The Listing is where the money is.
What does this have to do with Commissions? Plenty. By paying the Realtor a proper commission, you are energizing the Realtor to aggressively market your property which in turn might drive the Realtor to other listings.
Commissions are like gasoline. You pump some inexpensive after market rot gut into your high compression motor and you’re in for a rocky road. By paying a few cents more you’ll receive a smoother, more efficient ride that not only increases your miles per gallon but also creates a longer running machine – a relationship if you will.
If you low ball the Realtor on the commission the Realtor sees two items relative to their other listings:
- Reduced direct return on your property
- His/her time value of money in promoting your property as a precursor to follow on listings is low
And it doesn’t matter one darn bit if you have a trailer or a mansion.
In Key West through Feb 2012 the average sales price was $450,000 (same as Feb 2011). 7% (commission) of $450,000 is $31,500. Over 90% of all residential sales are between a selling agent and a buying agent so overwhelmingly that commission is split in two, half to the listing/selling Broker, half to the buying Broker.
Generally speaking I keep 4% and give 3%. So 4% is $18,000. (3% is $13,500). That $18,000 goes to my Broker. He pays corporate fees and splits the rest with me. That split is based on overall performance; i.e., the more commission money I bring in, the more generous is the split. Let’s say the split is 60% for me/40% for the Broker. 60% of $18,000 is $10,800.
In Key West through Feb 2012, the average number of days it took to sell a property was 140 days (17% less than in Feb 2011). $10,800 divided by 140 equals $77 per day, not counting costs:
- Direct costs like advertising, mailing, property specific web sites
- Indirect or amortized costs like Realtor Association dues, program enhancement fees charged by the Broker, supplies
- And of course good ole time and energy
Would you work for $77 per day?
Is it any wonder Realtors are always on the prowl for listings?
I was talking to a lady recently about putting her house back on the market. It had recently Expired. Actually she had been trying to sell two homes and neither were going anywhere. I called her, she called me. Each time we spoke she was too busy to discuss the issue of listing and selling. She said she”d call me when she had the time. She wanted to sell both homes, both at 4% commissions and both at the same previous failed prices that no one had yet bothered to buy.
The sum of both sale prices was around $1.2M. Rough numbers:
- 4% of $1.2M is $48,000
- Half to selling broker, half to buying broker or $24,000 each
- 60% split to me is $14,400
- If sold in 140 days that’s about $100 per day, minus costs.
- Considering the owner wanted no change in list price, is making no enhancements to property and the sales market is very competitive, the probability of a sale is low.
I waited for two days and called her back to see if she had time to sit down and discuss selling her properties. What’s that? She listed both homes for sale two days previous, the same afternoon we last spoke. Oh well, two less things to worry about.
Commissions are an investment on your rate of return. As always, investigate before investing.
Every Realtor should have a written Marketing Plan. A top Realtor will have a Premium Marketing Plan. Here’s a snapshot of my Premium Marketing Plan:
- Dynamic internet presence, broad and deep.
- Visualizations – narrated video and a virtual tour and multiple photos
- Personal promotions
- Weekly written progress and analytical reports to the seller
Can commissions be a rip off? You bet. But the time to prevent from being ripped off is before you sign that Exclusive Listing Agreement. Make sure your Realtor-to-be can:
- Justify the List Price as a price that will actually cause your property to sell
- Present and utilize a Premium Marketing Plan to justify a full commission
Combine these two elements with the Realtor’s desire to serve and the sale will happen just like you want it to. You’ll be happy to pay the commission because your Realtor earned it.
If you have any comments, please contact me here.