This article can be found in The Argonaut, where Lisa Phillips is a regular contributor.
Q: How much should I expect to pay in commission to sell my home? Is it negotiable?
A: This is an important question because it’s critical for homeowners to be aware of the standard commission costs, as well as what they should expect in exchange for that rate. For many years, the standard commission for a residential sale was 6%. Slowly but surely, that has changed, and I can tell you that the overwhelming current standard commission in Los Angeles is 5%. Is it negotiable? Yes, and you will occasionally see a price of 4% or less; and occasionally you will still see a 6% commission. Even though I am an attorney in addition to being a real estate broker, I too have adopted the now standard 5% commission rate. I don’t negotiate that rate, and in my experience, those who insist on a discount often get what they pay for.
In a real estate sales transaction, the Seller generally pays the commission, which is typically divided between the listing agent and the buyer’s agent. Therefore, of the 5% commission, your listing agent is offering 2.5% to the broker who represents the buyer. From the listing agent’s 2.5%, a varying percentage of that goes to the agent’s brokerage office. The agent invests from their own funds up front for marketing, including advertisements, property brochures, websites, mailers, and open houses. If the house does not sell, the agent is not reimbursed for these costs. A good, full-service real estate agent more than earns their commission. I often say that while I bill my legal clients at a rate of $400/hour, I estimate that my hourly earnings on a real estate sale are about $10/hour. Ok, I may be slightly exaggerating. However, one would be surprised at how easily hundreds of hours can be spent on a single sale.
Most people think of the agents’ job as listing the property, and giving private showings or holding open houses until they find a buyer. While this is true, it leaves out the value of an agent’s experience in properly pricing, marketing, and ultimately negotiating the sale of the property. While negotiation of the contract is a significant aspect of the transaction, in many ways it is once the contract has been signed that the work really begins. Navigating the escrow process with inspections, appraisals, repairs, high emotions of the Seller, nervousness of the Buyer, this process can be a roller coaster. It is up to the agents to mediate issues that arise, keep everyone calm, and resolve problems that can jeopardize your sale. No one thinks their home sale will have any problems, but here are some examples of roadblocks I have had to overcome to get my clients’ deals closed: Unexpected title issues that need to be cleared; loan conditions and disapprovals; excessive repair requests or attempts to renegotiate price upon inspection; discovery of mold; failure to appraise at the sales price; homeowner association regulations or lawsuits; and my recent hurdle, property in a county designated by FEMA as a disaster area! It is your agents’ job to keep you informed, yet to take the burden and create solutions that yield results – a closed sale.
Will an agent who you haggled with for a discount go the extra mile for you? Maybe. However, some listing agents have confessed that they are resentful when agreeing to a discount, and do not perform at their highest level, focusing their efforts on their higher paying transactions. Many buyers’ agents will steer their buyers to properties that pay the full commission. The very discounted online sites generally provide less than full service, and are less likely to pull through for you when difficulties arrive, which they often do. A good agent will not sell themselves short, and you shouldn’t either. Whatever your profession, it is always a good idea to consider how you would react and/or perform if asked to do your same job at its best for a fraction of your usual pay. (Keep in mind, most agents believe they are already providing you with a discount by accepting 5% instead of 6%.) In one of, if not the largest financial transactions of your life, go with the best – not the cheapest. With that being said, knowing that 5% is now the almost universally standard commission rate will allow you to enter into a listing agreement from an informed perspective.
Disclaimer: This article is intended to be primarily for entertainment purposes, and is not to be considered legal advice.
ABOUT LISA PHILLIPS, ESQ./ CA Bureau of Real Estate Lic# 01189413
Lisa Phillips is an active Realtor in the Los Angeles area, with more than twenty years as a practicing real estate broker and attorney. Lisa is also a member of the National Association of Realtors “Green Resource Council”, and achieved its “GREEN” Designation. Her unparalleled knowledge of real estate, from local markets and pricing to legal issues and deal-making, has made her a trusted and valuable asset to her clients. In addition to her real estate and business savvy, Lisa is passionate about helping others, and works tirelessly to achieve the best results for her clients. For more information, please visit www.LisaPhillipsRealEstate.com.
