That is the question. But what does that mean? 1%?
In a word. Commission.
It has become more commonplace in real estate now to have a Realtor offer to sell your house for 1% commission. Sounds great, right? After all, most of the time you would pay 6%, 7% or even higher. So you have a chance to save some real money. On a house worth $200,000, a 1% agent can save you 5%, or $10,000 (assuming a 6% quote from another agent). Nice.
On the surface this seems like a no brainer. Why wouldn’t I want to save $10,000? Here I will just leave the old saying, “If it seems too good to be true, it probably is.” So here is the rub…
When you sit down and actually get the details, that 1% looks suspiciously like 4% before you have even had a chance to get comfortable in your chair. How you ask? What isn’t disclosed up front is that yes, you will be paying the listing agent 1% to sell your house. However, you also have to pay the buyer’s agent for bringing the buyer into the deal and doing all the work on that end. Typically, a 3% commission is offered.
So, now as you look at it, you are really saving only 2%, or $4,000 by using the 1% agent. Still a decent amount of money, for sure.
But, ask yourself this question. Do you want to work with someone who misleads you from the start? This is someone you are trusting to help you with likely the biggest transaction of your life. Is that a wise decision?
One answer might be; I don’t care. Saving money is saving money and it really doesn’t matter as long as I sell my house and save money. Fair enough. There are plenty of people who feel the same way and the perceived savings will continue to get those agents business.
Wait, you just said, perceived savings. Yes, I said perceived.
I say this because that $4,000 you believe you are going to be saving in most cases turns out to not be saved at all. Sometimes, you end up losing more. Let’s look at how.
What is that 1% agent not giving or doing for you? A saying that comes to mind here is, “you get what you pay for.” Logically one would conclude that the agent charging less money has to cut out services in order to survive. After all, a 5 star hotel cannot offer the services and amenities that come with its rating for a 2 star hotel price. Something has to give. Unfortunately, most people find out too late that those commission savings they thought they were getting are eaten up by time on market, price reductions, and overall bad negotiating on their behalf. Because something has to give for that agent as well. They have to do more deals to make the same money, so they have less time and resources per deal. Which means you get less.
The simple fact to remember is that houses do not sell themselves. Although sometimes it may seem like they do. In the background, what people do not see is a good agent has laid a ground work of talking to other agents/neighbors etc. before the house even hits the MLS. Buyers do not just stumble upon a house. Work has gone in to put that house in front of them. The less work an agent does, the fewer buyers see your house. And you don’t have to be an economist to know that means less demand means less money for you.
That $4,000 savings doesn’t look so good anymore when that agent doesn’t have time to market your house effectively and have it sit for sale for months, forcing you to do a $5,000 (or more) price reduction to boost interest, does it? It has now cost you more money using an agent charging less in commission. Believe me, this is more common than you think…But it can be avoided.
My advice to you is to interview several agents and find out how they work. Be less concerned about the amount you are paying them, and more concerned with the amount they are going to bring to you. Pick the one you can see the value they present. In the end, they are likely to be worth far more to you. Whether that be by getting you more money out of the house, save you a ton of personal time, or handle that tricky negotiation and keep a deal together. When it is all over, you will be glad you focused on the value and not the deal.