Real estate commissions place a more significant burden on sellers who have less home equity. Calculating commission as a percentage of the sales price paid out of the home equity compounds the problem. To see the consequences and our solution, look at this typical scenario
Property A. The owner sells for $500,000. She pays her broker a 6.0% commission of $30,000. Before paying the commission, the owner has $500,000 of equity (purchase price – mortgages).
The $30,000 commission requires just 6.0% of the home equity.
Property B. This owner also sells for $500,000. He pays his broker the same 6.0% commission of $30,000. However, this owner purchased with a small down payment and took a home equity loan for college education costs before refinancing, as his home equity is only $100,000. The $300,000 six percent commission is 30% of his home equity.
While their plans differ, the owners are selling for the same reason; they’ll use their equity for a new life adventure. The success of their next experience depends on the amount of money remaining after paying the costs to sell their home. If more money is better than less, what options does the property B owner have to reduce the bite the commission will take out of his equity?
Essential Real Estate’s Solution: The listing and buyer brokers split the real estate commission paid by the seller. Our clients can promise to pay top-of-the-market price commissions or hold off on committing to pay the highest rates until they see the offers on the table. When the market is fast and competitive, owners can decline to pay top-price commissions to buyer agents. Our typical client selling a $500,000 house saves $5,000 on buyer agent commissions compared to the owner, who pays a 6.0% commission. They keep an additional $5,000 because we do not accept a commission higher than the commission paid to the buyer agent.
NOTE: All commission costs are regressive, even our fee. However, our commission strategy decreases the regressive hit by 33%. For low-equity home sellers, a ten thousand dollar increase in saved equity will go a long way toward achieving their goals. We make it our business to find solutions that eliminate problems and improve our clients’ lives.