Dear Monty column: Are real estate commissions fair?
Reader Question: I’m the homeowner. I just listed my home with a real estate agent. I told a friend I was selling, and they want to buy it for cash. I called my agent to negotiate the $24,000 commission because it hasn’t been on the market 24 hours. My agent said her company does not permit a reduction. Her reaction isn’t very comforting and does not seem fair. Is there anything I can do to get them to reduce their commission?
Monty’s Answer: In my home state, the listing agreement states if the seller turns up a prospect, they must turn it over to the agent to follow up on it. Most states have a similar clause in listing contracts. Read your listing agreement carefully to see if such language exists. While it may not be practical in most cases, one approach may suggest that you are taking your home off the market. That may get their attention. Part of a commission rather than no commission may be a helpful negotiating tool. Consider first asking your friends if they will wait until the broker protection clause expires in the contract and that they have proof of funds. You may also want to check with legal counsel because every state’s real estate law is unique.
Situations when the commission feels unfair:
- Homes in like-new condition and sought-after neighborhoods.
- The seller knows the buyer, or the buyer knows of the seller.
- The price is at the low end of the range of value in the neighborhood.
- When, for whatever reason, it sells quickly.
Why are real estate commissions high
The National Association of Realtors (NAR) has a powerful lobby in both state and national governments.
Commissions must consider the hidden cost of both time and money spent on expired listings, failed transactions and lead-generation, which is enormous. The fact that the industry operates with inefficient models makes correcting these flaws challenging to accomplish.
Consumers play a role as well. Some home sellers are emotionally attached to their homes and ignore market facts when pricing to sell it for more than the market suggests. Buyers can be complicit because they will pay more than the market suggests. Pricing property is not an exact science. Here is a Dear Monty article about pricing a home (http://bit.ly/Jrs9ec) to provide some context.
Are changes in the future?
While it is true that the industry is inefficient, it still works. To date, none of the new ideas attempted have proven successful. Here is a link about a pending lawsuit (https://cnn.it/3a61brR) that may have an impact if it is successful. New idea start-ups are continually launching as companies seek methods to capture market share from the incumbents. If some of these new ideas take root, they could impact the future. There are several new concepts with very different views. They want to improve the real estate transaction to eliminate the type of issue that you are experiencing. Here is one example of a different idea at Homeshake.com.
Richard Montgomery is the author of “House Money - An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com.