Recently I went on a listing appointment and was asked a question that I was surprised I have not been asked before:  Why is your commission so high & will you cut your commission?  I know that times are tight and home values have fallen and so I am surprised that I have not had this question asked more often!  So when I was asked this question, I had a lot of different options on how I could answer it -  I could say a very easy “My company won’t let me cut my commission” and throw it back onto the back of my company!  Or I could say something very flip like “If I am willing to cut my commission, then how hard do you think I would fight to help you get the best price possible?”  Or I could even say an even more flip answer of “Well if I cut my commission, then what parts of the marketing do you want to give up?”  But I think that answers like this are an easy way out for the agent.  I think it is up to the Realtor to show their potential clients what value they are getting for the commission they will pay.

So to answer this seller’s question, I wanted to let them know just how the commission works, and how each Realtor in the transaction is paid.  For instance, if I list your home and it sells for $200,000 and you have agreed to pay a 6% commission, then the seller has paid $12,000 in commissions to my Broker.  But when I take your listing, I am going to put it in MLS, and I am going to agree to split the commission with the Realtor who brings you a buyer whose offer you can accept.  Now, instead of receiving the full $12,000, my Broker will receive only $6,000.  But my Broker and I have a split arrangement, so I will not receive the full $6,000 but a percentage of that, based on what my arrangement is with my Broker.

After going through this with the seller I was talking to, his response was:  so if I am going to pay $6,000 to your Broker AND $6,000 to the Buyer’s Broker, just what did I get for the $12,000 I paid out?  This is where I think it is up to us to let the sellers know just what they get for their money!

• Education & Experience:  Today’s real estate transaction is very complicated!  The contracts, the disclosures, the environmental issues, referrals to good service providers, buyer loan issues, etc.  Realtors earn their income when a property closes, and in today’s real estate environment, transactions are getting harder & harder to get to closing.  Realtors need to be aware of the recent changes in laws and loan programs & processes so that they know how to advise their clients (whether they are Buyers or Sellers) on how to get the transaction to the closing table.  Part of what you are paying for is the education & experience that comes with a Realtor who chooses to keep themselves updated on the ever changing marketplace!
• Market Knowledge:  Even in someplace like Richmond, VA, you will find big differences in the real estate market within the different real estate areas.  Again, part of what you are paying for is the knowledge that a full time Realtor has and the time it takes to keep up with the market conditions and how these changes affect your home sale or purchase!
• Negotiation Skills & Confidentiality:  A Realtor who keeps up with the market place and the market conditions can often assist their clients (whether Buyers or Sellers) with the negotiating strategy needed to get the home purchased or sold!  An experienced Realtor is someone who is trained to present offers in their client’s best light, not let emotions rule the negotiation & keep all client information confidential!
• Marketing Skills:  During the boom times and the strong seller’s market we had 4 or 5 years ago, marketing of homes was minimal at best.  Now, when a home is listed for sale, it is taking a much longer time to get the home sold.  This means that more marketing is needed.  Open houses, newspaper ads, internet sites, email flyers, agent caravans, the MLS, videos and virtual tours, full color brochures, take one brochures, signage – there are more and more things needed today to get buyers into houses and to find the one buyer who wants to buy your home at the price you want to sell it at!  For many buyers, there are so many homes on the market that they are looking at lots and lots of homes before making decisions about what to buy and then working with their Realtor to structure and negotiate the offer!  The commission that you pay for the sale of your home covers not only the marketing costs of your Listing Realtor, but it also covers the time and gas that it takes to get the potential buyer to come into your home and, hopefully, write up an offer that can be worked out. 
• Referral Fees:  Today there are more and more companies who are set up to refer potential buyers and sellers to the Realtors.  To get these referrals, the Realtor agrees to pay a percentage of their commissions to the company who supplied the referral.  For the buyer or seller who ends up using the Realtor they were referred to, they may not be aware that the Realtor paid a fee to a company.  Sometimes these referral fees end up being returned to the buyer or seller in the form of a rebate after closing. 
• Additional Fees:  In addition to any of the other costs that are incurred by the Realtor in working with their buyers or sellers, all Realtors have certain additional fees that they have to pay.  These include things like MLS fees (so that listings can be put into the MLS), lockboxes and lockbox key fees, mandatory continuing education fees to keep their licenses current, local and national association dues, car insurance, Errors & Omissions Insurance,

When I have explained to the sellers that I have worked with that the commission is not just the amount of money used to market their homes, most sellers have been fine with paying the commission that I charge!  However, for some of the sellers I have talked to who would prefer not to pay this commission and do it on their own, keep in mind some of the costs that you will incur, whether you use a Realtor to sell your home or not:

• A commission to the Buyers Agent who brings you an acceptable buyer offer
• Fee to an attorney to review your documents when you have received a contract and/or addendums
• Costs of newspaper ads that you will need to run
• Costs of any signage you will need to put in front of your home
• Costs of color brochures for the buyers to take when viewing your home
• Your time to make sure that buyers can get into your home at their convenience
• Your time to research the market to make sure you are properly pricing your home to sell
• The ability to emotionally remove yourself when negotiating contracts with buyers in today’s market
• Your time to keep up with the progress and status of your buyer’s loan
• Your time to meet with the appraiser and to research comparables should your appraisal come in lower than your sale price

Buying a home in today’s real estate market is a complicated task – a full time Realtor who has taken the time to educate themselves about the marketplace & the conditions that will affect the buying and selling of homes today has a value.  The money that a seller pays to the Realtors involved in the transaction goes a long way to helping to make sure that the transaction closes smoothly and that any issues that come up on the transaction are able to be handled in a professional manner so that the clients (whether Buyer or Seller) are not impacted by those issues!

I welcome any comments you may have on this!  Have a happy Easter!