Are Real Estate Commissions Motivators?

Most real estate brokers – what I call ‘ordinary‘ real estate brokers – charge a percentage based commission: 5% or 6% or 7% of the final sales price of the property as commission.*  Of course, as I’ve said before, this makes no sense at all.  There is no relationship between the arbitrary percentage charged and what it takes to get a house sold.  Still, percentage based commissions are what most brokers charge . . . because that’s what they’ve always charged.

We at Help-U-Sell Honolulu Properties have a better, more up-to-date idea.  We charge a Low Set Fee to sell your property, and it is the same whether your house is worth $500,000 or $650,000.   Our fee is not arbitrary but is based on what we anticipate the actual cost of marketing a properly priced listing on Oahu to be, plus a reasonable profit.  The bottom line about our fee is that it is designed to save home sellers money and is always thousands less than they’d pay a typical percentage based REALTOR.

I once heard an ordinary agent explain to a home seller that the percentage based commission she was charging was a good idea because it would motivate her to get the highest possible price for the sellers!  ‘When you make more,’ she said, ‘I make more!’   Well let’s take a look at that notion for a moment shall we?

First, let’s create a hypothetical situation.  Let’s assume we have a house worth somewhere in the neighborhood of $500,000 – $520,000.  Agent A – who works for an ‘ordinary‘ broker – offers to sell the property for a percentage based commission of , say, 5%.*  If she gets a price of $500,000 for the home that’s a commission of $25,000! (go ahead – take a moment to catch your breath), but if she gets $520,000 for it, the commission will be $26,000 – $1,000 more.  Not much . . . but perhaps a little motivating.

But wait a minute.  The vast majority of home sales involve two real estate companies one on the listing side and one working with the buyer and the two companies split the commission.  So in our example we’re most likely not talking about $25,000 and $26,000 and a difference of $1000 we’re talking half of that:  $500.  Not quite as motivating.

What many home sellers don’t realize is that the big commission paid at closing goes not to the agent but to the agent’s broker who then splits the commission with the agent.    Let’s assume our agent is on a 70% split with her broker.  Her take for getting the seller $20,000 more is actually $350.  I think you see where this is going:  the notion that a percentage based commission in real estate motivates salespeople to get sellers a better price is really nonsense.

It is 2014.  People are wearing computers in their eyeglasses!  We’re trading stock online for a set fee of $7!  Isn’t it time your relationship with real estate sales stepped into the new Millennium?  If you are thinking of selling, you owe it to yourself to talk to Help-U-Sell Honolulu Properties before you obligate yourself to a bloated percentage based commission.  We’ll get the job done while charging you a logical low set fee that will save you thousands!

*Real estate sales commissions – whether percentage based or set fee – are fully negotiable between the broker and the home seller.  They are not set by law, nor is there a ‘going rate.’ Commissions used in this example are not real and are purely for purposes of illustration.