Thinking of selling a home?
A commission-based listing agent is most likely going to cost you dearly due to:
- the listing agreement commonly used,
- conflicts of interest, and
- the fact that the Internet has made marketing easy.
Here’s a more in depth explanation of why you should avoid a commission-based listing agent:
Most Listing Agreements Are Written Against Sellers Best Interests
Did you know that when you sign the typical listing agreement with an agent that you are required to pay them a commission even if you find the buyer? So if your cousin, a co-worker, or the neighbors friend decide to buy your home, your agent still gets their full paycheck.
What if you change your mind about selling due to an unforeseen circumstance (e.g. job, health, family, etc.)? Well if there was an offer on the table that matched your terms and you don’t accept it, under the typical listing agreement you still owe the commission to your agent.
Investors Have Created A Huge Conflict Of Interest
Did you know your agent is being constantly bombarded by real estate investors looking for a good deal? And do you know how the real estate investors are tempting your agent? By promising your agent that they can:
- represent the investor as the buyer of your home, known as dual-representation, so your agent gets both the seller agent and buyer agent commissions (typically 2.5% each, or 5% total), and
- re-list the property once the investor renovates the home.
So in a $600k home sale where you agreed to a 5% commission with your agent, and you thought that your agent would only make 2.5%, your agent is now presented with a dilemma:
- advise you to sell to a buyer offering $600k with conventional financing (and their own agent), where your agent just makes 2.5% commission, or
- advise you to sell to an all-cash investor offering $590k, where your agent represents both sides for a 5% commission, plus another 2% commission when it is re-listed in two months for $700k.
In scenario 1, your agent makes $15k. In scenario 2, your agent makes $44k.
Numbers like those make people think. And best believe that a decent agent can spin an all cash offer from an investor as being better than a higher value offer from a buyer with their own agent. An agent can also make other justifications that seem logical and harmless, but in the end cost you big and make the agent much more money.
The MLS + Internet Have Changed Home Sale Marketing
Prior to the existence of the MLS and the Internet, listing agents had to advertise the homes they had for sale in places like the local newspaper, and network with other agents who had buyers. This was time consuming and expensive. It was really important that you listed your home for sale with an agent that knew how to market, otherwise your home would not get seen.
The MLS came along as a way for listing agents to easily show other agents what properties were available and how much commission the listing agent would share with other agents for finding a buyer. This made it easy for buyer agents to show their buyers the properties that were on the market, without having to be in direct contact with the listing agent. This saved time for everyone.
The Internet arrived and the local MLSs started sending the listings to websites such as Zillow.com, Realtor.com, and others. The vast majority of buyers (93%) now search online for homes, including 99% of Millennials and 96% of Generation X. Those buyers then reach out to an agent to show them the home. The Internet has made the marketing the homes to buyers much easier and cheaper.
So the model of marketing real estate has changed dramatically, but the traditional real estate agents are still charging commissions as if it’s 1970. Where are the cost savings that come with technology gains that we have seen in every other industry?
So Whats A Home Seller To Do?
Let’s recap what we have established above:
- traditional listing agreements are unfair to sellers,
- commission-based listing agents have big conflicts of interest, and
- the MLS and Internet have fundamentally changed the way a home is marketed.
So what should home sellers do knowing all of this?
You should list your home on the MLS for a flat-fee. This means that instead of paying 5% to an agent to list your home on the MLS, you instead pay an agent to list your home on the MLS for a small, upfront fee. We offer this service for $95 in California. You can still offer a commission to buyer agents. Here’s how it solves the above 3 problems:
- The flat-fee listing agreement that we use does not require you to accept any offer. If a buyer agent brings you a full-price offer and you decide not to accept it and keep the house instead, you owe nothing. If you find the buyer, there is no commission paid to any agent. It provides maximum flexibility.
- Using a flat fee listing, you can have buyer agents send all offers directly to you, so there are no agent relationships that you may not be aware of which may be influencing a deal. In addition, for as low as 0.5%, there are agents available to aid in negotiations, counter-offers, disclosures, and escrow.
- Since marketing a home has been so radically transformed by the MLS and Internet, the simple act of placing your listing on the MLS via a service such as homecoin.com is more than enough to market your home since over 93% of buyers will see your home.
How do we know all of this?
We’ve helped hundreds of home sellers save millions in commissions. Selling a home is simple, it just boils down to:
- getting pro photos,
- offering a fair commission to buyer agents on the MLS (typically 2.5%), and
- pricing the home fairly, which the market gives you instant feedback on: lots of offers = too low, no offers = too high (either way you can counter-offer, or change the price).
Thanks for reading, please contact us if you have any questions on how flat-fee MLS listings can save you thousands
P.S. We do more than $95 MLS Listings! We also offer $125 lockbox rentals, $99+ photography, and a slew of FREE items, such as FREE valuation reports, FREE comparable sales, and FREE open house kits. We also have agent assistance on your forms / negotiations / escrow for as low as 1/2% and discount full-service agents too! Sign up for our Monthly Newsletter or our Real Estate Investor Weekly Listing Report. Here are our Current Listings, Past Sales, and Yelp! Reviews.