Why I can't justify high real estate commissions.

When I read this, I had to laugh. I’m always interested in how agents try to justify their commissions. This one’s pretty funny.

The settlement sheet shows that I’m going to receive ___% of the sale price of the home. But I don’t get to KEEP all of that. I take out a dollar bill and hold it up as a visual example. If another agent listed/sold the home, I have to split my money in half with them. RII-IIIIIP! (Ripping money, even just a dollar, gets people’s attention.) Then there’s my split with my broker (riiip!), my franchise fee (riiip!), my split with my partner, my E&O insurance, Uncle Sam’s portion, and all the money that I put in up front in gas, marketing and so on. Gentle reminder: my job does not have insurance or a 401K, so for those I’m on my own. We end our discussion looking at my little confetti pile and the tiny scrap of dollar that I’m still holding. It’s very small, if I’m lucky about the size of a postage stamp, but usually less than that. I do not earn what the public thinks I earn. Educating my clients keeps them from feeling rippped off at the successful end of our quest, more likely (I hope!) to use me again or refer me to friends and family. A quote from Sarah Cooper’s Blog

Here’s why I don’t think you can justify high commissions selling a home in Denver. (and probably just about anywhere with a good MLS)

1. Nobody cares. All businesses have costs and overhead. There are thousands of people out there who are self-employed in the same position as a Realtor is. You don’t see them tearing up money just to make a point. Most business owners manage business costs closely. Realtors, as a whole, do not.
2. As home values go up, so do commissions. 10 years ago in most parts of Denver, the cost of a home may have been $150,000. Your commission at 6%? $9000. Today, it still takes the same amount of work to sell the same home. Home value? $350,000. Today’s commission, $21,000. Even after splits and co-ops this is a lot for the amount of work that’s involved. Even after calculating in cost of living adjustments, you’re still in pretty good shape.

3. It’s easier than ever to sell a home. Especially for a listing agent. When you look back at the time spent it’s typically much less than that spent with buyers. Denver has a very cooperative MLS. If you offer a co-op, all those agents out there spending money to find buyers will come with their buyers to the house. In the end, 80% of homes on the MLS sell with the help a a buyer’s agent.

It’s pretty short-sighted to gouge consumers for more than you need to in order to make a good living. I’m not saying it’s not expensive to be a Realtor. There is definitely a point where you can’t go any lower without operating at a loss or cutting service. Most discounters go straight to cutting service. That’s why not all discount agents are successful. They believe that they really are worth those high commissions so they cut their services proportionate to their fees. Bad idea. Work a little harder for a change.

I like being busy. I sell homes for less because it makes me more money. That may seem funny to other Realtors but not to the rest of the world. If I offer the same service for less, who do you think they’re going to go with? It’s amazing how easy it is to get listings when you are telling people what they already believe. Just wait until they tell their friends.

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