The 6% Real Estate Commission Myth: Expensive Homes Do Not Cost More To Sell, So Why Are Agents Earning More To Sell Them?

Have you ever thought about the 6% real estate commission? As in, have you really considered just what it means for a real estate agent to receive 6% of your home’s value for their help selling the home? Even if you have sold a home before, you may not have considered this one tiny fact: Selling a more expensive home rarely takes more time, more knowledge, or more expertise than selling a less expensive home BUT an agent gets paid more to do so. In fact, the whole truth is that the value of your home has absolutely nothing to do with the work that a realtor does.

What An Agent Does For Their Commission

To fully understand this fact, you first need to understand what an agent does to earn the commission in the first place. Let’s look at a few of the main tasks and then evaluate whether these are more complicated, thus requiring more compensation, for a $400,000 home versus a $200,000 home.

Prior To Listing: Before an agent comes to your home for a listing appointment, they will research other homes in your area similar to your own home that have recently sold, known as comparables or comps. The purpose is to help determine the asking price for your home. They will also create a listing presentation that contains all the information they have about your property.

Do agents need to find more comps simply because a house is more expensive? No. Do agents need to provide more documents for a listing presentation because a house is more expensive? No.

At the Listing Appointment: The agent will meet with you to discuss the current market conditions in your area. They will also tell you how they plan to market your home. Finally, they will ask you to sign a contract outlining what they will do and what you will pay for those services if the house sells.

Does a more expensive home automatically need more research to understand the current market conditions? No. Do more expensive homes have considerably different marketing plans than less expensive ones? No. In fact, both homes will be marketed using the MLS, at least the three major online real estate sites (Zillow, Trulia, and RealEstate.com), as well as other marketing methods employed by your agent. Although there may be a few differences, they will be slight, and no differences will be due to the value of the home.

Immediately After the Listing Agreement is Signed: Once you have signed the agreement, the agent will get a lockbox for your house, get the signs needed, and help you determine what can be done to your home to increase the curb appeal. They will also add your home to the MLS database so that other agents and buyers will know your house is for sale.

Do more expensive homes need more than one lock box? No. Does signage increase with the cost of a home? No. Do realtors offer more advice to increase the curb appeal of more expensive homes? No. Do more expensive homes get added to the MLS more than once? No.

Marketing the Home: Every agent has their own marketing plan, but most will create both print and Internet ads, as well as prepare fliers and marketing brochures. They will have professional photos made of the home (often at owner expense). They will list your home on major online sites. Finally, once the home is out there in the public eye, they will coordinate showings with the buyer’s agents.

Do realtors create more print and Internet ads for expensive homes? No. Do expensive homes require more fliers and brochures? No. Do more expensive homes get placed on more Internet sites due to their price tag? No. Will there be more showings for more expensive homes? No, not because they are more expensive.

The Offer and Contract: As offers come in, your agent will review them and help you with negotiations. They will help you determine the best counteroffers so that you get the best deal possible. Once an offer has been accepted, they will provide you with a sound, legal contract. Then, they will help you coordinate times for inspections and negotiate for repairs. They can even help repeal an appraisal that came in too low.

Simply because a home is more expensive, does that mean the realtor will have to help more with negotiations? No. Do more expensive homes automatically require more difficult counteroffers? No. Does a more expensive home require more than one legal contract? No. Are inspections different due to a home’s value? No. Will buyers of more expensive homes expect fewer repairs? No

The Closing: As your home heads to the closing, your agent will help coordinate between the buyer’s lender and broker. They will keep forms updated, solve title problems, be there for the buyer’s final walk through, and make sure all documents are accurate.

Does a more expensive home have a more complex closing due to its selling price? No. Are there more title problems because of the selling price? No. Will the buyer need more than one final walk through because of the selling price? No. Does a higher selling price mean the documents have to be more accurate? No.

Even with all these “no” answers, an agent selling a more expensive home gets paid more. If they sell the $400,000 house, they get $24,000 for their efforts. That’s twice what they earn for selling a $200,000 house without doing anything extra.

What Is the Solution?

When most people realize this “tiny” fact, they feel uncomfortable at best and outraged at worst. Why are realtors getting paid more simply because a house is worth more? More importantly, what can be done about it?

