Real estate commissions are negotiable -- if you ask
Study says cost plays small role in customer satisfaction
By Inman News, Tuesday, August 5, 2008.Bookmarking Sites
Real estate consumers who choose to negotiate commission rates charged by agents are mostly successful in lowering the amount they pay -- and customer satisfaction does not appear to be related to cost.
That's according to a survey released Monday by Consumer Reports, based on responses to an annual questionnaire of 3,753 readers who sold or tried to sell a home, 4,029 who bought one, and 7,368 who both bought and sold a home in the past few years.
In all, 9,141 responses were received from those who sold or tried to sell a home using real estate agents from 2004-07, and the total doesn't include those who bought or sold homes without a broker.
Some companies were more willing to negotiate fees than others, the survey revealed, and there was a 71 percent success rate for sellers who attempted to negotiate a lower commission price.
In a typical real estate transaction, the seller agrees to pay a commission rate to the listing broker that is a percentage of the home's selling price.
The listing broker shares a portion of this -- typically about half of the commission though this can vary -- with a broker that is representing the buyer's side of the transaction.
Agents involved in the sell-side and buy-side of the transaction share a portion of this commission with the brokers, and the agent share can vary based on company, experience and productivity.
The survey found that 46 percent of sellers actually attempted to negotiate for a lower commission rate.
"Sellers who paid commission rates 3 percent or lower were just as satisfied with their brokers' performance as those who paid 6 percent or more, suggesting that haggling can't hurt," Consumer reports announced -- and there were no statistically meaningful differences among rated companies in customer satisfaction.
RE/MAX and independent agents "appeared to be a bit more willing to deal" in offering lower commissions to sellers, the report revealed -- about 77 percent of sellers who attempted to negotiate down the commission rate were successful when working with RE/MAX.
About 67 percent of Century 21, Keller Williams and Prudential agents agreed to lower fees at the request of sellers, the survey found, and 64 percent of Coldwell Banker agents lowered their commissions in response to seller requests.
"We found that paying an agent a lower commission rarely had any effect on the sales price," according to the report, which is published in the September issue of Consumer Reports magazine.
People who paid a higher commission rate "were more likely to say they had regrets about the selling process. The biggest regret? Nearly one-third said they should have been more assertive in negotiating their agent's fee," the survey revealed.
About 81 percent of the sellers who paid 3 percent or less said the agent provided a competitive market analysis of their home, compared with 87 percent of those who paid 6 percent or more. CMAs can be useful in gauging the state of the market by examining other sold and for-sale home in a given area.
About 82 percent of respondents sold with the help of an agent, and they received an average of $5,000 below asking price, according to the survey results. Meanwhile, about 17 percent of respondents sold their homes without an agent, and they reported that they received roughly the asking price for the homes.
The 66 percent of respondents who used an agent in buying a home paid an average $5,000 below the list price, while buyers who negotiated their own deals paid close to the asking price. In these deals, the listing broker and listing agent can earn the full commission because no broker or agent is involved on the buyer's side of the transaction.
Of those survey participants who put their homes on the market, 86 percent completed a sale, 8 percent took their homes off the market and the rest were still attempting to sell at the survey's conclusion.
Independent agents (those not affiliated with major brands) tended to provide the fewest services, according to the report, "but sellers who used them were just as satisfied."
Some other differences revealed in the report: 85 percent of Keller Williams Realty agents advertised homes on the Web, compared with 75 percent of Century 21 agents and 76 percent of RE/MAX agents, according to the survey results.
Survey participants' customer satisfaction scores for real estate companies occupied a narrow range: from 81 to 79, with 80 representing a "very satisfied" rating and 100 representing a "highly satisfied rating."
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Submitted by Phillip Jones on August 5, 2008 - 4:27am.
This is very interesting reading. There is a lot of very useful info in this article. For me the 2 biggest items are:
According to the Consumer Reports Survey -"Sellers who paid commission rates 3 percent or lower were just as satisfied with their brokers' performance as those who paid 6 percent or more, suggesting that haggling can't hurt," Consumer reports announced -- and there were no statistically meaningful differences among rated companies in customer satisfaction."
"Independent agents (those not affiliated with major brands) tended to provide the fewest services, according to the report, "but sellers who used them were just as satisfied."
Submitted by RK Ruthman on August 5, 2008 - 5:26am.
It is interesting how you constructed the paragraph:
"Independent agents (those not affiliated with major brands) ... sellers who used them were just as satisfied
Independent brands can also provide more services than a major brand, or even a selection of services at a reasonable fee or commission.
As you stated, and this should be the bottom line,
"Sellers who used Independent Companies (not a major brand) were just as satisified."
