Let's Talk About Commission

How much should commission factor in choosing a Listing Agent? And other hot potato questions.

 I know it's not American money, but I love this picture. Except, I think I may be equating myself to a potato.

I know it's not American money, but I love this picture. Except, I think I may be equating myself to a potato.

While driving and walking around my neighborhood, I've recently noticed a few For Sale signs from brokerages that are considered "discount" or "flat fee". These listings have sat on the market for weeks or months with no sign of movement. One in particular has been languishing since January. If they're vacant, as I know some are, can you imagine how much the seller is losing in taxes, insurance, and interest payments? Eek.

Given that any reasonable person would consider this a seller's market (we have less than 2 months of inventory in Portland when 6 months is considered balanced), why aren't these homes selling? 

Since I'm a Realtor, you probably think I'm going to say that they're not selling because they were listed by a discount broker. I do wish it were that simple because this would be a SUPER short blog post! Unfortunately, the old adage "you get what you pay for" doesn't necessarily apply to real estate. Why is that? Because there is no standard commission rate versus discount rate. Any brokerage that advertises themselves as a "discount" brokerage or claims that they can "sell your home for less" is treading a very thin line between honesty and false advertising. 

There are lots of possible reasons that these homes aren't selling. Price is probably at least a partial factor. Marketing is probably another one. Maybe they've had some sale fails that may or may not be the fault of the listing agent. Maybe they're some type of reverse unicorn. Would that be a black unicorn...? Whatever the reason, I'm guessing that the listing agent isn't paying much attention. That can happen whether or not they're charging a "low" or flat commission rate.

 That's... not a unicorn...

That's... not a unicorn...

A "flat fee" or "discount" brokerage is only as good as the agent you have working for you. The question is: What is the likelihood that you'll find an agent worth hiring at one of these brokerages? It's possible, but not likely.

Here's the big (not really a) secret of real estate: listing commissions are negotiable. There is no such thing as a discount rate, discount brokerage, or discount agency. Any licensed broker in the Portland market could list your home at any percentage or flat fee. It could be 4%. It could be 6%. It could be something in between or outside of that range. Or it could be a flat fee. (Bear in mind that these percentages are split between the listing agent and the buyer's agent).

Will any licensed broker in the Portland market list your home for 4%? No, very few would do that unless they're desperate or a high-volume outfit that gives very little time to each client. Selling a home for max dollar takes a lot of man-hours. When you break down the number of hours a broker spends on the process from pre-listing to closing (not to mention advertising dollars and other expenses), most brokers want to make more than expenses + a little over minimum wage. 

One other not-so-secret fact about Oregon real estate: No matter what agent you hire and whether or not they call themselves a discount or flat fee agent or service, they are expected by the Oregon Association of Realtors and Oregon Real Estate Agency to represent you at the same standard as any other licensed broker in Oregon. If a Realtor tells you that they'll only charge you 4% to list your house but all they'll do is give you a lockbox and a listing on the MLS* (and maybe a photo session if you're lucky), and they leave all negotiation and details up to you, then they are doing you a disservice. (Not to mention, if you want to handle the whole thing yourself, go FSBO* and pay the fee to get the home on the MLS. You don't need a Realtor to do that. There's nothing wrong with selling FSBO or at least giving it a try, other than the upfront cost involved, but it is true that very few people successfully do this. But that's another blog post.)

So when you're ready to decide on a Realtor to list your home, what do you need to know to feel that you're getting a fair deal? Should you handle it like hiring a contractor: get 3 bids and go with the middle one?

 When in doubt, pick a Realtor that likes legos. And Star Wars.

When in doubt, pick a Realtor that likes legos. And Star Wars.

You can't assume that a higher commission rate = a better agent. I know brokers that say they would almost never take less than 6% on a listing (split between themselves and the buyer's agent) that are terrible agents. I've seen a case where a young broker listed at 4.5% and was worth their weight in gold for what they were able to accomplish for the seller. Most brokers fall somewhere in between and run the gamut from near-worthless to near-priceless.

So how do you decide what you're willing to pay to list your home for sale?

The first thing is to recognize what a Realtor brings to the table for you. Because if you don't see their value, then it would be like trying to hire a software engineer without knowing the first thing about coding. (Funny enough, I've seen companies that try to do this. It doesn't often go well.)

The goal when you hire a Realtor should be to find someone you trust to sell your house at the maximum price as fast as possible.

When I have discussions online or in person, I notice that many people think that most of the work a Realtor does revolves around showing a home. Like we're all Vanna White or something. If that's where you think a Realtor earns their $$ then you're going to be dissatisfied no matter how much you pay her.

 There can be only one... Vanna White.

There can be only one... Vanna White.

On the buyer's side, showing homes often takes a big chunk of time. But unlocking doors and peering in closets is hardly the only reason that you hire a buyer's agent. And almost no reason at all for hiring a listing agent. Any homeowner can hold an open house, so that's not where all your money is going. As I mentioned earlier, you can pay a fee to place your home on the local MLS and sell it FSBO. So why hire a listing agent at all? 

