionally, successful and active agents may choose to reject listings whose owners want to cut commission. This leaves the seller with less skilled and experienced agents who need to ?buy? their listings rather than earning the business through superior qualifications. For quality agents, listings are relatively easy to come by in this market ? selling the property and holding deals together has become the difficult part. Sellers need every bit of experience, knowledge, and commitment from their agent to negotiate the best possible price and attractive terms, and to manage a process that culminates in a successful closing.

Sellers Should Demand Exemplary Service

The cliché ?you get what you pay for? can be a tough lesson learned when this important, high-dollar transaction is at stake. Small glitches and oversights can generate costs that far outweigh the potential savings in commission. Sellers should demand exemplary service and expertise from their agents in both the buying and selling process. The best agents will not cut commission, and sellers need top agents to tackle the challenges of today?s market.

[Editor’s Note] We invite opposing opinions!! Please comment below or if you’d like to write a post, Contact Us!

We would like to thank Pfala for kindly sharing today’s photo via the Creative Commons’ License.

Email This Post To a Friend. Email This Post To a Friend.

About Stacy Braack

Stacy is a seasoned real estate professional with a broad range of hands-on experience including first time buyers, investors, luxury homes, and distressed properties. While this may appear to be a scattered set of expertise, she believes the experience provides maximum effectiveness in today’s chaotic market, which requires extensive knowledge of all aspects of the industry. Stacy’s educational background includes a BS in Industrial Engineering from Stanford University and an MBA in Marketing and Finance from the Kellogg Graduate School of Management. Professionally, Stacy has done everything from operations consulting to city government before she found her passion in real estate almost eleven years ago. It is this passion that drives the most benefit to her buyers and sellers. She is fully committed to your goals – both financial and personal. Her clients describe her as extremely direct, honest, and responsive, and they repeatedly trust her to handle one of the biggest events in their lives. For buyers she works non-stop to find you both a home you will love to live in and one that is a smart investment. Many of her 2008 buyers have realized instant equity in their new homes through ‘pit bull’ negotiation skills. While the market has been tough for sellers, her listings have sold at a rate above that of the market. Extensive, constant, and extremely high-quality marketing, including both print and internet mediums, support every listing, from investment studios to luxury penthouses. She believes that your goals are her priority and her full-time job. She has built her business on referrals from satisfied clients, and she would love to add you to that list. You can contact her at 773-405-4431 or stacy.braack@sothebysrealty.com

View all posts by Stacy Braack

2 Responses to “Ups and Downs of Real Estate Commission Cutting”

  1. Randy Whiting Says:

    This is so true! Especially with Realtors who have investors that are
    attempting to clean up in the distressed properties market. Often times
    on a 50k foreclosure there is a flat rate commission or something like
    “$1500 or 2.5% whichever’s higher.” However lately, and this may be due
    to inexperienced or cheap listing agents, the CC will now just have the
    buy side commission at 2.5%-250. On that same 50k place that equals
    only $700 if the agent receives a 70% split from their broker. I know
    rental agents that make more than that for renting a small 2 bedroom
    apartment in Lakeview! That “-250” is what really gets me. I know it’s
    supposed to be a processing fee, but given the fact that so many of
    these listing sheets have base information that is often incorrect, that
    $250 seems like highway robbery. Especially since it’s 20% of the buy
    side commission in this example! ouch!

Trackbacks/Pingbacks

  1. Discount Brokers: Do You Get What You Pay For? | The Chicago 77 - June 7, 2010

    […] is clear why this model would fail.The second, and the one that makes the most sense to me, is to cut out the fluff. Streamline the process, and focus in on what a client actually needs to achieve their goals in a […]