Few people are lucky enough to get the full asking price when they sell their homes. Sure, we hear a lot of cocktail stories about the times it happens, but unless you’re in a strong sellers market, it’s more of a wish than a reality.
It’s much more likely that you’ll have to come down on your asking price, by at least a few thousand dollars. A house is a major purchase, and most buyers will want to get the best deal possible. That’s where price negotiations enter the picture.
Unfortunately, if you list your home with a real estate agent and you have to pay a 6% real estate commission, you’ll have less room to negotiate on the price. This is critical too – no matter what you do right up to that point, if you can’t be flexible on the final price negotiations, you will lose the sale. That will force you to keep your home on the market longer – and the longer your house sits on the market, the less you’re likely to sell it for.
There are several reasons why the real estate commission will force you to sacrifice price flexibility, and cost you a sale.
You Will Need to Recover the 6% Real Estate Commission
Right from the start, the fact that you have to pay a real estate commission means you will have less price flexibility – especially compared with people who are selling their homes without real estate agents.
This is more important than most sellers realize. If a home is well priced, it will usually sell within 5% of listing price, and even less if the housing market in the area is strong. But if you have to pay a 6% commission, that’s more than the 5% spread between the listing price and the final sale price.
Should you settle on a final sale price that’s 5% below your listing price, you’re actually giving up 11% of that sale price when you add the 6% commission to the equation.
It should go without saying that the need to pay the real estate commission will compromise your ability to be flexible in price negotiations. You’ll necessarily want to get as close to your listing price as possible, largely in anticipation of having to pay the commission.
Now compare your bargaining position to the seller of a comparable home nearby, who hasn’t listed the property with a real estate agent, and won’t need to pay a 6% commission. That for sale by owner (FSBO) property seller will have a built-in advantage in negotiating compared to you. He won’t need to cover a 6% commission, and will be in stronger position to negotiate a final price that will keep the buyers in the sale.
Needless to say, it’s very possible that you could lose a sale if you’re going up against a FSBO property. The FSBO seller simply has more room to negotiate, and that will naturally be looked upon with favor by a potential buyer.
A Higher Sale Price = A Higher Real Estate Commission
As a matter of self-interest, a real estate agent may have a bias toward a higher sale price. After all, the higher the sale price is, the higher the real estate commission will be. That means more income for the agent.
The agent may also be under pressure from his or her broker to press for higher sales prices for the very same reason. After all, a real estate agency is a sales office, and it’s all about numbers. The higher they are, the more the agency collects in fee income.
This can be even more significant if you’ve made it clear to the agent that you need a certain minimum amount of money from the sale. That being the case, the agent will have two choices:
- Defend a higher sale price, or
- Cut his commission to enable the sale.
No agent – or her broker – ever wants to cut a real estate commission – any more than you’d want to accept a salary reduction at work. The agent (and her broker) will do all they can to protect the full commission, and that could put an end to an otherwise viable sale.
A Real Estate Agent May Be Defending a Certain Price Level in Your Neighborhood
The last sale in any neighborhood has a disproportionate effect on property values in the neighborhood. If the agent (or the agency) has one or more listings in your neighborhood, he may be reluctant to support a significant reduction in your final sale price. Doing so could force a price cut for the other listed properties in the neighborhood.
That could lead to the agent (or agency) losing one or more of those listings, and that will translate to a lot less income to the agent and his agency.
Not All Real Estate Agent Are Real Professionals
Not to indict the entire real estate industry, but there are a large number of real estate agents who are less than professional. There are various reasons for this –
- Many agents are part-timers
- Many are brand new (the turnover rate in agents is much higher than in most other fields)
- Many are pure sales people – they’re primarily interested in turning big numbers
- Like other fields, some agents have no business being in the business.
As much as you may want to assume that your agent is a real professional who is well qualified to provide you with the advice you need, it isn’t always true. Your own “gut feelings” about your property and the sale may be more reliable than what a poor or mediocre real estate agent would recommend. It’s just a sad reality of the industry.
Keeping that in mind, you should seriously consider going the FSBO route and selling your home yourself. Not having to pay a 6% real estate commission will give you complete control over the negotiation process in the sale of your home. You can do it – and you can use my Selling Your Home Made Simple program to help you make the sale happen. The program will show you everything you that you need to market and sell your home without using a real estate agent.
With no real estate commission to pay, you’ll have more room to negotiate the final price, and you’ll even walk away with more money.
( Photo by MarkMoz12 )
