Realtor Commissions & The Truth Sellers Should Know

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When it comes to hiring a Realtor many focus much less on what knowledge & expertise & skills a Realtor might have & base their hiring decision primarily on the real estate commission they charge.

In my book called “Choose Your Realtor Carefully” one of the many important topics I cover is the importance of strategically interviewing Realtors to find the best fit for you.

That doesn’t mean the highest number of sales in their  brokerage or the highest number of years in the real estate business.

It also doesn’t mean the Realtor with the most sold signs in an  area or the most bench ads.

In my book I offer interview questions to determine what skills a Realtor might have that are important  to you.

What experience they’ve had with your type of unique requirements for your upcoming  move.

And of course I would be remiss if I didn’t mention the right personality & approach to work well together with you and most overlooked … the  utmost integrity.

BTW … I’m not trying to plug my book sales. In fact if you want a free copy just let me know and I’d be happy to send it to you.

Now please don’t get me wrong… I understand that money is very important to everyone.

But be careful because the Realtor who offers the largest discount on their commission might not necessarily be the Realtor who can put the most money in your pocket.

And that is of course the most important thing you care about isn’t it … the most money in your bank account at the end of the process?

Here’s a specific example to illustrate what I’m talking about.

For Realtors in Toronto and around the Greater Toronto Area the standard real estate commission to list your property is 5%.

And sometimes you’ll see an ad by a Real Estate Agent where their Ad boasts 1% commission.

Usually that means they are offering a 1% discount off the total 5%.

In other words 4% instead of 5% … not 1% total.

Let me point out something else real quick here that’s very important.

When a listing brokerage charges 5% total the Realtor you hire doesn’t keep the full 5% .

They MUST offer out half of that [2.5% on the MLS] to the real estate agent who brings Buyers to see your property … and represents the Buyer who buys your home.

So it’s impossible for the TOTAL real estate commission you pay to be only 1%.

Now let’s say you have a $900,000 home you want to sell.
So the total savings on real estate commissions (with a 1% discount) is $9,000.00.

You’re probably thinking “Michael if I can save $9,000 then why wouldn’t I ?  
$9,000 is a lot of money.”

And I couldn’t agree with you more. If a friend asked you to give them $9000 so they could send their kids to camp you would look at them like they fell off another planet  … LOL.

But what you really need to determine is which Realtor is going to do the best negotiating for you to get the highest selling price & put the most money in your bank account?

Here’s what I mean and why this is SO IMPORTANT and might not seem obvious.

You have to consider two things.

1. If a Realtor doesn’t have the  ability to justify or “sell” themselves and their OWN value (and so must discount themselves like a commodity) then what makes you think they have the  knowledge, skill or ability to justify the highest value of your home to a potential  Buyer?

They clearly don’t know how to sell value and instead they simply offer a discount.

But let’s face it. This isn’t Walmart & your home isn’t just another commodity on a shelf.

There is value in your home and I guarantee there are unique features & benefits to someone buying your home.

So you need someone who is skilled at selling VALUE not discounting a commodity.

And #2. I’d really like you to think about this for a minute.

If you interview a Realtor to sell your home and you can convince them to reduce their fees do you realize you’ve just out-negotiated the person you are hiring and paying to negotiate the sale of your single largest  asset for you?

These are just fancy words. Here are some real numbers to put this into perspective.

Let’s say you have a home listed for sale at $900,000. And let’s say you receive an offer of $875k.

That’s not entirely unreasonable or uncommon. Every buyer wants to feel they got a discount if they can and they never start with their best offer.

Now let’s say you’ve hired a discount Realtor who can’t justify (or SELL) value. And if you out-negotiated the person who is supposed to do it for a living then they aren’t the best negotiator.

As your Real Estate Agent they might present that new offer to you & tell you that “it’s a good offer – perfectly reasonable – and you should accept it”. 

Or “It’s only a slight discount off the asking price”.

Now here’s the BIG “WHAT  IF” … What if a Realtor who IS a skilled negotiator & knows how to sell value (the value of your home) goes back to that Buyer’s agent & convinces them to raise their offer by $9k to $884,000.00?

Do you realize that by negotiating that offer higher by ONLY $9k that offsets the same $9k you thought you saved when your Realtor lowered their fees by 1%.

In other words you haven’t saved a single penny. You’ve merely broken even.

Now what if that same Real Estate Agent (the negotiator who sells value) raised the initial offer you received from the buyer by $15k to $890,000 from $875,000?

Well then, not only is the 1% difference in fees/commissions a wash (one cancels out the other) but the EXTRA $6,000.00 goes into your pocket.

You NET $6,000.00 MORE with the agent you paid the full 5% because he was able to negotiate MORE than the 1% to justify the fee.

So if I (for example) got that initial $875k to $885,000 or anything more than that every additional dollar I negotiated above & beyond that 1% difference in fees goes into your bank account .. not mine (or the Realtor you hire).

So just to be clear … you might think by getting a 1% discount you saved $9,000.00 (in this analogy).

But you might in fact have walked away with LESS NET profit at the end in your bank account.

And finally, if you think this is irrelevant in times when there are multiple offers or bidding wars when the market is hot you  might consider this same principal applies. You might have 2 offers bidding for your  property at the end of the night.  

And it would be very easy for a “discount” agent to just tell you to take the highest offer (because it’s already more than the amount you expected to sell for. It’s a no-brainer right ???

Well not too long ago I was working for a client (a seller) and by midnight we had 2 offers remaining and one was slightly higher than the other.

My clients were tired and ready to just accept the higher offer of the two remaining offers. It was already far more than they expected  to  get  for  their house.

I looked at them and said “What if I just go back to the agent with one more strategy I have and I can get a few more thousand out of them?  Would that be ok?”

They said sure so I tried one of my many negotiating strategies that I’ve even taught some  other Real Estate Agents over the years.

And guess what?  I got an additional $5,000.00 more from the Buyers who had the offer my clients were ready to accept.

So high-skilled negotiating and selling value can still put more money in YOUR bank account even in multiple-offer situations.

The moral of this story … don’t be what my Accountant refers to as “A penny wise but pound foolish”.

The full-price real estate agent can likely put far more money in YOUR bank account than a  discount agent.

You might be saving $10,000 in fees, but leaving an extra $20,000, or $30,000, or $50,000, or even six figures in some cases on the table for the Buyers that COULD HAVE been in your bank instead of theirs!

If you are thinking of selling your home and want to talk more about Realtor commissions I’m happy to chat.

You can email or call me any time.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]