Some have suggested that agents simply be paid less than 6%. In fact, some realtors now advertise that they will sell your home for just 5%. That’s better, right? But wait. If a broker gets 5% of a $400,000 house they will still make twice as much as if they sell a $200,000 house. You see, the basic premise of a percentage commission is flawed!

Many sellers, when they realize the injustice of the 6% commission, or any percentage-based commission model, decide to either sell their home on their own or try using a flat rate discounted broker. The problem with these avenues is that they are left on their own to do what a broker would normally do. Although an agent’s job isn’t dependent on the price of a home, it is still a job that requires expertise. That is why most FSBO homes and those using a discount broker that offers limited services tend to fail. In fact, 88% of those attempting to sell their home in this way do not achieve that goal and ultimately end up with an agent that charges a commission.

But, there is another way. It is the flat fee, full service model proposed by companies such as Recadia Realty. For a flat fee, Recadia will do everything a broker is supposed to do to sell a home. They provide the seller with full services, but for a flat fee that compensates them for the work they do. Whether you have a $200,000, $400,000, or $1.5 million home, the fees remain constant because, at Recadia, they understand that they don’t do more work just because you have a more expensive home.

Recadia’s brokers have the right kind of experience to sell your home and provide you with everything you would expect from a broker…except the ridiculously high fee based solely on the value of your home. Call Recadia today to learn how a full service, flat fee broker can help you save thousands.

How Recadia’s Flat Fee, Full Service Real Estate Model Can Save You Thousands of Dollars on Real Estate Commissions

When it comes to buying and selling homes, Recadia has kicked the 6% real estate commission to the curb. But, unlike many flat fee brokers, they didn’t throw away the good with the bad. Knowing what buyers and sellers want most, Recadia is focused on these three things:

  1. Helping their clients save thousands
  2. Providing a win-win situation for both the buyer and the seller
  3. Open communication that keeps the buyer and seller in the loop at all times

Saving Thousands

As the Multiple Listing Service (MLS) data became available to the public, and the Internet began to open up the home buying and selling process to the masses, buyers and sellers began to question the traditional 6% commission received by brokers for the sale or purchase of a home.

Eventually, that questioning turned to a small-scale rebellion leading some brokers to consider other models of real estate. However, these other models, like discounted brokers, flat fee MLS listings, and For Sale By Owner (FSBO) packages not only reduced the fee, but reduced the services offered. In the end, 88% of those that tried these models ended up with a traditional broker paying 6%.

Why? Consumers inherently know that they do not want to sell a home on their own. It’s a lot of work. There is the signage, the marketing, the 24/7 phone calls, house showings, negotiations, contracts, and closings. Problems can, and do, occur at all of these points and having a professional that knows the ins and outs makes sense. Without a professional, most sales do not make it to closing. It’s just a fact.

However, these same consumers are irritated that professionals are taking such a large percentage of their home’s value when portions of the broker’s job has become much more simplified due to technology. So, they turn to something less expensive, only to find that it is much harder than they thought, and end up paying full price anyway.

Recadia understands this problem and offers a solution that not only helps buyers through the process, but saves their customers thousands at the same time. It is the flat fee, full service model. Recadia charges a flat fee to sellers to sell their home and receives a flat fee to help a buyer find a home. Nonetheless, Recadia provides every service you would expect from real estate professional, such as:

  • Pre-Listing Activities: Researching comparables, preparing a listing presentation package, and compiling a formal file on the property.
  • Listing Appointment Presentation Activities: Providing the seller with an overview of current market conditions and a marketing plan.
  • Pre-MLS Activities: Getting a lockbox, calculating the average utility usage, arranging for signage, and making suggestions for increased curb appeal and first impressions.
  • MLS Activities: Taking professional photos and uploading those photos along with specifications and selling points of the property to the MLS.
  • Marketing Activities: Creating print and internet ads, coordinating showings, preparing flyers and a marketing brochure, and uploading listing to online sites such as Zillow, Trulia, and Realtor.com.
  • Offer and Contract Activities: Reviewing all offers, helping with negotiations, preparing counter offers, and providing a legal contract.
  • Inspection and Appraisal Activities: Coordinating times, reviewing inspections, negotiating repairs, providing comparable sales to appraiser, and appealing a low appraisal.
  • Closing Activities: Coordinating the process between brokers and lenders, updating forms, solving title problems, conducting buyer’s final walk through, and reviewing final documents for accuracy.
  • And much, much more.

