When 2% isn't really 2%...
So lately I've been hearing from sellers talking about a new crop of "real estate companies" that claim they can help sell a home for either "no commission", "no fees", the promise of a "rebate", or some combination of the three. And as we've become accustomed to, these companies claim that they are here "TO CHANGE THE INDUSTRY AND blah blah blah..." Then they usually follow up with, "WHY ARE YOU GIVING A REALTOR YOUR MONEY?!" I hope these people never have to get brain surgery or get on a plane or some other sort of service where they question why they're giving someone their money. Well, before we dive into "why" you're giving a Realtor your money, let's talk about the itsy, bitsy, teeny, weeny tiny print that you won't hear about or see when it comes to these newfangled companies (honestly, I'm gonna' stop calling them "real estate" companies because actual real estate services seem to be lacking, a lot.
Let's take a look at some of these "Paradigm Changing!" companies and what makes them "different".
- Many of these companies claim that they will sell your home for an all-inclusive 2% or even 1% fee, as opposed to the 5% to 6% commission consideration that traditional brokers and Realtors charge. What they don't advertise is in the fine print. Many of these companies charge a minimum fee of $9000 or a lot more. Considering that the median price of homes sold in the U.S. in 2019 is $235,500, most sellers would end up paying much more than the advertised fee. Now considering home prices in the Bay Area, this may not directly affect most home sellers, but it is worth noting that the promised low-price fee is not set in stone.
- The seller still has to pay their closing fees, and these fees can be around 3% of the final sale price. This is above and beyond any fee these companies offer.
- These companies do not belong to the local MLS, and as such, the sellers' home will not show up on Realtors and buyers home searches, online and otherwise. By not listing your home on the MLS, you cut out a lot of the real estate market. When you list a home on the MLS, it includes the buyer's agent commission rate as an incentive for agents to bring buyers to the home. Almost 9 out of 10 buyers use an agent; those agents won't show their client houses without attached buyer's commissions. (courtesy Jamie Ayers)
- If a potential buyer with an agent makes an offer on a home listed with one of these companies, that buyer will have to pay their agent's commission, usually around 2.5% to 3%. You will find that the vast majority of buyers will balk at having to pay an additional amount over the actual agreed upon sale price, and if fact will decide against making an offer on one of these homes. And because of this, many agents WILL NOT SHOW THESE HOMES.
- This bears repeating - HOMES LISTED WITH THESE COMPANIES WILL NOT APPEAR ON THE MLS. That means these homes will not show up on 90% of local, national, and international media and advertising. People will actually have to go directly to these companies' websites to find homes for sale. Considering the newness and lack of awareness of many of these companies, not to mention over abundance of actual Real Estate sites on the web, there is a better than good chance that folks will not be visiting any of these websites anytime soon.
- The agents that work for these companies are salaried agents. They are paid whether their deals close or not. This removes their motivation to go above and beyond the minimum effort required. For these agents, Real Estate is a "job" as opposed to a career or passion. They literally clock in and clock out. And because of this they do little to get any better at their job. Actual Realtors never stop learning, focusing, and striving to get better at providing the highest level of service to their clients. They do not glom on to some fleeting idea that is "GOING TO CHANGE THE INDUSTRY", but rather work diligently to stay at the forefront of cutting-edge technology and information. The kind of advancements that will truly help them give their clients the best service possible in an ever-changing world.
Now let's talk about "why you're giving a Realtor your money". We are independent contractors whose livelihoods and businesses rely upon the commissions that we build into the sales price of your home. Many people are under the mistaken impression that the commission goes right into our pockets. This couldn't be further from the truth. Here just a few of the items that our commission covers:
- The marketing of your home, including: Professional digital photography, drone’s eye view photography, online 3D home tours, etc. Online, email, text, and snail mail, and yes, even newspaper advertising. Front of home and city street signage. Open houses with hospitality, etc.
- MLS and Real Estate Department fees.
- Percentage split with our brokerage. This can be anywhere from 10% to 50% based on production, etc.
- And most importantly, this is how we Realtors take care of our families, pay our mortgages, pay for our children’s piano lessons, sports equipment, birthday parties, college funds, retirement funds, etc. Bottom line, this is what we do for a living. If we don’t do well, neither do our families. Our motivation is not only to make sure you get the best service, but to do the best we can to take care of our families and our future.
So as you can see, that 1% or 2% may sound like a "ground breaking! new way of doing things! deal of the century!" proposition that is "going to change the way you sell your home!", but ultimately, that may all it ends up being - just a proposition, with little in the way of actual service. That 3% or 4% you "save" may end up costing you more than you know. When it's time to sell your home, look for a REALTOR who is willing to put in the effort and do the actual work, as opposed to just "clocking in and out"...