Tag: Realtor Commissions

Email Alerts of New Listings Provide a Good Reason for Listing Your Home on the MLS

Yes, it’s a seller’s market, and maybe you think you don’t need to hire an agent to put your home on the MLS, but the opposite is true. Take, for example, the listing which was featured in this space last week. For 7 days it was listed as “Coming Soon” on our MLS, REcolorado, during which time it was not visible to non-mem-bers of the MLS (i.e., buyers). But that listing was emailed to over 250 buyers who had email alerts set up by their agents. One of those buyers tagged the listing as a “favorite” and another six tagged it as a “possibility.”

Those numbers, however, only reflect buyers who had included “coming soon” among the criteria that would trigger an alert. After the listing changed from “coming soon” to “active” on the MLS, the number of buyers who were alerted jumped to 720 and two more buyers tagged it as a “favorite.”  When a buyer tags a listing as either a “favorite” or a “possibility,” the buyer’s agent gets an email letting him or her know which client liked the listing and may want to see it when it’s “active” and showings are allowed.

These numbers don’t include the buyers who set up their own alerts on Zillow or other consumer-facing sites, including Redfin. Also, those websites don’t display “coming soon” listings until they have been changed to “active.” Thus, buyers who had agents include “coming soon” as a criterion benefited from a 1-week earlier notice of that listing than did any of those buyers who were setting up alerts on their own.

For buyers wanting the earliest alerts of new listings matching their search criteria, please make this a reason to have an agent set up alerts for you instead of setting up alerts on your own.

Knowing the power of MLS alerts should cause any seller to have second thoughts about selling without an agent. It used to be that sellers could hire a “limited service” agent who would put their home on the MLS for a flat fee (say, $300) without performing any other service, but that is now illegal. The Colorado Real Estate Commission has ruled that there are certain minimum services which must be performed by all listing agents. Those services include exercising “reasonable skill and care,” receiving and presenting all offers, disclosing any known material facts about the buyer (such as their ability to close), referring their client to legal and other specialists on topics about which the agent is not qualified, accounting for the receipt of earnest money, and keeping the seller fully informed throughout the transaction. 

Failure to perform those minimum services could subject the agent to discipline up to and including loss of license, which has caused “limited service” listings to disappear. If an agent offers such service to you, you should report them to the Division of Real Estate.

By the way, the Colorado Real Estate Commission has also ruled that it is the duty of all licensees to report known wrong-doing by other licensees, which their competitors are happy to do. We can be disciplined for not performing that duty.

Studies have shown that homes which are listed “for sale by owner” (FSBO) sell for less than ones which are listed by an agent on the MLS, and you can see why, because the more exposure your home has to prospective buyers, the more showings and offers you are likely to receive. And that difference in bottom line proceeds can far exceed the commission you are likely to pay.

Consider this: whether or not you hire a listing agent, you’re still likely to pay the “co-op” commission to the buyer’s agent, which is typically 2.8%. The  average listing commission (which includes that co-op commission) is now around 5.5%, not the 6% everyone tells you. As a result, the savings you might experience from not hiring a listing agent could be about 2.7%, and that is likely less than the increased selling price you might get from listing your home on the MLS with a true “full-service” agent such as my broker associates and myself.

Note: Some brokerages mislead you by promoting a 1% listing commission, but when they get into your home to sign you up, they disclose that the 1% is in addition to the 2.8% that they recommend as the  co-op commission and is increased further if they don’t earn a co-op commission on the purchase of your replacement home. It is also increased if they double-end the sale of your home, meaning that they don’t have to pay that 2.8% co-op commission to the buyer’s agent.

Such deceptive advertising, to me, is reason enough not to hire such a brokerage, but it may be hard for some people to say “no” to an agent they invited into their home with contract in hand.

Unlike such a brokerage, Golden Real Estate tells you upfront that we reduce our listing commission when we double-end the transaction, and we discount it further when you allow us to earn a commission on the purchase of your replacement home.

That said, our final commission might be only 1% or so higher than what you might pay to a discount brokerage, and our version of “full service” is much more complete than theirs.  For starters, we produce narrated videos tours on every listing. Our video tours are not just slideshows with music or un-narrated interactive tours which can be dizzying and annoying. Our narrated tours resemble an actual showing, where the listing agent is walking you through the house, talking all the time, pointing out this or that feature which may not be obvious otherwise. Are those quartz countertops? Are there slide-outs in those base cabinets?  Is that a wood-burning or gas fireplace? We have sold listings to out-of-towners who only “toured” the home on video, not seeing it in person until they flew into town for the inspection. That’s the power of narrated video tours.

