| You may not be aware that the real estate business | | | | varying abilities as well as marketing budgets. Most |
| structure has changed significantly over the past | | | | agents do very little business and cannot afford to |
| thirty years, and particularly over the last ten. In the | | | | market your property at all. They count on a sign |
| past, brokerages would front the majority of the | | | | and MLS to do the work and wait for a buyer to |
| costs of marketing the properties and concentrated | | | | surface. Sometimes that happens sometimes it |
| on selling their own listings first and foremost. Real | | | | doesn't. Be careful regarding whom you hire to list |
| estate agents could only sell the listings that their | | | | your home for sale! Hiring the neighbor or relative |
| company offered. If you decided to employ a Re | | | | who just got his or her license may seem like the |
| Max agent you would only be able to purchase Re | | | | "nice" thing to do until your home takes 6 months or |
| Max listed homes, making the selection much smaller. | | | | more to sell and neighbor/relative leaves 10k on the |
| The real estate agent just acted as a bystander and | | | | table they could have negotiated and won for you |
| assisted in completing the brokerage's function with | | | | but didn't have the negotiating skills to achieve. This |
| no real input regarding the marketing/advertising of | | | | could all happen and you would most likely not even |
| the property. The reputation of the real estate | | | | have no clue that anything was amiss! Since most |
| brokerage hinged upon the quantity of its listings, the | | | | agents charge 6% (as already described), you would |
| selling price of its listings, and how quickly that | | | | be best served by hiring the most competent and |
| particular brokerage was selling the homes they had | | | | able agent with experience that you can find. You will |
| listed. | | | | be paying the same price as you would for a less |
| Today's real estate sales business is simpler, but few | | | | talented agent. |
| people truly understand how it works. Today, nearly | | | | What about discounted services? While all real estate |
| all real estate brokers will list a property for sale and | | | | fees are negotiable, I find it hard to believe that an |
| offer what's called a "buyer's broker co-op fee" to | | | | agent/brokerage can turn much of a profit at less |
| the broker who represents the buyer. Most of the | | | | then 3% for their side of the transaction unless they |
| time, this fee is a percentage of the gross sales | | | | are shortchanging the clients by providing little to no |
| price. It comes out of the seller's net proceeds and is | | | | marketing exposure. Many, many "Discount Model" |
| paid upon closing. For example, half of a 7% listing | | | | real estate companies have been started and then |
| fee (3.5%) usually goes to the seller's agent and the | | | | gone out of business. A recent example is Foxton's, |
| other half typically goes to the broker who produces | | | | which had millions of dollars in start-up capital and was |
| a buyer who closes on the property. On a 6% listing, | | | | going to "revolutionize" the real estate business with |
| the split would be the same. Typically, 3% would go | | | | super low fees. Foxton's has since went out of |
| to the seller's broker and 3% to the buyer's broker. | | | | business due to not being able to make a profit, and |
| Both brokers receive a fee out of the proceeds | | | | in this example Foxton's had the backing of Wall |
| ONLY if your home sale closes. To earn this fee, | | | | Street and millions of dollars in start up money to |
| they will be marketing, advertising, negotiating, | | | | begin operations with. Also consider this: NO discount |
| completing legal paperwork, ensuring the sale goes | | | | brokerage (defined as charging fees below the |
| smoothly, and also anticipating market trends that will | | | | average of 6%) has a dominating, or even leading |
| affect your home sale. In addition, keep in mind that | | | | market share in any large metropolitan area in the |
| not all deals close and frequently after all this work is | | | | country. In my opinion, they survive because many |
| completed, a deal may fall through. The agent must | | | | people think cheaper prices somehow equate to the |
| then absorb the loss and start again at the beginning | | | | same level of service provided by non-discount |
| and resell the home to another buyer. Furthermore, | | | | brokerages. They think, "Why pay 6% when I can |
| marketing and advertising a home properly (which | | | | sell for 4.5% and the end product is the same?" |
| very few agents/brokerages do) is costly. Typical | | | | When people ask me this question, I always answer |
| costs for advertising and marketing a property | | | | them with two a questions. 1) When you're looking |
| usually eat up 25-50% of the revenue a commission | | | | for a surgeon to perform surgery on you, do you go |
| brings in. | | | | to the lowest price guy just to save a buck? 2) If |
| Now that you understand how a commission is split | | | | this brokerage really does everything that a |
| and what you are paying for in a listing, how do you | | | | full-service brokerage does, why are they starting |
| choose a company to list your home with? In today's | | | | their negotiations off by saying they are very willing |
| highly competitive and technology-driven | | | | to accept much less for their services than most |
| environment, the services, knowledge, and marketing | | | | others in the business right out of the gate? Is this |
| you receive depends more upon the individual agent | | | | who you want to negotiate for you on your home |
| you hire to list the home than the brokerage. As with | | | | sale with hundreds of thousands if not more on the |
| any other profession, real estate agents have | | | | line? |