Now, instead of using a discount service that hands a majority of these tasks back to the seller, buyers and sellers have the option to pay a reasonable flat fee while getting the help they need to be successful.

Flat Fee, Full Service is a Win-Win Solution For Everyone

Traditionally, brokers receive 6% of the selling price of the home for their commission. This means that the fair market value of a home is inherently 6% higher to account for this fee. When a broker, like Recadia, takes a flat fee instead, everyone wins.

Let’s look at a scenario to see how this works.

Traditional 6% Method

  • Seller John and his traditional broker negotiate a contract to include a 6% standard commission, which will be rolled into the listing price of the home.
  • John’s house is put on the market for $400,000, which is a fair market value.
  • When John’s house sells, he will pocket $376,000, which is $400,000 minus the 6%.
  • The buyer has to bring $400,000 to the closing.

Recadia’s Flat Fee, Full Service Method

  • Seller John and Recadia negotiate a contract to list his house for sale. Since Recadia collects low flat fees instead of a percentage-based commission, only $4,000 of realtor commission is added into the list price of the house.
  • Since the contract negotiated with Recadia has $20,000 less in fees, John could potentially list his house below market value. This will increase the interest in John’s house and provide more potential buyers due to the lower price, making it sell more quickly. In the example, John decides to list his home for $390,000.
  • When John’s house sells, he will pocket $386,000, which is $390,000 minus the flat fees.
  • The buyer has to bring $390,000 to the closing.

In this scenario, the seller pocketed $10,000 more at closing than he would have using a traditional agent, while the buyer spent $10,000 less at closing. This is a win-win for both parties.

Recadia Communication Above the Rest

In addition to high fees, a buyer or seller’s second biggest complaint is poor communication. They sometimes feel out of the loop and do not know what is happening.

Recadia understands how important it is for their clients to know what is happening at every stage of the game. With Recadia, not only will you get a full service broker for a flat fee, but you will also get an enhanced communication platform that will keep you up-to-date 24/7. You’ll never have to guess where the home buying transaction is in the process.

When it comes to real estate, the agents at Recadia not only have more than 25 years of experience, they also have your best interests at heart. To learn more about flat fee, full service home buying and selling, call us today.

Realtor Fees: What Is Causing the Death of the 6% Commission?

Real estate is changing. That is a fact. Technology, public availability of MLS data, and consumer knowledge have all come together to change how property is bought and sold in the United States. With these changes, we are witnessing the perfect storm that is bringing to pass the death of the 6% sales commission.

6% Realtor Fees: The Old, Traditional Model

For decades, realtors set their fees at 6% of a home’s selling price. This 6% was split between the selling agent and the buying agent, usually at 3% each. Although home sellers often grumbled at the steep price, they recognized the value added by the real estate agent because these agents had a secret weapon known as the Multiple Listing Service (MLS).

The Multiple Listing Service (MLS) is the main database for brokers to list and share information about properties for sale. If you have a home for sale, your broker lists the home on the MLS so brokers trying to find homes for prospective home buyers can see yours and show it to them.

The MLS was exclusive. If you were selling, you couldn’t get on the database without an agent. If you were buying, you wouldn’t be shown homes unless they were listed on the database. This meant real estate agents could charge what they wanted, and they decided that 6% was the right number.

Although agents did much more than list homes on the MLS, and continue to do so today, their unique selling proposition revolved entirely around the MLS. Without it, you were unlikely to sell your home. However, in 2009, everything began to change.

The Perfect Storm

Due to rulings about MLS availability to Internet-only brokers, new laws were created that have given online sites the ability to show MLS data. Now, though it takes a broker to list a home on the MLS, it no longer takes a broker to view active MLS listings.

During this same period of time, the Internet was growing in leaps and bounds. Sites such as Zillow, Trulia, and Realtor.com popped up, making it easier and easier for anyone with a computer to see what was for sale. These sites began including information about neighborhoods, school systems, drive time to work, and even walkability rates. Prior to the Internet, these facts and figures were solely in the hands of the agents.