A Reader Asks: With Home Prices So Much Higher, Shouldn’t Commissions Be Lower?

That is a reasonable question, which I’m happy to answer. The fact is that listing commissions have been dropping ever since the Department of Justice told Realtor associations and their MLSs that they can’t dictate listing commissions. Prior to that, the Denver Board of Realtors, I’m told, dictated a 7% listing commission — 4.2% for the listing agent himself and 2.8% for the agent representing the buyer.

Since then, thanks to free market competition, listing commissions, on average, have dropped well below 6%,  according to the National Association of Realtors, but the 2.8% “co-op” commission offered to buyer agents has hardly budged.

(Note: Brokerages advertising a 1% listing commission do so as a ploy to get a listing appointment, at which time they’ll explain the need to add 2.8% for the buyer agent’s commission.)

This week I got an anonymous letter from a “long-time reader” who asked why commission rates haven’t fallen as the selling prices of homes have risen. Since I can’t reply by mail, he (or she) will get to read my response here.

First of all, commission rates have fallen as alluded to above, but typically they are not progressive, meaning they don’t fall further as listing prices rise into the millions.

That does not mean, however, that you can’t make agents compete against each other based on commission. Indeed, you should do that. But don’t make the mistake of thinking you don’t need an agent, especially when it’s an “easy” time to sell homes. And remember that, because of the 2.8% given to buyer agents, even a 4% listing commission would only net the listing agent 1.2%, which is not a reasonable compensation if the agent is to do a proper marketing job and to provide you with the professional reputation you need and deserve.

A good agent doesn’t just get a listing, take snapshots of the house, put it on the MLS and wait for another agent to sell it. If you hire an agent like that, you are getting ripped off, and shame on you for hiring him or her!

I can’t speak for my associates, because that would constitute illegal price-fixing, but I myself charge well under 6% for the full service which I (and all Golden Real Estate agents) provide. “Full service” for us includes promoting your listing in my “Real Estate Today” column with its 200,000 circulation in five newspapers, magazine quality photos, narrated video tours including drone footage, free staging consultations, free use of our moving trucks and boxes for both seller and buyer, Centralized Showing Service, lockboxes, solar-powered yard signs, custom listing websites with their own URLs, well-supported pricing consultation, and effective negotiation with competing buyers, often resulting in a sold price that more than covers what we charge in commission.

The anonymous reader boasted of owning 18 homes which he/she has sold “successfully and safely.”  I don’t doubt that at all, but he or she likely left money on the table by doing it without a Realtor who possesses the tools and expertise which my fellow Golden Real Estate agents and I bring to the process.

The key to getting the most money for your home is to price it right and then maximize exposure so it attracts the most buyers who will compete with each other on price. That process starts, but does not end, with being on the MLS.

Let me put some numbers to this discussion. When homes sold for $75,000, let’s say the listing agent netted 3% commission after deducting the “co-op” commission paid to the buyer’s agent. That equals a $2,250 commission. Let’s say there were 50,000 transactions per year and 25,000 MLS members, as there are now. With two sides to each transaction, that equates to 4 paychecks per year per agent, or just under $10,000 income per year for the average agent. And that’s without subtracting the 15 to 50% split taken by the agent’s brokerage. Nowadays, agents’ expenses alone can exceed that amount with our higher car, cell phone, computer and software expenses, plus MLS fees, showing service fees, Realtor dues, and errors and omissions insurance. Then add the per-listing cost of professional photos and videos, staging consultation, etc.

Our living costs have gone up, too. The homes we ourselves buy cost more than $75,000, and insurance and taxes have gone up just like yours.

Now consider today’s typical home sale price of $400,000. I charge 5.6% on such a listing, so I get the same 2.8% as the buyer’s agent. (I reduce it to 4.6% if I sell the home myself.)  That nets me about $10,000 after deducting the per-listing expenses mentioned above. For the average 4-transaction agent, that’s an annual income of $40,000 before deducting the fixed costs and fees and the brokerage split mentioned above.

On a million or multi-million dollar listing,  you should certainly feel free to ask any listing agent you interview to justify or reduce the commission rate he or she quotes you. Negotiate as you would with any service provider. The bottom line, however, is that a great agent earns what he or she is paid.