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Don't pay a 6% real estate commission!

Original post made by Kevin J., Crescent Park, on Oct 9, 2006

When I listed my home for sale earlier this year, my agent asked me to sign a listing agreement that called for a 6% commission to be paid at closing. The 6% broke down this way -- 1.5% for the seller's agency, 1.5% for the seller's agent, 1.5 for the buyer's agent and 1.5 for the buyer's agency. I guess such commissions are reasonable when one is selling a $250,000 house, but that's $90,000 for a $1.5 million house.

I told my agent that I liked her, and I knew she had a good reputation in the community, but that was too much money. And, obviously, houses sell quickly in this town, even when the real estate market is "slow," because of the lack of supply.

So I proposed a 4% commission -- and she took it. And we had no problem selling the home. And we saved $30,000.

After closing, my agent told me that her agency instructs agents to initially refuse to negotiate the commission with a seller, but if the seller persists, to agree to anything they want on the grounds that the agency doesn't want to lose market share.

I talked to a reporter from the Weekly a few weeks ago about this subject and she says they're going to do a story on cutting commissions. Keep your eyes open for it.

Comments (5)

Posted by Shawn
a resident of Green Acres
on Oct 9, 2006 at 10:19 am

Can't wait for the story. Realtors have been making obscene amounts of money for years. Time to level the playing field!!!!

Posted by uhmm, well
a resident of another community
on Oct 9, 2006 at 5:07 pm

I don't mean to burst your bubble, and I'm sure there are going to be realtors hating me for saying this, but 4% is not necessarily such a great deal.

If you take a close look at the listing agreement, you will notice that it give a space to fill in a percentage, which specified that the split between listing and selling agent will be up to the listing agent. Only if you check the box explicitly breaking down the selling/listing commissions will you really know what is happening.

In all likelihood, your agent listed your house with 2.5% or even 2% to the selling agent. If he/she used the latter number, they should be shot since a 2% commission is guaranteed to bring less traffic into the house. 2.5% for selling agent is not uncommon at $1.5M, but mostly kicks in around $2M. It's not that the selling agent won't show the houses listed with a 2% sales commission, but just coincidentally, they'll talk them down just happening to find just enough fault that it would take a bold buyer indeed to overcome the "advice" of the experienced sales agent.

I speak as somebody who has done it both the right way and the wrong way. A few years ago, I foolishly let an agent have 6%, and was extrememly disappointed that she listed the house with 2% to the SELLING agent, keeping 4%(!) for herself. I vowed never again. Three years ago when I sold my house in PA, I found a broker who would provide full service (including open houses) for a flat fee of $5000 on my $1M home. I paid the full 3% of the sales agent and sold for about $70K over asking due to the multiple bids coming in.
Looking around on the web, I found many realtors that would have done the same job for $3K or less, but I felt comfortable with this one.

When I bought my next house, I shopped till I found it, then found an agent that would rebate all but .5% of her commission back to me to close the listing, which saved me 2% on the the deal.

Posted by anonymous
a resident of Duveneck/St. Francis
on Oct 10, 2006 at 2:21 am

I like the flat fee idea best. I wish I had pushed a little harder on this issue when I was involved in a transaction a few years ago.

Posted by anon
a resident of Duveneck/St. Francis
on Oct 10, 2006 at 10:03 am

Thanks for your helpful story!!!

Posted by uhmm, well
a resident of another community
on Oct 10, 2006 at 1:01 pm

One thing that I did want to add is that I make it all sound quite easy and simple to get a better deal, but the reality is that the the real estate industry, and realtors have stacked the cards to keep commissions high (IMHO).

Realtors that will provide flat rate pricing will not readily advertise for fear of reprisals and intimidation from traditional real estate professionals. Although it was pretty easy to find flat rate listing brokers on the web, getting a great deal on the purchase side is non-trivial. I had to shop around, ultimately finding an out of area broker who owned her own firm yet maintained MLS membership for the entire region. Still, the dozen hours or so that I spent emailing and calling around were rewarded with multiple 10's of thousands in discounts.

The other side of this is an ethical issue. If you are going to pursue discounted services on the purchase side I believe that it is absolutely reprehensible if you engage the services of a realtor to show you a property and then have you purchase through somebody else at a discount that has not invested their time and energy in showing the property to you. When we were looking we generally confined our searches to open houses and then compiled a list of houses which were listed that would require our out of area broker to help us gain access to.

Still, that said 6% (or even 5%) real estate commissions are simply absurd (again my opinion) in areas with multi-million dollar houses. Out of the area where houses are measured at 1/10th the cost, the same work gets done with the same commission percentage. I understand that our cost of living is higher, but what has happened here is that the high commissions draw in a huge base of realtors and then the commissions have to be high since there are fewer properties per agent to be bought/sold.

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