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The Truth About Real Estate Commission

Last summer I wrote an article addressing the issue as to whether paying a higher rate of commission will help a seller sell his or her home faster.  My research for that article, in which I looked at a years worth of home sales in the St Louis area, showed that a higher than normal commission rate in fact did not lead to faster home sales.  Now that we are seeing the market heat up I decided to take another look at this topic and this time focus on whether paying a higher real estate commission results in getting a higher price for the seller.

To make sure my analysis would reflect the current market, I looked at data from homes sold in the St Louis area during the last 4 months and then selected the 20 zip codes where homes sold for the highest percentage of the original list price.  As the chart below shows, the 63385 zip code area of St Charles County (Wentzville area) had the highest percentage at 97.5% and the 63146 zip code area of St Louis County with homes selling for just shy of 95.5% of the list price was at the bottom of the list of top 20 zips.  There were a total of 2,162 homes sold in these 20 zip code areas during the 4 month period I examined.

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Zip’s Where Homes Sold For the Highest Percentage of List Price St Louis Zip Codes Where Homes Sold For the Highest Percentage of Original List Price

I then looked at the same zip codes and broke out the home sales where the most common rate of commission to the sales agent of 2.7% was offered to see how those sellers fared compared to the overall market shown in the chart above.  There were 1,754 listings, or 81% of the total listings sold in these zips during the period, where this rate was offered and, as the chart shows, there were some minor variations, but overall, homes sold for an average of 95% of the original list price.

2.7% Commission Paid to Selling Agent

St Louis Zip Codes Where Homes Sold For the Highest Percentage of Original List Price

Next, I broke out the home sales where a common lower rate of commission to the sales agent of 2.5% was offered.  There were 109 listings, or just 5% of the total listings sold in these zips during the period, where this rate was offered and, as the chart shows, many zips fell off the chart because they didn’t have any listings at this commission rate, but, for the ones that did, homes sold for an average of 96% of the original list price.

2.5% Commission Paid to Selling Agent

St Louis Zip Codes Where Homes Sold For the Highest Percentage of Original List Price

Finally, I looked at the home sales where a common higher rate of commission to the sales agent of 3.0% was offered.  There were 48 listings, or just 2.2% of the total listings sold in these zips during the period, where this rate was offered and, as the chart shows, most of the zips fell off the chart because they didn’t have any listings at this commission rate, but, for the ones that did, homes sold for an average of 94% of the original list price.

3.0% Commission Paid to Selling Agent

3.0
The conclusion is, the data does not appear to support the idea that offering a higher rate of commission to the sales agent will result in obtaining a higher price.  This is consistent with my article of a few months ago that looked at whether a higher commission rate would cause a home to sell faster which, again, the data did not support.

I don’t mean to say, nor do I think the data indicates, that the rate of commission has no effect on your home sale because that is not the case at all.  All I am trying to show is that, under normal circumstances and, as a whole, as long as you offer a commission rate along the lines of what selling agents “expect” and what is normal, that it has no real impact if you go a little higher or a little lower.  Go a lot higher or a lot lower and you will see an impact no doubt.

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