Will paying a higher commission help sell your home faster?

Posted by: Prashant Gopal on March 31, 2008

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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?”

Reader Comments

Chris Heath

April 1, 2008 7:13 AM

As an Estate agent I would say a higher commission is definitely a good incentive for us to push the property, however other things such as minor repairs etc shouldn't be forgotten.
http://www.soho-properties.com

Go4MoreCommission

April 2, 2008 12:22 PM

As a real estate agent I think 100% commission is best. After all, we real estate agents are not your average used car salesmen dress-up in fancy clothing. Why, we is professionals. We aint no high-school drop-out looking for the fast-buck. By the way folks, now is the best time to buy real estate. Psss, nobody is making any more land, so hurry and flip some homes cause you too can become a multi-millionaire with no money down. I got fixer-uppers you won't believe, get it while their hot before someone steals it. I got friends all over who will over appraise your home, cash it out, then get a super jumbo loan, then sell the loan to Bear-Stearn so that even if you walk you can steal millions from those stupid people from Bear-Stearn. Halleluya! Praise the Lord!

Eric Mangan

April 2, 2008 12:48 PM

There's no evidence that high commissions help sell a home, in fact the only thing it accomplishes is taking more money away from the seller.
There's so much real estate information on the Internet, that people can easily use a service like ForSaleByOwner.com (http://www.forsalebyowner.com) to save on commission and sell their home.
In fact, a study by Northwestern University found that listing a home with a Realtor does not generate a higher sales price that a home listed "for sale by owner." The study also found that once commissions are factored into the equation, the FSBO sellers comes out significantly ahead financially.

Mark in SF

April 14, 2008 3:38 AM

RE industry makes their money on VOLUME. They could care less if your house sells for $500K or $520K. Why spend twice time and funds for little return? They just want to sell your house and get their cut. 1 out of 42 working age people in CA was licensed RE last year! Biggest class of parasites in the country after the bankers.

Amanda

April 14, 2008 9:48 AM

Hello there-
I find the numbers skewed.

I am sure that the NW study did not have an even number of houses with over/under to at 3% to compare becuase most houses sell at 3% to the buyers agent. To get out of this house - I would throw a percent or two - I want to take advantage of the buyers market.

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About

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.

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