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Negotiating the commission crunch

Selling your homeIf Mike and Diane Amburn sold their home in New Albany, Ind., for its listing price, the real estate agents in the transaction would share a $10,170 paycheck.

That's quite a bite out of the profit the Amburns were hoping to pocket. They've paid only four years on their 30-year mortgage and must also use the sale proceeds to pay off a home equity loan on the property.

Such calculations prompted Garry Qualls to make commission rates one of his deal-breakers when choosing an agent to sell his abode up the road in Plainfield, Ind. If the Amburns had the 4-percent commission that Qualls bartered, they would whittle a respectable $3,390 from what they would owe their agent.

Qualls was well within his rights to ask for a discount. The real estate agent's fee is merely customary. Setting it in regulatory stone would constitute illegal price fixing.

Commission dickering has become more common, says Terry Light, president of Realestate.com, a real estate listing site headquartered in Mission Viejo, Calif. According to agents such as Crissie Cudd with Prudential Florida WCI Reality in Naples, Fla., it's high-end sellers, not folks like the Amburns, who are more prone to ask for a deal.

 

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Cudd defines high-end as $1.5 million or more. A few percentage points on such a sale can really add up. So why don't more sellers of modest cottages as well as multimillion dollar estates negotiate with their real estate agent?

"It's usually the case of the consumer not having the courage to negotiate with the sales person in their living room. We're taught manners as children, so when someone enters your home, you treat them with respect and dignity," says Bradley Inman, owner of HomeGain.com, a national online real estate services player. "So when the commissioned salesperson says the fee is 6 percent, you don't want to be rude."

Subtle saving strategies
Consumer aversion to haggling has opened several clever routes.

Some real estate Web sites offer sellers a chance to solicit anonymous bids from agents for the right to list their homes. According to Inman, forcing real estate agents' hands this way has brought the commissions of his participating employees, all of whom must at least belong to the National Association of Realtors, down to 4.9 percent.

"These are top-producing agents," he says, "not weak-kneed low performers who need to get into the business and will discount their rates to do so."

Some membership groups negotiate group commission rebates on home sales when members go through a preferred vendor. Costco is among the bigger names to jump into this pond. This route accomplishes the same savings as lowering the agent's final commission by nearly 1 percent. If the Amburns, for example, were eligible for such a program, they would save $1,050.

But proceed cautiously, Inman warns.

"Consumers need to investigate the competency of the person standing in the booth at these venues," he explains. "You don't want an agent desperate enough to stand in Costco on Saturday afternoon to drum up business."

And such network arrangements, according to USA Today, are illegal or blocked in Alaska, Iowa, Kansas, Kentucky, Louisiana, Mississippi, New Hampshire, New Jersey, Oklahoma, Oregon, Tennessee and West Virginia.

Agencies are adjusting
Real estate agencies themselves, prodded by the zero commission, for-sale-by-owner competition, have begun offering olive branches.

Independent agencies seem to be leading the lower-rate revolution. Some Midwest realty independents advertise flat commission rates, regardless of a home's selling price. Others offer sliding scale commissions that allow the seller to choose a particular marketing package.

Qualls, for instance, allotted 3.5 percent toward the buyer's agent and a half-percent to his listing agent to get him in the Multiple Listing Service. The rate escalated if he opted for Internet listings and real estate agent-hosted open houses.

Not to be outdone, some larger realty companies are also offering commission flexibility. Coldwell Banker, for example, is experimenting in Pittsburgh and Springfield, Ill., with a 2 percent limited plan offer.

Start by asking
The path to seller savings begins with a simple question: Is your listing commission negotiable? But be sure you understand the answer.

Full-service agents ante their own funds to advertise your home. The lower the commission, the less incentive for an agent to invest her own cash to market your home, Cudd notes.

"The agent who immediately caves on commission for themselves probably won't be the strongest negotiator when it comes to getting you a good price on your property," she adds. "If I'm willing to give away my money, I'm sure as heck willing to give away yours."

And don't forget that two agents ultimately get their hands on your commission: the listing agent and the buyer's representative. Properties with piddling percentage kickbacks aren't going to get priority treatment from an agent searching for suitable homes to show eager buyers, or so goes the argument. Inman brushes off that line as a threat to keep the commission status quo.

"Does it happen? Probably, but not as much as people think," he says. "If they were to do that I'd encourage the Board of Realtors to expel them from the system. It's absolutely unethical and sleazy."

But you can't totally discount human nature, Light contends. That's why he and other experts recommend not slicing the buyer's agent portion any lower than 3 percent.

Also, make sure a lower rate doesn't mean the sacrifice of multiple listing information. Yard signs attract less than 8 percent of all buyers, according to Inman. "The MLS is the market place," he insists. "It's what we have that the rest of the world doesn't, and it works."

Finally, sellers must make commission concessions sweeter for the agents. In slow markets, an agent might not be inclined to reduce his take because your house will require attention (and ad dollars) for a longer time, says Light. If your home is in a popular neighborhood, however, point out how the interest it generates can help call attention to the agent's other listings.

And consider asking the agent to represent you as the buyer on your next home. That essentially puts two commissions in her pocket, so she's more inclined to cut you slack on the selling side.

"People need to remember this is one of the largest business transactions they'll ever make. They need to approach it as a business decision," Cudd says.

Julie Sturgeon is a freelance writer based in Indiana.

-- Posted: July 1, 2003

 

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