Real Estate 101

Real Estate 101

Breaking Down the Commission a Realtor Charges

The first thing any home owner needs to know before speaking with any realtor whether it's a full service realtor or especially a "discount broker" is exactly how the commission rate is going to break down before you ever sign a listing agreement. This is absolutely critical to understand, because it is our opinion and we would like to think any reputable realtor will agree with us that the most critical component to the commission is what the realtor you are listing your home with is going to pay the other realtor to sell it for you.

In over 95% of the homes that are listed and sold, the listing agent is not the selling agent. So out of the 3% that the "discount broker" is going to list your property for, what percent is he/she going to pay the other agent to sell it for them? That's a tough question for them that you need to make sure you get their answer in writing. Why? Because what usually entices other agents to show your property is not just your "smashing home" it's the commission they are going to be paid when they sell it!

So, if your market pays 2.5% or 2.7% to the selling agent, what's in it for the listing agent? Not much! The problem is, that type of agent will list your home and put it in the MLS, but you will find that they pay the selling agent in most cases either 1%, .5% or 0%. Now, what incentive do you think that gives an agent with a buyer they are working with to show your property? The answer is NONE!

That is why it is critical to work with top agents that know how to market your property and one of those marketing strategies is to pay at the very minimum 2.5% or 2.7% to the selling agent.

As a matter of fact, we like to say an "aggressive" agent is one that will pay more than the going rate. Now that's how to drive other agents to your home!

If you work with the best, you will more than likely get the best price! Our focus is to get you as close to "discount" commission levels without jeopardizing the sale of your home. In the end you always get what you pay for!

Discount vs. Full Service Brokers

Discount brokers have many different models.

For an example:

One company will list your home on the Multiple Listing Service, or MLS, show your property to prospective buyers, and help you take the transaction to closing.

They do attempt to set a lower commission rate while providing some incentive to the buyer's agent.

The problem is that there isn’t much incentive for the buyer’s agent to tell their client about your home, since the reduced commission is usually deducted from the agent who is actually bringing you the buyer, not the listing agent.

These companies are either at 1 percent below the traditional commission (6%-7%) or a minimum listing fee of $2,000. Understand, that's in addition to an agreed-upon fee which is paid to any cooperating broker who brings a buyer.

With the minimum listing fee, and assuming a 3-percent commission to an agent with a buyer, it would ultimately cost the seller of a $200,000 home $8,000 to sell through this company. If the seller had gone with a full service broker at a reduced rate, the commission paid would have been $10,000.

The problem is that you are shelling out appx. $2,000.00 up front, which is non-refundable. If that doesn’t work out, you have a real problem! The other flaw we see with this model is that you are more likely to find an agent that is going to take your listing for the $2,000.00 even if they know the home is either grossly over priced or under priced. They just don’t care about the real issues. What you end up with, in our opinion, is a salesman that will tell you anything in order to get you to forfeit the up front fee.

It all sounds pretty tempting... but is there a real savings?

Let’s look at another discount broker's model before we show you the hard facts.

Another nationally recognized discount broker offers a choice of three marketing programs:

· Direct-to-Buyers Program: The total commission is a low flat fee (up-front), generally starting around $2,995, which means these agents will show your home, help with the negotiations and paperwork, but won't list your home on the MLS. In most markets where there is a wider range of values, these companies may offer a graduated fee structure.

Bottom line, choosing this option means the seller will be counting on their new agent to find the buyer for your home through their own marketing efforts and not through the cooperation of all the other agents through the MLS. On the flip side, your new agent is probably counting on you yourself to bring in the buyer. In the end they still get paid their fee regardless of whether they sell the home or you sell your home on your own.

· MLS-for-Less Program: Here is another avenue you can take by utilizing the agent’s access to the MLS. Their company is willing to do this option for a total fee which is determined by adding the flat fee plus the commission ie 2 percent to 3 percent of the home's selling price, to be paid to the cooperating MLS agent or brokerage who obtains the buyer. Your home would be listed on the MLS and enjoy that broader marketing exposure. Again, a $200,000 sale price would cost the seller the fee -- say $2,995 -- plus the 3 percent ($6,000) for a total selling fee of $8,995, resulting in a minimal savings to you.

