Agent Comissions, Explained

Contrary to what people may think, skimping on agent commissions is not a wise thing to do. A high commission greatly increases your chances of getting a high offer for your home, and in a short amount of time. You can recover the percentage of the purchase price lost to the commission by securing a higher sale price. You will also save yourself time by getting your home sold quickly.

The standard commission for a sale is 6% of the purchase price. This percentage is usually split evenly between listing and selling agents, coming out to 3% each. Agents have long agreed that 3% profit is a fair price for the amount of work it takes to market and sell the home. However, this percentage is negotiable, and is ultimately decided by you, the seller.

Many people are tempted to lower the commission rate in order to pocket more of the purchase price. They will bargain with their listing agent to represent their home for 2.5% or even a 2% commission, leaving an equally small amount for the selling agent who comes along with a buyer. It is very natural to feel the impulse to keep as much money as possible, but it is not the most beneficial decision to make in the long run.

Investment is a little counter intuitive. If you have money now, why not just keep it? Yet we all know that giving up money to an investment will likely yield a larger return in the future. This is precisely the sort of decision a person makes when they offer a high commission instead of trying to pocket more of the sale. They are investing the percentage in the agents in order to help them market the home really well, and in so doing they are going to make a greater profit on the sale.

Agents sell homes for a living. It is their job. If a listing agent is only getting a 2% commission off of a home sale, they cannot spend as much time and money working one the sale as they are going to be able to spend on another home they’re listing with a 3.5% commission. A 2% commission can only buy basic marketing and attention, and will be a lower priority to the agent.

Similarly, if a selling agent has two equally good homes to show a prospective buyer, they are going to be smart and show the home that will get them a higher commission first. The home with the lower commission is ultimately going to receive less buyer attention. This amounts to a long wait and a lower offer on the home.

Assuming that you have chosen an honest listing agent to represent you, the commission directly translates into the quality of marketing for your home. Marketing is worth the investment. It actually increases the value of your home. A good commission will also motivate the selling agents to find enthusiastic buyers quickly. It will give them incentive to show your home first before the countless other homes for sale in your area. In the end, you will be much better off offering a full commission than if you had kept that extra 2% for yourself.