The Truth Behind Real Estate Commissions
Who Really Pays The Commission
Contradictory to what homeowners believe, and many other real estate agents might believe, sellers do not pay the real estate commission. This is one of the biggest myths in the real estate business. It is often believed that sellers are the ones paying the real estate commissions because all the cheques made out to the listing agent and selling agent are usually paid from the seller’s proceeds at the close of a deal. However, it is always the buyer who pays the sales commission. This is because, while looking at selling, sellers are always looking for a buyer who can match their expectations. If not so, the seller will not proceed with the sale. In order to make sure that they receive the net amount from the sale of the property, sellers add in all the costs of the sale that include, but are not limited to, the real estate commissions, transfer tax (if and when applicable), the attorney’s fee (if any), escrow fee, title fee, costs of repairs (when any) etc. As part of the process of selling, sellers tend to raise the price of their property to accommodate all the additional costs mentioned above. This leads to the buyer paying the agent’s commission and other closing costs as part of the purchasing price.
Answering Commission Objections
When a buyer or seller hires a real estate agent to buy or sell property for them, they wish to appoint somebody who is well-versed with the process and can assist and guide them towards closing a deal at the earliest possible. Hence, while taking up a client, an agent must be prepared to go out of their way to help their clients close deals. This also includes marketing, coordinating with other real estate agents, arranging for and then accompanying clients to the property tour, answering all kinds of questions and also, commission objections. Many a time, agents are put on the spot and faced with questions that are hard to answer , or perhaps, even embarrassing to. Nevertheless, they must make sure to keep their cool and answer the questions to be best of their ability. Stated below, are a few examples of questions that an agent would be faced with one time or the other during their career, and also appropriate answers that will help them clear their clients’ doubts and keep the agent-client trust intact.
- Why is your commission so high?
This is a question that every agent is faced with at some point in their career, if not from every single client they meet. Since most clients fail to understand the hard work put in by an agent as well as the risks they are faced with while helping the client reach a valuable settlement, a question like this could deter them (the agents), perhaps even cause them to get irritated and agitated. In a situation like this, when an agent is faced with statements such as, ”Why is your commission so high, especially when you barely do any work?” Or “The other agents aren’t charging as much as you.”, it can be difficult for one to keep their cool.
However, instead of making their discomfort known to the client, as an agent, we believe is our duty to explain to the clients why they’re being charged a particular commission. This will help satisfy the client’s curiosity and also help them realise that they’re not being over charged unnecessarily. It is recommended that an agent state their value to their client by showing them a list of what they can do to earn the commission fee. This list should break everything down to the bottom line. The agent should also give the client a breakdown of the total amount the agent actually makes on the sale of the property, after deductions, since very little of the total commission actually goes to an agent while the rest is divided between the agent’s broker and additional expenses, such as the office rent and maintenance, electricity etc.
- Why should I sign a Buyer-Broker agreement with your firm?
Another question an agent is often faced with, is why the client should sign any form of buyer-broker agreement with them. Agents must explain to the client that there are a number of benefits in signing the agreement. The agreement officially allows the agent to show the buyer client all the properties on the market that are within the preferred price range and location that the client wishes to look for properties in. Without an official buyer-broker agreement, agents are not at liberty to show their clients all the properties on the market. Another advantage of signing agreements is that agents can look for properties that are not even on the market yet.
- Another agent is willing to list my home at a lower commission.
When sellers are looking at hiring agents who will help them sell their property, they are not only looking for agents who will get them the highest profit, but are also looking at finding an agent who can get them a higher profit at the minimal agent commission rate. This is the sad truth of what the real estate business has come down to. What clients must understand is that selling a house is a very complex job that requires a vast range of knowledge related to contracts, finance, marketing, negotiations etc. A knowledgeable realtor can get the buyer or his / her agent to agree to all the terms and conditions, and a price that is decided upon mutually, so it works well for both sides. Every agent charging a lower commission might not be able to negotiate the terms and conditions in a way that another agent charging a slightly higher commission is capable of.
Making an Agent’s Value Visible to Sellers
Most sellers live with the misconception that an agent does nothing to sell their home except for, maybe, the occasional add in the paper and a sign outside the house. In order to bust the myth, real estate agents must develop a list, system, or a “Seller’s Guide”, to educate clients on what the agent offers and how they will help the client understand the selling process.
Sellers who are new to the world of real estate have no idea about how they’re supposed to approach the entire selling process. Hence, it is advised that agents educate their clients on how the selling process really works, the do’s and dont’s, the possibilities and misconceptions etc. Simple contracts such as the listing agreements, purchase agreements, disclosures, and anything else that the agent might feel is pertinent to the process, must be included in the list of information a seller should know. Information like this reveals the complexity of the real estate transaction, and it also helps the sellers trust their agents more as they would then be well aware that the agents provide value. The seller’s guides must also include articles on how a real estate agent must be chosen. The seller must also be informed (and assured) that there is a team of people who are working to complete the complex selling transaction. These include the escrow and title officers, lawyers (if any), carpenters and painters, plumbers etc. The client must be kept in the loop regarding the whole process, from marketing to inspections, showcasing to negotiations, and finally, the closing.
Making the Value of an Agent Visible to Buyers
Aside from presenting buyers with a list stating what the agent does to earn their commission, the buyers must also be presented with a “Buyer’s Guidebook” that explains all the aspects of purchasing a home. They must also be reminded of the advantages and disadvantages of home ownership. These include income tax deductions, equity build-up, potential appreciation etc. The Buyer’s Guidebook must also specify the advantages of hiring a real estate agent to oversee the buying process.
Providing Specialized Services to Expired Listings
Selling a home that has previously been on the market or has been difficult to sell for whatever reasons is much more hard as compared to selling a newly listed house. The owners of these houses must be informed about the additional time and effort that will be involved on the agent’s part when helping them sell the house. This would also mean that the agents must be compensated accordingly. While working on selling such a listing, agents must explain to the sellers all the aspects of marketing such a property. It takes a certain amount of extra talent and tools to sell a “tainted” property. The fact that it’s been on the market for a significantly longer period of time means that it has been seen and dismissed by other potential buyers and their agents, too. Hence, it gets difficult to sell a property like this even when the price has been significantly lowered. Sellers must understand the benefits of hiring a top real estate agent to re-market a property that has not been able to get any interest from buyers for a long time.
In this case, an agent must be well equipped to:
• Analyse why the property has exceeded its time period on the market
• Help revamp the property to give it a fresher look
• Price the property accordingly
• Suggest various ways to stage the property
• Offer ideas to make the exterior as attractive as possible
• Develop a marketing plan to target potential buyers
There are often three keys to selling a property with an expired listing:
• The property must be priced in a way that potential buyers are attempted to view it.
• Property must be made to look fresher and newer with creative staging, painting, landscaping etc. to make it look more attractive.
• Owners must offer added incentives to their agents to help attract potential buyers to view the house. These incentives might include higher commission rates, future references, or other perks.
If you are trying to sell your house for a long time without any results, please re-read this article and give us a call! We at Gupta & Sen are specialists in the art of selling “difficult” properties. With our right mix of experience, marketing and research we can help you sell your property at a price that meets your expectations as well as market trends.
Do not miss a single article!
Submit your email id to get new articles directly into your email inbox!
- Top Ten Real Estate Law Firms in Mumbai - August 3, 2021
- Comparing Real Estate to Other Investments - May 21, 2021
- Evaluating Real Estate as Investment - May 17, 2021
