Posted on March 25, 2013 in Selling, The Industry
WTF is with Real Estate Commissions and how do you choose a service provider!?
We’ve said it before and we will say it again: the real estate industry is changing rapidly. Consumers now have more real estate commission options than ever when they decide to sell their property. Competition is a good thing and we’re all for it. We think the industry is in need of a shake up (and it’s happening right now!). Having access to the elusive MLS system is not the only advantage we want to offer our clients.
Consumers now have a number of choices from various service providers at different price points and commission structures. There are basically four different business models a seller has to choose from.
1. The traditional is a percentage of the sale price; typically 5% and usually split between the buyer and listing agents.
2. A reduction in this fee by the listing agent. In this example the listing agent would “reduce” the typical fee from say 5% to 4% with the listing agent taking 1.5% and the buyer agent 2.5%
3. A flat fee for selling a property. The level of service is usually minimal with this option. It could be as low as $500 and might only include sticking a sign on the lawn and imputing the listing on the MLS system. The seller would be left to negotiate the sale price for the house as well as negotiate any potential compensation paid to a real estate agent that brings a buyer.
4. A combination of the two. There is a new company in Toronto that launched last week that offers this. The brokerage charges a flat fee for the listing agent’s service and offers compensation to the buyer agent of the typical 2.5%.
We think all four options have a place in today’s real estate market and all models will survive well into the future. Obviously this relatively new abundance of choice for consumers is going to have a large effect on the industry. The traditional Real Estate Agent is going to have to show their value or they are, er, pretty much screwed.
Hilary and I have chosen to operate our business under the traditional real estate compensation structure. I know – boo, crooks, scam artists, kickers of small children etc. But the truth is, we really think we can put more money into the sellers pockets when we list a property under this model. If we didn’t think that was the case, we wouldn’t operate this way.
We spend more money marketing a property than any of the flat fee services and often more than the agents who reduce their commission charge in total. A well marketed property can and does dramatically affect the sale price of a home. Especially in a hot market like Toronto. It works on everything from houses in desirable areas to condos in a high rise building.
If you have a nice house in a desirable area, assuming that it is properly priced, it is absolutely going to sell under any commission structure. Hell, it would sell if you sat on your lawn for an afternoon yelling “house for sale!” while drinking tall boys in your underwear. However, our marketing can generate considerably more interest in your home by reaching a much wider audience. This leads to higher sale prices and more money for sellers. For example, if a discount brokerage’s marketing plan brings in 3 offers, ours might bring in 9. That could increase the eventual sale price by upwards of 10%. Score!
With condos our marketing plan works in a slightly different manner. We can set your unit apart from the 4 other identical units on the market in your building at this moment. Your listing gets sold, your neighbour’s gets stale.
Below is a link to exactly how we justify our commission. Our marketing budget is between 0.5% and 1% of the listing price. If you think it’s worth it, give us a call. We love marketing homes. It’s kinda our thing.
