Shaving real estate commissions can save sellers thousands
David Herron doesn’t consider himself a particularly hard-nosed negotiator. After all, Herron works as a technical service specialist for the Fantasmic show at Disneyland, and that happiest-place-on-Earth attitude tends to rub off.
But when Herron decided to sell his Lake Forest home last year, he was determined to find a real estate agent who was willing to cut a deal on the usual 6% commission -- the fee traditionally paid by home sellers to the listing agent who quarterbacks the complex transaction. That agent, in a system akin to “The Sopranos” but handled more tidily in escrow, must hand over cuts of the cash to the buyer’s agent and other brokers involved in the transaction.
And who could blame Herron? In a year that finds frugal Californians pinching pennies at Wal-Mart or opting to regift their way through Christmas, why leave thousands of dollars on the table?
Herron obtained a discount of roughly half off the customary fee to sell the $660,000 house by using the same agents to help him purchase a bank-owned property in Rancho Santa Margarita.
“I knew from the Realtor’s flier that I could negotiate,” Herron said.
Sales commissions amount to serious money, but many sellers don’t know they can dicker over the fees.
A Los Angeles County seller of a median-priced house of $325,000 would shell out $19,500 of his proceeds by paying his sales agent a traditional 6% commission. Such a seller might find himself outraged over having to pay out a few hundred dollars in surprise repair expenses as he navigates escrow with a difficult buyer, yet that same seller could have saved $3,250 just by persuading his agent to lower the commission to 5%.
As with the rest of the American workforce, real estate professionals are scrambling to find work -- seemingly good news for consumers. Although thousands of discouraged agents have dropped out of the business, California still fields an army of more than half a million licensed agents, many of whom signed up during the stampede for riches earlier this decade.
While consumers appear to have the upper hand in the current market, those agents lucky enough to get listings have to work harder to sell houses these days, making some recalcitrant about parting with their wages.
“You’d be foolish to give part of your salary away. I’m worth what I get paid,” said Elizabeth Weintraub, a Sacramento broker. Weintraub, author of “The Short Sale Savior,” laments that frequently the first thing potential clients ask about is paying less commission.
“I expect them to ask me. And then I tell them why I’m not going to do it,” she said.
Kellie Jones, a licensed broker working for Century 21 Beachside in Orange County, said agents in her area “are really digging in their heels because they aren’t selling as many homes.” During the bubble, they could lower their commissions and make it up on volume, she said.
But Jones expressed amazement that many potential clients don’t bother to request a break on the commission. “We’re timid; we just don’t want to ask,” she said of some sellers. Jones, a pragmatist, said she would cut her commission “if I think I am not going to get the listing unless I do so.”
Do the math
In hopes of negotiating a lower sales commission, Marsha Boutelle -- a self-described “serious shopper” -- interviewed three agents to sell her home this fall in the Northern California town of Carmichael.
“Of course I would rather pay less commission, and I would always try to negotiate,” Boutelle said. “I do a lot of research.”
Her experience, however, offers a cautionary lesson.
One agent she interviewed offered a 1-percentage-point discount “without even being asked,” but also suggested a sales price that was about $40,000 less than the house eventually sold for.
Though Boutelle paid a full 6% commission on the $385,000 sale, she walked away with tens of thousands of dollars more than she would have reaped had she employed the discounting agent pushing a much lower sales price. Boutelle expressed suspicions that the discounting agent was simply after a quick sale.
Not surprisingly, real estate agents love to hear such stories.
“Sometimes, you get what you pay for,” said Elaine Stark, a Realtor who runs her own business with her husband, Don, a licensed broker.
The couple, who specialize in areas of Irvine and Lake Forest, advertise commissions as low as 3.5% if they can sign up a seller and also represent that same seller in buying another home -- thus earning the buyer-agent cut of the second, piggyback deal.
Jones explained another type of deal she’s found herself in, known as dual agency, when the sellers could have paid a lower commission -- if only they bothered to ask for a price break.
Listing agents, when they manage to bring their own buyer into a transaction, can perform as a dual agent, legal in California when fully disclosed to all parties, though rife with potential conflicts of interest.
In such a deal, known in the business as “double-ending,” one agent or broker gets to keep the whole pot of cash. A consumer-friendly agent could then cut the customer a rebate.
“But if the seller doesn’t request it, they won’t get it,” Jones said, noting that in the mounds of paperwork involved in a home sale, many sellers aren’t paying attention to the fine print of a dual-agency disclosure -- and many agents are perfectly fine with pocketing the whole commission.
Arnold Applebaum, a La Mirada aerospace contractor, found another way to save cash when selling his La Habra Heights home several years ago.
Applebaum had agreed to pay a full 6% commission “because at the time there was only one real producer in the area.” The chief executive of Solid State Devices Inc. has bought and sold numerous homes and views realty fees philosophically -- a cost of doing business. “I always figure that people have factored in the commission when setting the price of the house.”
Then the sale of his La Habra Heights home began to bog down in escrow.
Although the transaction occurred well before last year’s credit freeze, “the buyer was having some difficulties -- but I didn’t want to go any lower on the price,” he said.
Applebaum pressured his broker, who agreed to placate the buyer and then rebate him part of her commission -- a creative solution to push the deal through.
In the current lending environment, navigating a sale through escrow can be a nightmare, agents say. But consumers can benefit, as Applebaum did, as agents are forced to stitch deals together and sometimes dip into their own pockets to save them.
In one intractable escrow, Weintraub shelled out several thousand dollars to pay a buyer’s lien and save the deal. In another near-meltdown, her seller was on the verge of foreclosure and too broke to make the home presentable for sale. With the clock ticking on the crisis, Weintraub called in a favor from a colleague: “I pleaded with a home stager to discount her price to the seller. She agreed to stage the home.” The house then sold quickly.
Savvy home sellers can boost their bottom line in other ways.
Martin Lambert sold his Newport Beach condominium in June and moved to Elk Grove, near Sacramento. The condo had languished on the market with the first agent he employed.
Lambert, a retired manufacturing plant manager, crossed paths with Stark. She undertook the listing and her husband-broker-handyman agreed to make some repairs to the condo so it would sell.
Lambert walked away with more cash because of the free repairs and a discount on the commission from the Starks, an independent team that doesn’t have to kick overhead money up to a large real estate brokerage.
“It’s always an advantage dealing with one person,” said Lambert, who has bought and sold numerous properties. “If you deal with a non-chain group you might get a better deal.”
One money-saving strategy may be so obvious that it frequently is overlooked: Make a good impression on your agent by “pre-staging” your house.
Agents are only human. “If I walk into a sad place, my whole attitude changes,” Jones admitted. “Some people don’t understand that their house is a wreck. I tell them to go look at model homes.”
A seller who invites a professional into his unkempt house -- dirty dishes everywhere, general clutter or filth -- may convey a message that the house will be difficult to sell. The longer a place takes to sell, the more an agent’s cost per hour goes up -- and the likelihood of the agent offering a discount diminishes. Sellers in today’s difficult market demand sophisticated marketing strategies, all of which are financed by the agent’s commission.
Jones said she sometimes can tell immediately whether a home is likely to sell quickly or languish. Sellers who fix their places up to make a good first impression on agents are more likely to get a double payoff: top dollar on their property, plus a discount on the commission they pay.