You're hiring a listing agent for a lot of reasons beyond open houses and the MLS. 
A good listing agent will:

  • Start with a consultation, wherein they discuss your situation, the selling process, paperwork, marketing, answer your questions, etc.
  • Walk through the home with you, usually more than once, to provide a punch list of items to complete prior to listing the home for sale. 
  • Provide well-curated contractor recommendations as needed.
  • Make a detailed, thorough list of the home's features that can be used for effective marketing.
  • Talk about the history of the home, neighborhood features, HOA (if applicable), facts that are material to the sale of the home, etc.
  • Have their title company do a basic check of the title to make sure there are no issues.
  • Run a thorough CMA* (comparative market analysis) of your home and provide pricing advice. Depending on how long a time span you have between the first consultation and listing, they'll do this twice.
  • Discuss the competition and how to better position your home for sale.
  • Setup photography and possibly videography/drone sessions.
  • Write/edit copy and design marketing materials for use on flyers, email, and online. Or have a professional marketing company do this. Design and pay for promoted social media posts. Put together a listing website.
  • Discuss lockbox location, showing hours, and showing instructions (amount of notice required, who the buyer's agent should contact to schedule a showing, etc.)
  • Take measurements of the rooms, ask for final details about the home, create the MLS listing, and have you approve all the details.
  • List the home on the MLS as Active. Along with the marketing materials previously mentioned, promote the listing through open houses, e-blasts, reverse prospecting, broker opens, meetings, social media groups, various websites, etc.

These are just the pre-listing steps. And since I wrote them down off the cuff, I've probably missed a few things.

But what you need an agent for, more than all of the above combined, is to find a buyer and successfully negotiate the sale of the property. The negotiation aspect of the business involves patience, professionalism, creativity, dedication, and impeccable communication skills. Hiring an agent that fulfills the pre-listing steps I just gave you won't get your home sold. (Although it's hard enough to find an agent that will complete even half of those steps.) It's during the negotiation process that an agent really earns their commission. And that counts for both buyer AND listing agents.

Once an offer is accepted, and that takes some finesse, it can be around 45 days to get to closing (though this can range widely). This is the crucial time period that can make or break a deal. A buyer will begin to perform their due diligence and more often than not they'll attempt to re-negotiate terms.

So many crazy things can happen during this time period. They may find intrusions or a belly in the sewer line or a major problem with the electrical. There may be water damage somewhere you never expected or some major component of the home is near failure. The buyer's financing may fall through or not be as solid as expected. Everything may be near-perfect but the buyer insists on negotiating for tiny, unnecessary repairs that make you want to tear out your hair and/or back out of the deal. Careful negotiation may be necessary to come to an agreement on the closing date, inspection period, rent-back, or any of an innumerable amount of other contract details...

Almost no transaction runs smoothly. Sorry about that. Selling a home is kindof a big deal and no one takes it lightly.

 Each transaction is a unicorn. But only the cool ones are lego unicorns.

Each transaction is a unicorn. But only the cool ones are lego unicorns.

So, having said all that, here's some advice on hiring a listing agent:

  • The percentage that your listing agent charges should not matter as much as finding an agent you trust to get the job done. The last thing you want is your home to sit on the market for months while you continue to pay taxes, interest, and insurance. 
  • Think about the bottom line, not just the commission. If you interview Agent A, who you trust will sell your home for top dollar, but wants 5.5% and Agent B that will list at 4.5% but you don't trust nearly as much... who do you go with? On a 400K home, the difference is $4000. But Agent A is probably going to end up selling your home for more than that $4000 difference. And she'll probably do it a lot faster than Agent B.
  • Interview more than one agent. Pay attention to their personality, confidence level, and how good they are at listening and asking questions. An over-confident agent without good listening skills may be likely to bludgeon a deal to death. An agent that lacks confidence and doesn't know how to ask questions may be likely to have communication problems and lack the creativity and personality it takes to push a difficult deal through.
  • Trust your instincts. If you don't like the person but they otherwise seem okay, move on.
  • Realize that experience doesn't often count for much. Sometimes the agents that have been at this the longest are the worst. 10 years experience can often mean they spent a year or so focused on learning the trade and then went on auto-pilot from then on out. Real estate is an extremely complicated and changeable profession that requires constant continuing education. 
  • Don't discount the newbie Realtor! Most new Realtors fail at this business (because it is laughably easy to earn a real estate license) but sometimes you happen across one who is incredibly smart and talented. They'll likely have a lot more time to give you and be open to innovative ideas.
  • Don't always hire your Realtor friend. They may be a great, wonderful, caring, amazing friend but try to make an honest assessment of how good of a Realtor you think they would be.
  • When interviewing, make sure to find out if you are hiring an individual or a team. I'm currently an independent agent but I've worked on a team. I see the pros and cons, but if you're hiring a team, then the person you are interviewing is unlikely to be the main person you'll be working with. They may even just be "the Face". Ask if you can talk to the transaction coordinator and who you would contact during various stages of the process. I know a lot of seller's that get frustrated when they have to flip between one person and another.

TL;DR
If you don't trust or like the agent, DON'T HIRE THEM. I don't care what commission they're charging. 

If you find two agents that seem completely equal other than their commission rate, and you would trust either of them to represent you, then, of course, hire the one at the lower rate.

Consider bottom line over commission rate. What ends up in your pocket after the sale is more important!

If you would like information about selling your home, fill out the form below or contact me anytime.

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*Definitions
MLS = Multiple Listing Service. In the Portland metro area, we use the RMLS
FSBO = For Sale by Owner
CMA = comparative market analysis. This is a report that a real estate agent puts together to determine a home value. The agent will research recently sold properties that are comparable to yours, analyze their similarities and differences, then use the data to determine a value or value range. There are many factors that go into a good CMA.