Paying the agent – What is the right amount to pay for a sale?

When it comes time to sell, many people will select the agent on the price they quote and the fee they charge.

How much and how much? How much do you think our property is worth and how much do you charge? And the good news is, if you want an agent that will quote you a high selling price and low commission rate, you will find one. Actually, you will find plenty.

In NSW, real estate agents fees are deregulated, so the commission rate is an agreement between the two respective parties. As a property seller, if you felt that all agents would offer the same level of service and all buyers would be prepared to pay the same amount for your property, you would rightly choose the cheapest agent. But the reality is, not all agents will offer the same level of service and not all buyers will offer the same price for your home.

In a snapshot, the cheapest agent is the agent who leaves the most money in your pocket after their fees and expenses have been deducted from the sale price.

An agent who charges 1% or $10,000 on a million dollar property sale is cheaper than the agent who charges 3% or $30,000 on the same sale. The 3% agent is only cheaper if they achieve a price of more than $1,020,000.

In theory, this is very simple – select the agent who leaves the most money in your pocket. In reality, the property seller needs to make value decisions about the agents before the property is listed, before the agent has begun marketing the home and before the agent has begun negotiating. The seller is in the unenviable position of having to put a value on a service in advance of the service being delivered.

Whether you like it or not, when you employ an agent to sell your home, they are negotiating your financial future. The right agent is an asset and the wrong agent is a liability.

Putting a value on the agent

The best way to weigh up agents fees is to put a value on what they do. Draw up a checklist of what constitutes value in a real estate agent. It is common to think an agent comes along & lists your home, makes a few phone calls, finds a buyer and gets paid 2% of $1 million. If real estate were that easy, it would not have such a high attrition rate.

Real estate agents have two roles, find interested buyers and negotiate the highest price/best terms from each buyer. If the agent can achieve this without putting stress on the seller, even better, i.e. even more valuable.

80% of all buyers now conduct their property search on the internet. Another 10% will be passive buyers that are on agent’s databases or call agents when they see a signboard on a house they like. Finding buyers is so simple there is now almost no value to it. Any value subscribed to finding buyers is not in the strategy, but in the time invested by the agent.

Find interested buyers & negotiate the highest price

If you feel that you can negotiate better than the agents you have interviewed and you have the time available, have a go at selling it yourself. List it on a few of the main media websites, get some brochures and a signboard done up and the buyers will come.

The number 1 reason people that who attempt to sell privately fail is they overprice the property.

Chris Williams of Harris Partners told Property News that he was shocked that home sellers still spend up to $10,000 in newspaper advertising and then pay a real estate agent commission on top. Chris said, “If the advertising is going to sell the house, why do you need the agent?”

When the agent extracts money upfront for advertising, all the risk is with the seller and the upside is with the agent.

“Real estate agents commissions are hefty enough without the home owner being lumbered with the risk of the campaign on top. The agent is rewarded with a hefty commission when the property sells and the seller gets a big bill for advertising when it does not sell” added Chris.

Many who appreciate the power of the internet in real estate marketing are baffled as to why agents still spend so much money in print and newspapers. The answer is to increase their profile in the community and the second is because the seller pays as the agent profits through rebates.

Some consumers know and accept this and some consumers don’t know and wouldn’t accept it.

Negotiation

If consumers make a mistake when selecting an agent and deciding upon fees it is that they underestimate the importance of negotiation in the process.

Most agents spend excessive amounts of money looking for buyers and then use flawed negotiation strategies such as public auction to close the sale process.

It is during negotiations that agents become an asset or a liability to your campaign. Whilst you may have felt good when you found the cheapest agent at the time of listing, that good feeling won’t last if your soft cuddly agent is negotiating your financial future with a hard-nosed buyer.

The skill level of the agent will be reflected in the final selling price and terms. The softer the market, the tougher your agent needs to be. Any agent can look stellar when 3 buyers want the 1 property. But what if there are 3 properties and 1 buyer?

Easy losses, hard wins

‘Loose lips sink ships’ is highly applicable when it comes to an agent negotiating with a buyer. Agents that disclose information offer the buyer ammunition. What surprises many buyers is how easily the agents divulge what should be confidential information. Details such as the number of offers the sellers have received, the sellers lowest price, the price level of other offers, the owners are getting divorced and want to sell quickly, they have bought elsewhere, deceased estate and it goes on. All this crucial information can work against the sellers should it become known to a buyer.

The best way to test an agents negotiating ability is to ask them to cut their commission rate.

It is easy to lose out in a real estate negotiation and hard to win at the best of times. An agent that runs at the gums can cost you plenty. The “gift of the gab” does not automatically qualify someone to negotiate the sale of your most prized asset.

Many buyers make an opening offer to see how the agent reacts. Many are pleasantly surprised at the response or the information that falls out of the agent’s mouth.

In these instances, the seller has a massive liability on their side. The agent.

Ironically the best way to test an agents negotiating ability is to ask them to cut their commission rate. The agent’s response to being asked to drop their fee will give you a sense of how the agent handles price objections. Do they just role over and say, “Ok, sure that seems fair”? Or do they hold firm with strength, pride and belief that their track record of quality service and results demands they are worthy of a fair fee.

When you ask an agent to reduce their commission rate, you are witnessing the agent negotiate their own money. In watching the agent negotiate with their own money, ask yourself, do you want them negotiating with your money? If the answer is no, don’t hire that agent at any commission rate.

Whether you like it or not, a real estate agent has massive responsibility when they take the keys to your home and begin marketing it. People are surprised to learn that you can decide to become a real estate agent on a Sunday and be legally qualified to sell houses in just over a week. The pathetically low entry level to the industry means that it is littered with people that should not be there. It is the home sellers job to work out who they are and avoid listing with them.

 

Written by Peter O’Malley