How can I save on Real Estate Commissions?

After years of living in the home you’ve come to love, you’ve decided to move. Maybe you’re relocating due to a better job or you’re retiring. Maybe the last of the kids are gone and it’s time to downsize. Perhaps you’ve had it with all of the yard work that sucks up your weekends and you’re thinking that a condo is the way to go. Whatever the reason, you’re probably going to want a realtor to help you with the sale of your home.

Now finding a realtor can be a tricky thing. Unlike, say, an auto mechanic, who you may have to seek out the services several times a year, a realtor is someone you might only need once every 10 years or more – and even then the realtor you employed then may not even be around then. So you cast about for someone to help you sell your home. You talk to friends who have bought or sold homes, your loan officer, and real estate lawyer and you pick a real estate agent that by all accounts seems knowledgeable, hard working, and trustworthy. You feel like you’ve done your homework. You’re feeling pretty smart, savvy even. You’re feeling pretty impressed with yourself.

Well, not to burst your bubble, but maybe you shouldn’t rest on laurels quite yet.

There are a couple of serious drawbacks to selling your home using even the best of realtors, but they all boils down to this painful truth: your agent has his best interests at heart, not yours. Now this sounds pretty obvious, after all, we all do it. When most of us go to work we do so with our pay check in mind.

For instance, say you have to print 100 high quality color copies for a presentation. You get them all finished, laminated, three-hole punched and attached to their nifty folders. Then you realize the copies aren’t quite as eye-catching as you expected. Maybe you used similar colors too close together on your pie chart, or maybe you just realized that a serif font isn’t streamlined enough. Whatever the perceived problem, you want it to look as slick as possible, and it just doesn’t.

Well, these things cost quite a bit of dough, not to mention the time spent assembling the project. But what the hell, it’s not your money it’s the company’s, right? So you bring up the file, make the proper adjustments, run off another hundred copies, dissemble and recycle the old ones, laminate the new ones, assemble the folders, and your workday is now over. Your employer just shelled out a day’s pay and cost of materials plus any work you missed because you were funneling your time into something that really only benefited you. After all, the people at your 20 minute presentation couldn’t care less that the dark blue wedge of your pie was almost as the same color as the purple one.

Now let’s apply this to the selling of your home – probably the largest single financial transaction you’ll ever make short of sending your kids to college – only you’re the employer and the employee is your agent.

Since you know nothing about the current real estate market you have to rely on your agent recommending an asking price for your home that will both bring in as many prospective buyers as quickly as possible. After all, the faster your real estate agent sells your house the quicker everyone gets their money, but more importantly, the quicker he gets his money. Because here is the sad, sad truth: you are not employing a real estate agent; you are merely a way for them make a large amount of cash fast.

Consider this: Your house is on the market for 10 days at the asking price of $181,000. An offer – the first offer – is made of $170,000. You feel that your home, the home you’ve lived in for 20 years, the home that your children grew up in, that houses all of your memories, is worth more than that. Your realtor, on the other hand, speaks of homes in your area that have been on the market for months and haven’t budged. He tells you that you’d be a fool not to accept the offer. Out of fear of not selling your house, you accept the bid. Done.

Now, let’s look at it a different way.

The same situation occurs only this time you tell your realtor that you’d like to wait a bit and see what else comes along. Regardless of how nice, friendly, or helpful your realtor may appear, he’s not your buddy and he’s not your friend. Everything he does is in his best interest, and if you get what you want – or are at least satisfied by the outcome – then that’s just the icing on the gravy. So if he gets you to sell your house right then for $170k then he stands to make $10,200 and he only had to list the house and show it to a handful of people. But since you’ve decided to reject the offer and hold out for a higher bid, this will most likely only benefit you.

Say your house stays up for another two weeks. Your realtor has to take a couple dozen phone calls or more, line up showings, give tours, and collect bids. After two weeks you are offered a bid of $174,000. You counter with $177k and they come back with $175k. You accept the bid, pleased with your self for the $5,000 profit you made just by hanging on for a couple of weeks and putting up with the minor inconvenience of having more prospective buyers traipsing about your home. On the other hand, your agent – for all of the extra two weeks worth of work he put in – only stands to make an extra $300. Not exactly worth it to him, is it?

So what’s a homeowner to do when it comes time to sell? Well, a couple of things. One: do your homework. Look for “for sale” signs in your neighborhood and find out what those houses are going for and what they sold for. Two: go to your town clerk’s office and find out the property values in your area. And three: be assertive. This is not a time to lose your backbone. Don’t be unreasonable, but be up front and firm about your expectations.

Or, if you’re as lucky as I was, your selling agent is also the agent for the buyer. In this case the realtor gets commission on both ends – that is, from both the purchase and the sale. In that case, the realtor stands to make a lot more money than if there was another agent involved.