Why $4000 Flat Rate Real Estate Commission
With changes to Real Estate brought about by recent court cases against Listing Brokers collecting commissions from Sellers and using a portion of that commission to pay a Broker representing the Buyer, I knew I had to come up with a new plan that was unique as well as easy to understand.
I looked up and read as much about that court case as I could. I didn’t want to blindly accept what was released to the public. As I dug deeper it became evident the judge in the case along with lawyers for the plaintiffs wanted to accomplish a few objectives. Number one was to lower commission rates on the sale of Real Estate. Historically Real Estate commissions were based on a percentage of the sale price of the property. Since that commission rate remained constant while the value of Real Estate increased, Real Estate income was rather inflation proof based on the fact, Real Estate commonly out paced all other market prices. The judge had a valid point. This brings up another point. Real Estate advertising costs have outpaced property prices creating a never ending cycle of cost increases that adds to inflation. As soon as property values increase, advertising cost increase and as we all know, those costs are passed onto the consumer. Which increases the cost of everything under the sun. The question is, how do we break that cycle?
The second point the judge had was a view on an issue that could occur on rare occasions. People may show loyalty to the party paying the commission. If that was the case the Broker or Agent working with the Buyer could tend to side with the Seller on issues in an attempt to keep the deal together and collect the commission at closing. There are a number of state laws to ensure that should never happen, but it seemed the judge was wise in removing all temptation.
The third and maybe the most important issue in the court decision was to make contracts and commissions easier to understand. What could be easier to understand than, Sellers negotiate and pay a commission to the Listing Brokers and Buyers negotiate and pay a commission to the Broker they choose to work with. It is much like paying a lawyer a commission. No one ever heard of a lawyer paying a portion of that commission to the lawyer representing the other party.
With all of that in mind I set out to determine a new commission schedule and procedure. I looked at sales and commissions back in 2020 before Real Estate prices began to soar. The average selling price was around $200,000 and in round figures the average commission was 2%. I like to deal with nice round figures. $4000 was a nice round figure rolling the commission back to 2020 prices. The $4000 commission turned out to become an individual effort to fight inflation. Something we should all take a part in. We all loose when it comes to inflation.
This $4000 commission is on the Listing and Sale of any residential home in Sheboygan County. Or within a half hour drive of Sheboygan, Wisconsin. Some people may look at that and ask why. Looking at the obvious example, in the old system Sellers would pay somewhere in the range of $40,000 to $60,000 to sell a million dollar property. Who would give up that kind of money? To be honest it was not an easy decision to — for lack of a better term, watch that much money fly out the window. But in the bigger scheme of things, we all have to do our part to reduce inflation. The question is, where do we begin? It takes the same effort to sell a million dollar estate as it does to sell that $200,000 starter home down the block. In reality, what is fair? In reality, people who built those million dollar estates are very good at controlling expenses and realizing value.
What allows Crossroads Real Estate to offer a lower commission? There are a few factors involved. Number one is, no advertising. Some Brokers and Agents rely on advertising to bring in new business. Along with the price of Real Estate, advertising costs have skyrocketed. A cost of course passed onto the consumer. Another factor is, I work out of a home office which saves costs on rent or buying office space and maintaining that space. Another cost passed onto the consumer. Over 90% of the work involved in Real Estate is computer and Internet based. Work easily completed in a home office with a computer, printer, and phone.
To be honest, I haven’t settled on a cost to represent Buyers in a transaction. Hours involved to List and Sell a property are rather consistent. I’ve recorded and tracked hours involved in selling a number of properties and I consider $4000 a rather fair commission to cover expenses. No matter what you’ve heard or what you’ve been told, Listing and selling property is a lot less work than working with Buyers. I’ve heard it for over 20 years. Agents telling people it is a lot more work to List and Sell a property. When you look at the actual work involved, you can see Listing properties is a lot less work.
Listing a property begins with the initial phone call where information is gathered. The address, a brief description of the property and enough information to conduct a basic online search using tools available on the local Real Estate agency site we refer to as the MLS, Multiple Listing Service. The MLS collects and displays all the property for sale in the area and the entire state. Special tools have been developed to enter basic information for the subject property and the computer program displays similar homes that are Active, Sold, and of course have recent Offers. Working in the smallest possible radius a number of properties are chosen and compared to the Subject property to determine the market price at that particular time. That information is collected and the computer program assembles what is referred to as a CMA, Comprehensive Market Analysis. From there the Seller can see similar homes in the neighborhood, the List Price and recent Sales prices. Comparing features and condition Sellers can determine a Market Price to List their property for sale. From there more information is gathered from the Seller such as money owed on loans, and any other expenses that are deducted from the sale price to estimate proceeds or the amount of money Sellers will collect at the closing. There is a list of expenses to sell a property such as commission, Title costs, etc. to consider.