Due to sites armed with MLS information and more, consumers began taking on many of the roles that used to be played exclusively by an agent. According to a National Association of Realtors 2015 trends report, 90% of all buyers searched for homes online at some point during their home search and 100% went online to research a specific property. No longer were buyers and sellers relying on their agent to do the work that used to be exclusively in the agent’s control.

Trying To Fill The Gap

As consumers began doing more of the work that used to be exclusively the job of a broker, they began looking more critically at the standard 6% commission. What was the agent doing for the money that they couldn’t do themselves? These questions led to many different real estate models:

  • For Sale By Owner (FSBO) – Though some sellers have always used FSBO methods, there was a major increase in the number of sellers who chose to go it alone. The problem is that 88% of those that start selling on their own eventually turn to an agent because they cannot sell their home.
  • Discount Brokers – Discount Brokers jumped into the ring offering a flat-fee for their services. However, not only was their fee reduced, but so was their interaction and involvement with the selling process. Limited services meant the owner was doing a lot of work by themselves, running into the same problems as those going the FSBO route.
  • Flat Fee MLS – This model is like a discount broker but with even less service. The only thing a seller gets for their money is the inclusion in the MLS. Other than that, a seller is on their own, running into the same terrible odds as a FSBO.

The problem with each of these models is a misunderstanding about what brokers do. Yes, the MLS was a big part of the old model, but it was not the primary reason a broker was needed. That realization among consumers has led to the newest and best model for home buyers and sellers known as the Flat Fee, Full Service model.

Flat Fee, Full Service To Eliminate the 6% Commission

Why do FSBO sellers fail at the rate of 88%? It can’t be the inability to list on the MLS because FSBO sellers can find ways to include their property on the MLS and have it show up in online sites. They also have access to some of the best marketing practices used by real estate brokers. So, what is the problem? Having access to these tools is not the same as having a broker who understands how to use them most effectively and has the time to dedicate to the process. Plus, marketing is only part of the home selling process. A good broker also knows how to get a seller and buyer through the negotiations and to the closing table, as well as how to create a solidly legal contract. All of these ingredients are needed to bring a property to closing.

This knowledge is very valuable to buyers and sellers, but a few agents are beginning to realize that a 6% commission is too much to charge for their services. Yes, brokers add value, but what they do for the consumer has been simplified due to technology. That is why the Flat Fee, Full Service model, offered by companies such as Recadia, is making big waves in the real estate world.

For a flat fee, the seller’s agent will do everything a broker used to do including the MLS listing, marketing, meeting with buyers and buyer’s agents, negotiating the contract, writing the contract, and getting the process through to closing. They provide the seller with a their full range of knowledge, but do so for a fee that makes sense for the work that they do. When creating the contract with the home seller, the agent will also suggest that the buyer’s agent is offered a flat fee for their services. Just as with the traditional 6% commission, these fees are rolled into the list price of the home, but since the fees are lower,both buyers and sellers win.

Recadia’s brokers have the right kind of experience to sell your home and provide you with everything you would expect from a broker…except the ridiculously high fee. Call Recadia today to learn how a full service, flat fee broker can help both buyers and sellers save thousands.

8 Tips for Buying a Home in a Seller’s Market

Buying a home in a seller’s market is fast-paced. Following these 9 tips will help you navigate the waters when buying in a seller’s market.

Selling Your Home in a Seller’s Market: The Do’s and Don’ts

Selling in a seller’s market is great, but it takes more than putting out a sign. Read to find out the do’s and don’ts.

13 Steps To the Home-Buying Process

Buying a home is a big undertaking. Following these steps will make the process go more smoothly and help you make better decisions.

10 Things You Should Do to Improve Your Credit One Year Before Buying Your First House

Don’t wait until you want to buy a home to try to improve your credit score. Follow these 10 tips today to get more favorable loan terms.

The Top 6 Reasons Your Home Didn’t Sell

Can’t sell your house? Consider this: most properties only sit on the market for one of six key reasons.

7 Home Staging Tips That Will Take Your Home From Ordinary to Exceptional

To sell your home faster and for more money, follow these 7 home staging tips that will make your home stand out from the crowd.

Moving Checklist for Sellers

Selling your home is an exciting venture, but the move itself can be very stressful. This comprehensive list will help you organize what needs to be done and when before your big move.