During the 30+ years I have been in the real estate business I have debated this topic with my peers more times than I can possibly count and, it’s safe to say, rarely did we reach a consensus. The topic of commissions is a very sensitive one in this industry and there are strong opinions on both sides of the fence as to whether offering a higher commission rate to the selling agent will in fact get a home sold faster.
Before I go further I should pause and give some quick background info on real estate commissions and how they work since that is a mystery to many consumers. There is no one business model out there that everyone follows however, in general, here is the way it works: A homeowner lists their home for sale with a listing agent and, as part of the listing agreement, agrees to pay a commission to get their home sold. The commission is normally a percentage of the final sales price, generally in the ball park of 5% – 7%. The listing agent then makes an offer of compensation, through the REALTOR® MLS, to other agents for selling the listing. While the listing agent is free to offer whatever they want to the selling agent, it is common for the selling agent (agent representing buyer) to receive 45% of the total commission so, anywhere from 2.25% to 3.15%, leaving the balance for the listing agent. The most common commission rate offered to the selling agent, by far, is 2.7%.
Now, for the debate….Will a higher commission rate get your home sold faster?
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For starters, I should say that what will get your home sold faster is having it properly prepared for the market, priced right for the market and listed with a great agent. Having said that, many listing agents believe that if they offer a bigger cut of their total listing commission to the selling agent, it will get the listing sold faster. Others, such as myself, do not agree with this logic. Speaking for myself, I think what I mentioned at the outset is the most important, price, condition and agent, and some extra commission to the selling agent is not going to change the impression of the home upon the buyer.
Lets see what the facts show…
One of the bible verses I often remind my children about is Acts 17:11 which, to paraphrase, says that you should be eager to hear what is being taught about the scriptures but then go to the Bible and check for yourself to find out what is true. So, with this in mind, I decided to do some research and see if the data supported either side of this argument.
In compiling the data for the table below, I searched home sales in St Louis County and St Charles County for the period from June 23, 2014 through July 23, 2014 and compiled the data for the 1,720 homes sold during that period with regard to the average time it took the homes to sell (days on market) as well as what the average sales price was. I then segmented out the listings in which the most common commission rate of 2.7% was offered to the selling agent, as well as a rate of 2.5% and a rate of 3% and up. As you can see from the table below, the homes with the lowest commission payout (2.5%) did take longer to sell (although they were also the highest priced homes) which, by itself would lend support to the idea that commission rate matters. However, look at the stats for the highest commission payout though and you will see those homes took longer to sell than the overall average as well. The most common commission rate of 2.7% was the only one with time to sell lower than the overall average. So there you have it…a higher than normal commission rate to the selling agent doesn’t do the job.