After the Seller decides to List their property for sale and at what price, an appointment is made to take pictures of the property, explain and sign the Listing Contract and other paperwork. After the Listing Contract is signed information about the property and pictures are uploaded to the local MLS and the Listing becomes live worldwide within a few hours. As you can see, there is little reason to spend additional money to advertise the property since the MLS and other home sale sites cover all the advertising the property needs.
During the appointment to take pictures and sign the Listing Contract a lockbox is added to the property. I prefer using computerized lockboxes engineered with safety in mind. The lockbox works with the Agents phone to identify that Agent, verify their phone with the local MLS, record what time the property was entered and the key returned to the lockbox. We can never underestimate security.
Agents call or use an online service to request an appointment that is confirmed by the Seller. Agents and Buyers tour the property at showings. When a Buyer likes the property they have the Agent or Broker they are working with draft an Offer to Purchase that is emailed to the Listing Broker. The Offer to Purchase is reviewed. Details are collected on the possible Buyer such as down payment and loan amount. Key details are collected in a summary of the Offer and emailed to the Seller along with the complete Offer for review. The Seller has the options of accepting, countering, or rejecting the Offer.
If all goes according to plan a number of Buyers view the property and a number of Offers are collected which is where negotiations begin. Dealing with Multiple Offers is one of the most important aspects in the relationship between a Seller and Broker representing the Seller to negotiate the best possible sale price. When multiple offers arrive, negotiations kick in. Fewer that 10% of Listing Brokers and Agents prefer to deal with multiple offers. It is a quick paced sequence of events requiring a great deal of organization, concentration, attention to detail, and hours of work crammed into a day or two. Sellers may choose to counter Buyers on an individual level or return a blanket counter offer. In most cases there will be a detail or two a Seller wants to counter out of an individual offer. Counter Offers can become complicated. Multiple Counter Offers magnify that difficulty. A Seller may decide to reject one or any number of Offers and deal with one, two, or a smaller number of offers. In the mean time, new Offers may come in. You can see how this can quickly turn into a stressful event for the Agent or Broker to maintain records if they do not have a system in place.
Once Counter Offers are reviewed and the Sellers makes a final decision, one Offer or Counter Offer is signed and the Seller has an Accepted Offer which becomes a legal binding contract upon delivery.
Agents or Brokers working with the Seller and Buyer collect all the information involved and compile a list of important dates and deadlines. This list is shared between Agents, Buyer, and Seller. The Buyer’s Agent collects information and insures the Lender working with the Buyer is up to speed. The Listing Agent assures the Title Company has all the proper paperwork to begin their process. From that point important dates and deadlines such as Inspection, Title evidence, the loan process, and other events are monitored and reviewed by both Agents.
Time and effort are rather simple to predict when Listing residential property for sale. Commercial property is another issue depending on the type of property involved and falls under a different commission scale. ‘
Working with Buyers who now pay commissions directly to Brokers is a completely different matter. Timelines and effort are difficult to predict. Some Buyers have to view every property on the market within a half hour drive or more of the area they choose to consider. That can be time consuming on its own. Then there is the ever present insight into the reality of Real Estate. Not every Offer submitted will be accepted. Before an offer is submitted Buyers need to know the current market price. A CMA for the subject party has to be developed and emailed to the Buyer. Which will also work for similar properties in the general market area for a limited time. Outside that general market area a new CMA will have to be compiled and reviewed. The average first time home buyer travels along a learning curve before they accept the fact, they are not going to out smart the average Seller and walk away with the deal of a lifetime. Chances are that Seller is working with a highly qualified Broker and has reviewed local market data. It is easy to see how difficult it is to estimate how many hours a Broker works with a Buyer from first contact to closing on a property.
Real Estate now has other complications may arise if an Offer from a Buyer asks the Seller to pay the commission for the Broker working with the Buyer. You can read about possible scenarios in the article:
Do You Want the Buyer for Your House Negotiating the Purchase of Your New House