Once again, you have paid an up front fee of $2,995.00 without ever having seen a potential buyer. They may reduce any commission in order to pocket the additional commission for themselves. (This is a major disadvantage when trying to get agents to show your property to their buyers, especially in a buyers market. (This means the buyers are the most sought after entity and listings are more common than buyer's.) There is yet another flaw, but we will point it out in the final analysis.

· Paperwork only Program: You, as the seller of your home, find the buyer on your own, but an agent from the discount brokers office will handle all the paperwork that's involved with the real estate transaction ie. coordinating with the mortgage company, the title company and the attorneys. The typically fee is appx. $2,500 for this service via this method.

Here is the problem that you need to understand. Most of the realtors we have access to are more than happy to do this for 1% if you were sell your property on your own. In this case, you end up spending an additional $500.00 to use the “Discount Broker.”

What’s missing in all these examples?

It’s the true cost of keeping your home on the market for an extended amount of time. Remember the old sayings? “You get what you pay for” & “If it’s to good to be true, it probably is?” What I mean by this is that it usually takes an additional 120 days longer to sell your home via a discount broker, if it sells at all? Given this additional time, and the cost of your mortgage over the extra 3 months it takes to sell your home, you have a considerable more amount of money that it costs you to go this direction and it's funny how everyone seems to forget to mention this tidbit of information when they talk about all the discount savings they are offering.

Here’s the final analysis:

Let’s use a $200,000.00 mortgage at 6% for a 30 year term as an example. Based on selling your home for $250,000.00 with a discount broker at 3% plus $2995.00 fee up front fee and compare it to a full service broker and see who comes out ahead.

Discount Broker Model:

A $200,000.00 mortgage 30 year term at 6% costs you $1,199.10 per month before taxes and insurance.

The additional 3 months of payment you have made in order to sell it via a discount broker costs you $3,597.30. (I can assure you that almost nothing of this will be applied to your principle balance.)
You paid $7,500.00 at 3% to the co-broker or to both brokers in commissions to sell your home.
You also paid $2,995.00 for a flat fee up front.
Your grand total comes out to $14,092.30 to use a discount broker.
Now let’s say this discount broker sells your property on their own, but you are using the MLS-for-Less Program. They make the entire commission for themselves and you have absolutely no savings.

Full Service Broker Model:

Let’s look at using a full service broker at, say, 5% based on the same sales price.

Your property sells for $250,000.000
Total Commission is at 5%
Your Grand total comes to $12,500.00. (A Savings of $1,592.30 vs the discount broker)
Now let’s say this agent has agreed to do it for 3% if they sell the property on their own by bringing a buyer themselves. Your grand total would only be $7,500.00. (A Savings of $6,592.30 vs. the discount broker)
The reason the full service sells faster is that the realtor is paying out of their own pocket to advertise your home. You pay nothing to the agent to list your home.

So, where is the savings?

The savings is obviously in using the full service broker.

They typically sell your property faster than discount brokers.
They pay all of your up front costs in order to sell your home properly.
They are full time, seasoned veterans that take pride in bringing the very best service to their clients.
They don’t make anything unless they sell your property.
Best of all, there really is a true savings dealing with a full service broker.

Bottom Line:

This means that you can expect the full service broker to sell your home as fast as they possibly can. You see, the faster they sell your home, the less money they have to spend advertising and marketing- not to mention the time that is spent doing open houses and agents hate to do open houses and related services.

How does Aggressive Real Estate Agents save you money?

Aggressive Real Estate Agents has direct access to over 100,000 of the top realtors in the industry. We act on your behalf as your professional consultant in order to negotiate and provide you with direct contact to realtors who are willing to provide the lowest possible commission while still giving you the advantage of full service and marketing when selling your home.

You are able to use Aggressive Real Estate Agents access, as well as our expertise, to negotiate the lowest commission, while saving you valuable time. Time is money, and expertise is priceless. Aggressive Real Estate Agents can quickly put you in contact with professional realtors that will help you sell your home faster and provide you with the menu of services you deserve.

And remember, Aggressive Real Estate Agents is a free service for the seller, and an inexpaensive resource to the agents!