by Neil Jenman
Reading time: Apx 7 minutes
It seems so logical: You want to sell your home. Dozens of agents want to be selected.
So, you choose the agent who offers you the cheapest commission.
This is exactly what thousands of home sellers do. Yes, it seems logical.
Yet it can be a costly mistake.
Unfortunately, choosing the agent with the cheapest commission is not logical. For one reason: Agents are not the same. Some are better than others. Better at getting you a better price.
Shopping for an agent to sell your home is not like shopping for, say, a fridge or a new car. In such cases, the product is identical. Therefore, it makes sense to grab the cheapest deal.
But when it comes to real estate agents, those who charge the lowest commission often sell homes for the lowest price.
You might save ten thousand dollars on commission, but you lose two hundred thousand dollars if the cheap agent under-sells your home.
If a real estate agent can’t negotiate a good fee for themselves, they are not likely to negotiate a good price for your home. If they give their own money away, what do you think they will do with your money?
Get the picture? I hope so. Because, in real estate land, incompetent agents regularly sell homes hundreds of thousands of dollars below value.
And most times, owners never realise it.
No, owners think they got a good deal by saving commission. But what few realise is this: Cheap commission means cheap price. Not all the time, but enough to be of concern.
HOW TO RECOGNISE THE TRULY CHEAPEST AGENTS
The cheapest agent is not the one who charges the lowest commission. No, the cheapest agent is the one who sells your home for the highest price.
The agent who puts the most money in your pocket is the agent you should hire.
Now, at this point, I can almost hear some agents cheering. Finally, Neil Jenman is writing something they agree with. They can wave this article under a seller’s nose and say: “Lookee here, Jenman says don’t hire a cheap agent. Hire me, I charge four per cent.”
But not so fast.
To be sure, agents who charge cheap commissions often sell homes for cheap prices.
BUT SO DO DEAR AGENTS!
MOST AGENTS UNDER-SELL HOMES
Most agents – no matter what they charge for commission – under-sell homes. The worst thing to happen to any home seller is to pay a high commission and sell for a low price.
And, if most agents are incompetent, of course, you should hire one with the lowest commission.
But there are some agents – those rare few – who are truly skilled at negotiation. These agents are often worth a higher commission.
When Frank and Jenny sold their home in Kew, they first hired an agent who offered them 1.1 per cent commission. This agent claimed to be the best in Australia. But, as Frank and Jenny soon discovered, “best” did not mean best price for them. It meant this bloke sold lots of homes – on the cheap.
When he began “conditioning” them down in price, Frank and Jenny fired him and hired another agent.
Rather than accept the $2.5 million price with the cheap (and self-titled “best”) agent, they hired another agent, a skilled negotiator, who got them $3.1 million. For which they paid 2.5 per cent. Gladly.
As Frank said: “We got $600,000 more for which we paid $50,000 more in commission.”
Yes, the cheap agent would likely have sold their home for $2.5 million and, at 1.1 per cent commission, charged them $27,500. But the second – and more expensive agent – sold their home for $3.1 million and charged them $77,500.
So, if sellers only compared commission amounts – $77,500 with $27,500 – they’d be tempted to choose the agent who charged $27,500.
But that’s not the full picture.
THE FULL PICTURE
The full picture can only be found by looking at the final selling price – as well as the commission. And, to get an extra $600,000 and pay an extra $50,000 commission is great value in any seller’s language.
Yes, the cheapest agent is the one who puts the most money in your pocket.
So, how do you know – when you are interviewing agents – which one will get you the highest price? How do you make sure you don’t pay a high commission and sell for a low price?
Easy. You make the final decision on the amount of commission you will pay an agent at the time your home is sold – when you see the final selling price.
Do not firmly set the commission at the time you hire the agent. You see, when you hire the agent, you don’t know what sort of a job the agent will do. You don’t know if the agent is going to morph from pleasant and friendly before you sign-up to mean and nasty after you sign-up.
No matter how confident you may be that you have chosen the right agent, you never know what they are really like until you hire them.
HOW TO SELECT AN AGENT
It is often said that there are only three ways to really know someone: Live with them; go on holidays with them or work with them. If you don’t want the agent moving into your home and if you don’t want to fly to Fiji with them, the only way to know what any agent is really like is to hire them.
You certainly don’t want to hire an agent, having agreed to pay a high commission, and then they sell your home for a low price.
Remember, you can (and should) negotiate an agent’s commission rate at any time until your home is sold. Make this point clear to the agent when you select them.
To make you feel extra safe, you can write the following words in the selling agreement when signing-up with the agent: AGENT AGREES THAT COMMISSION IS NEGOTIABLE UNTIL THE POINT OF SALE.
Make sure the agent initials beside these words.
NEGOTIATE AT THE END, NOT THE START
Here’s another tip: Don’t push the agent down in their commission rate when you hire them. Wait and see how good they are before you decide how much to pay them.
You can say to the agent: “We don’t mind paying you a higher commission if you get us a higher price. But you must prove yourself. When we see what you do, we will decide how much to pay you. If we think you are worth the fee you want, if you are a great negotiator, we’ll gladly pay you well.”
This will give the agent the incentive to get you a good price.
If – as happens with most agents – the agent comes to you with an offer and expects you to drop your price, ask them to drop their commission.
Or another idea (when given an offer you are considering accepting), say to the agent: “If you can get me this amount net, fine, we will take it.”
Watch how much harder they fight for their own commission.
SUMMARY
Don’t shop-around for agents comparing the commission they charge. Look for the agents who are genuinely good negotiators. Be willing to pay well if they do well for you.
The best agents – those who do the best for you – will charge you nothing in advance (not even marketing costs). Truly best agents accept all risks. They are willing to prove themselves to you – and then receive a fair fee.
Give these agents a chance. You have nothing to lose.
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FOOTNOTE: If you wish to test an agent’s negotiation ability, we have devised seven questions you can ask them. Click here for a free soft copy.
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Linda Sch says:
This article is really useful for me. I was wondering how much to pay. If an agent can get me a higher price, then I’m happy to pay more.