Selling a home is expensive — especially after agents take their 5% or 6% cut. But as we reported on March 20, some Realtors have started charging commissions of as much as 8% to make up for the time and expense involved in finding buyers during the worst housing market in years.
Sellers who agree to pay the hefty agent fees are sometimes given premium services, such as home staging, media blitzes and guarantees that the house will be sold within a month or two. But the higher commissions are intended primarily to give agents an incentive to direct buyers to the property and to play up the pros and play down the cons.
So, does it work?
Sellers typically pay up to 6% in commissions, about 3% of which goes to the buyer’s agent. But a new study of 2007 home sales in King County, Wash. by online real estate brokerage Redfin says that sellers who paid exactly 3% to the buyer’s agent sold their home faster than sellers who paid either more or less.
It took an average of 68 days for a home to sell when the buyer’s agent was given a 3% commission; it took 89 days when the commission was below 3%; and it took 129 days when the commission was above 3%, according to Redfin.
Of course, as Redfin points out, sellers offering extra-large commissions might be doing so for a reason.
“Is it the doing of the seller’s agent, who offers a lower commission on a property he knows will sell, and a higher commission on a property he thinks will be difficult to move?,” the Redfin report says. “Or was the high commission itself a signal of desperation that encouraged negotiating?”
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.