American consumers receive three advantages when businesses compete for their attention: better prices, more services, and various options. How healthy is the competition in the real estate industry? With 1.46 million REALTORS in the country (460,000 more than in 2009) (1), we have plenty of choices in who will serve as our agent. What about price and services? When healthy competition exists, consumers have easy access to price and service alternatives. Finding options should be easy.
The position of the United States Department of Justice concerning competition in the practice of real estate is unambiguous:
“…because real estate broker commissions are typically a percentage of the home sales price, the dollar amount charged by real estate brokers has increased significantly in recent years as home sales prices have escalated. And, because the amount home sellers pay their real estate broker is built into the home sales price, both home buyers and sellers bear this expense. (2) (From an April 2007 report by the FTC and US Department of Justice, Competition in the real estate brokerage industry)
Right now, I’m confident you can name at least three real estate firms in your community. But, can you quote the commission they most often charge for selling homes? You probably can. According to one source, the average commission charged for selling your home in Wisconsin is 5.93%; (3) there’s a good chance that 6.0% of the sales price is the commission you’ll hear in a random survey.
You get what you pay for.
What do we expect to get for our money? Highly skilled representation? Competent guidance? How about smart negotiating ideas? We should get all of that plus confidentiality. Is it possible every licensee in any firm has an equally high level of skill, contract knowledge, and competency? Of course not.
We would be within reason to expect a lower commission should we hire the least-experienced, least-competent agent instead of the most accomplished, experienced agent. Is that the way it works? Maybe. To find out is to call and ask. WRA.org is a resource for finding broker members licensed to practice in Wisconsin.
Commissions and Services are Negotiable
You may have success negotiating services and lower commissions by talking with different agents in the same firm. More likely, you’ll have a better chance of bundling services and reducing the commission rate when you have multiple brokers competing for your business.
Essential Real Estate Gives Clients Choices and Ideas to Save Money
When real estate markets are as fast as today, we believe our clients should have options to pay lower commissions. By looking at the commission from the point of view of the home selling client (the person who most often pays), we break a six percent commission into two equal parts. On one side, we have a listing service fee. We set that price at 33% lower (2.0%) than most firms would quote—and you never have to ask. Next, there is the cooperating broker side of the commission. (Usually paid to an agent representing the buyer). Most local Multiple Listing Service sales show that home sellers have paid buyer agents 3.0% of the sale price for procuring a buyer. (A recent search of the RASCWMLS of sales on the west side of Madison showed about 90% of all final sales included a 3.0% commission paid by the seller to the broker working with the buyer. )
Given Choices, Our Clients Pay Lower Fees and Increase Their Profit
To procure a buyer, most of our clients offer to pay cooperating brokers 2.0% of the sales price. When the offers are good enough, and the broker wants a 3.0% commission, the seller has the opportunity to decide if they will increase their payment. Going up is an option. However, owners who offer a 3.0% commission before seeing any offers can not negotiate a lower rate once an offer is submitted. Maybe the most ingenious advantage ever offered to home sellers is our suggestion that they make a promise to pay something less than 3% commission and wait to negotiate until they see the quality of offers. One percent of the sale price of a $400,000 house is $4,000. What would you do with a $4,000 bonus?
Essential Real Estate Exists to Be a Better Choice
We love competition. Because we place a greater emphasis on understanding the negotiating process, the purchase agreements, contingencies created by all of the firms, we are confident no one will guide you better than us through the process of negotiating your home sale or purchase. Our commission rates are tied to the speed and strength of the market. In hot markets, homes stay on the market hours compared to months when the market favors buyers. We have a hot market commission rate plan. I’m unaware of any firm that shares our belief that service prices should go down when homes sell in mere hours.
Keep more of the equity you earned
Where does the money come from that’s used to pay broker commissions and closing costs? Some say the money comes from the buyer. I agree. Except once the funds from the buyer reach the closing table, they get disbursed to vendors and other entities who have a financial interest in the house. Any money not used for paying bills and before paying commissions is considered Gross Equity. And, it is from your gross equity that you pay real estate brokerage fees. Because the fee is calculated on the sales price but paid from the home equity, if you owe money on your property, it’s wise to compare the commission to your available equity. Six percent of a $400,000 sale is $24,000. But, the $24,000 is 24% of your equity if your equity is $100,000. Our clients do a lot better than dropping 24% of their equity on broker commissions.
Essential Real Estate is the ideal firm for people who value safe, competent guidance and home equity. There is competition in the local real estate market, but you have to look. We are one of the brokers leading the way for more consumer choices in service and fees. Let us show you how much home equity we’ve kept in the hands of our clients over the years. The money our clients make in profit is impressive. Our business model is respected.
(2)See Robert W. Hahn et al., Paying Less for Real Estate Brokerage: What Will Make It Happen? 5 (American Enterprise Institute-Brookings Joint Center for Regulatory Studies, Working Paper 05-11, 2005) [hereinafter AEI-Brookings Paper]; GAO, REAL ESTATE BROKERAGE: FACTORS THAT MAY AFFECT PRICE COMPETITION (GAO-05-947) 15 n.33 (2005) [hereinafter GAO REPORT].
(3) How much do realtor fees really cost? August 19, 2021 Ashley Sweren