Submitted by RK Ruthman on August 5, 2008 - 5:38am.
Consumer Reports constructed their findings:
..."Paying less won't hurt the quality of service. While some of the survey respondents who paid lower commissions got fewer services from their agents, the gap wasn't significant."
"... All the major chains and independent brokers scored very well in our survey," said Amanda Walker, senior project editor, Consumer Reports, "So if you're looking for an agent, shop by personal recommendation or commission split."
Is Inman News "independent" or affiliated with a major brand?
Submitted by Mark Owens on August 5, 2008 - 6:26am.
Obviously competition and negotiable commissions are alive and well within the National Association of Realtors!
The irony about the timing of the Consumer Reports story is that it was back in September 2005, that the Justice Department's Antitrust Division filed a civil antitrust lawsuit in U.S. District Court in Chicago, against the National Association of Realtors challenging policies that they felt prevented consumers from receiving the full benefits of competition, and discouraged discounting. The case was scheduled to go to trial in July 2008. The case was settled back in May prior to the trial... According to the DOJ the settlement will "enhance competition in the real estate brokerage industry, resulting in more choice, better service, and lower commission rates for consumers."
Wow...It looks like NAR and the Department of Justice could have saved a lot of legal fees and tax dollars if Consumer Reports article would have been published sooner.
Submitted by John Rowles on August 5, 2008 - 6:31am.
Its hardly surprising that there is no statistical difference in the opinions about individual brands, or how they compare to independents, because there is no meaningful difference between RE brands.
Gold jacket, balloon, Golden Retriever (dog w/gold jacket), so what?
People who read AdAge have been talking about the "death of branding" for so long its lost its cool, but if you want an example of how to derive the least possible benefit from having a brand, look no farther than Real Estate.
Submitted by Dave "Utah Dave" Robison on August 5, 2008 - 7:26am.
Welcome to a commoditized industry.
It is interesting article.
If you think....all these people are satisfied but they dont necessarily go back to the agent that helped them.
Welcome to a world of what is convenient.
Theres an opportunity that awaits someone to rise and shine in this industry.
Your Friend,
Utah Dave
www.UtahDave.com
Submitted by Commercial Mortgage Loans - Privately Funded - MasterPlan Capital LLC on August 5, 2008 - 8:58am.
One factor that may not have been considered is the fact that an agent might be more inclined to lower a commission on an easy deal. If an agent sees a deal as a slam-dunk she may more readily agree to a reduction. The easy deals (good homes in high demand areas) sell fast and result in high client satisfaction. The fact that satisfaction remains the same on discounted deals may be a factor of the kind of deals that are being discounted rather than the effect of the discount.
The implication is that a broker will work just as hard for 3% as for 6%. Maybe. But, having worked on straight commission for over 22 years I can tell you that it is more likely that the broker is more likely to discount deals that will involve less work.
Money is a motivator of broker behavior. Don’t let any consumer advocate tell you different.
MasterPlan Capital LLC
Commercial Real Estate Investment Bankers
Commercial Mortgage Loans - Equity Financing - Asset Management
Online: http://www.masterplancapital.com - Quick Answers - Fast Closings - Professional Service.
Submitted by William Metzker on August 5, 2008 - 8:59am.
I'd been an investor and developer for 35 years prior to becoming licensed in Oregon a couple of years ago. Commissions have always been negotiable. I think what's new in the Consumer Reports story is that negotiability may have trickled down into the ranks of consumers. What struck me most, though, was the story's absence of information on consumers selling their homes without using an agent.
Submitted by Daniel Rothamel, Inman Community Manager on August 5, 2008 - 9:07am.
@RK Ruthman--
I'm not really sure I understand your comment/question. What do you mean?
http://www.RealEstateZebra.com
Submitted by Jon Strum on August 5, 2008 - 9:37am.
I'm not convinced that a "brand" is a balloon or gold jacket or even a dog wearing a gold jacket, as has been suggested. Those things are brand icons. A brand can be defined as the emotional relationship between a customer and a company. The icons are just visual cues to help customers re-connect with those feelings.
The brand itself is defined by the interactions that a customer has with a company. It's tricky in real estate because the customer's point of contact is usually with an independent contractors and it takes clear vision along with subtle but consistent management on the part of their broker to drive home the importance of delivering on the promise of a brand.
The reason so much of real estate has become commoditized is that with no real barriers to entry, anyone can become an agent -- whether they are capable of or willing to deliver that high-level "brand experience" to their clients or not.
Unfortunately, too many agents tend to do far too little on behalf of their clients. (usually not the agents reading Inman -- they are already demonstrating a certain level of professionalism and a deeper commitment to their business) But at some point the clients have figured all of this out. And that's where new commission structures and pricing systems gain their first foothold.
And, as has also been suggested, somewhere within all of this chaos and confusion is where opportunity awaits.
Jon Strum
President
homsho
Website: www.homsho.com
Blog: www.LARealEstateBlog.com
Submitted by Jed Lane on August 5, 2008 - 11:06am.
As a former brand agent who is building a brand I can tell you all that brand matters more to agents than it does to clients. My clients have never cared where I worked, they follow me.
What the report shows to me is that more agents have bought into the notion that their services are not valuable. If an agent is delivering "full service", which I define as taking someone that needs to buy or sell and they rely completely on the agent for market analysis, marketing, negotation, and escrow supervision, the agent should be paid the highest fee. If the client is doing market research and self-directed house hunting etc then they should pay less.
The article brings up really nothing surprising. Consumer Reports is, as we say in California, Berkeley talking to Berkeley. When I sold electronics in the eighties and someone would walk in with the report you knew what you were in for. I tried to use it again when I bought a vacuum cleaner and I'm still cursing the decision.
I will never base a decision on the findings of Consumer Reports.
One question is always in my mind about an agent that will discount full service. If they give up their own money easily how easily will they give up the clients money?
Jed Lane GRI
Broker, Sales Manager
Star Real Estate Brokerage
http://www.FogCityGuide.com
415.425.9810
Submitted by Louis Herrera on August 5, 2008 - 12:13pm.
The biggest take-away I find from the results is that certain national brand agents appear to be more willing to negotiate on their commissions than their counterpart brands. The reason I find this interesting is that of the brands mentioned in the article most of them are widely franchised. Since franchises are independently owned and operated I would think finding a pattern toward commission negotiations would be unlikely.
Louis Herrera
CEO/Designated Broker
RT Brokerage Services, Inc.
www.rtbrokerage.com
Submitted by Rudy Bachraty on August 5, 2008 - 12:56pm.
Here's some thoughts from our community:
http://www.truliablog.com/2008/08/05/home-seller-question-why-should-i-p...
Rudy
Social Media Guru at Trulia
Submitted by Stephen Graham on August 5, 2008 - 3:00pm.
This article seems to be more focused on sellers negotiating with listing agents. Unbeknownst to many buyers, however, they too can negotiate with their buyer’s agents for a rebate of commission. Although the seller pays for the seller & buyer agents through the sales commission, the buyer can negotiate directly with his/her agent to lower that fee.
Submitted by Jeff Manson on August 5, 2008 - 3:53pm.
Well according to this survey they have Re/Max agents more likely to give big discounts with C-21, Coldwell Banker and Prudential agents somewhere in the middle. They also have Keller Williams agents more likely to be tech savvy and do most their advertising online. Hmmm??? Should we base our business models on these stats?? Probably not! Most surveys, polls and articles have some sort of hidden agenda .
I do agree that the consumer in most cases can care less whether you are from a big brand or an independent. They just want you to either find them a home or get it sold.
Jeff Manson
American Dream Realty
Hawaii real estate | Honolulu real estate
Submitted by Ralph M on August 6, 2008 - 8:41am.
All professionals’ fees are negotiable. Unfortunately, real estate professionals are the ones who reduce their fees the most and on a regular basis.
Guess what?
You deserve it. If you do not value yourself or your profession, then “Reduce” your self just to “Hopefully” get that listing.
When shall it change?
Never.
Your real estate commissions shall be even lower than previous.
There is an easy fix to this…..
Start valuing yourself and your profession
Submitted by jude foreman on August 14, 2008 - 2:20pm.
I work with over 100 agents in Chicago and they are not discount brokers. None of them are going below 5% or under 6 months right now. Actually, most managing brokers I know are throwing out the request for commission reductions because they have a bottom line too. So, i feel that this article, despite its stats holds no common sense.
I am not a broker, I'm a mortgage originator, but I have to agree with the model. The costs for companies are growing, the turn times to sell are getting longer and the beat-the-street with buyers are numerous. The costs have grown and with so many agents hungry for their next meal, what property do you think they are going to show buyers? The one paying out 2% or the one paying out 3% to the buyer's broker? Sure I know the ethics that they have to adhere to- but when one is facing that next mortgage payment ethics could be second best versus foreclosure.
These articles are packed with data but holds no common sense. Put yourself in the agent's position and ask yourself what would you do?
Submitted by Patti Herrington on August 18, 2008 - 4:23pm.
I would have to agree!!! What's the old saying..you get what you pay for. Especially someone that is experienced. Your sellers can be confident in knowing the agent that he hired can offer him the best service. Sometimes their are circumstances that the sellers have endured and are unable to pay a full commission. I beleive a good agent will do whatever it takes to help the seller!!!