One of the discussions that came up with my real estate agent and I is the commission rate. At first, he wanted 6% until I told him point blankly, “No way in hell you silly goose!” We ultimately agreed on 5%, which is split 2.5% to him and 2.5% to the agent who represents the buyers.
5% is still a ridiculous commission rate to charge for selling something so expensive in my opinion. A $2 million dollar house does not require $90,000 more effort to sell than a $200,000 house. In fact, selling a $200,000 house might require more effort given the demographic of the buyer!
Instead, there should be a flat fee based on several tiers. Perhaps $5,000 for houses up to $300,000, and $1,000 more for every $100,000 in house value i.e. $1,000,000 house costs $12,000 to sell, and not $50,000! Sounds pretty logical and fair don’t you think?
At any rate, I begrudgingly signed the selling agreement with my real estate agent for 5%. He said his company isn’t allowed to go less than 5%, but he agrees to refund me back X amount of his commissions if sold. The effective commission cost to me will be closer to 4%, a more digestible amount.
STILL NOT TOO HAPPY ABOUT HIS LACK OF VISION
I’ve learned that some of the most difficult customers are the real estate agents representing their clients, and NOT the clients themselves! When commissions are too low, the real estate agent will simply refuse to highlight the house to their client! Can you believe this bullshit? What happened to the fiduciary duty of a real estate agent to provide the best interest to their client, and not to themselves? I guess this is why Realtors get upset when the public uses the words Realtors and Real Estate Agent interchangeably. Realtors have to go through another level of tests.
My real estate agent has never sold in the price point where my house currently resides. This is a mistake on my part to go with him given his connections are all at price points 30-50% lower. What I should have done was choose a real estate agent who averages a similar if not higher price point of my house. Alas, I’m too bullish on the internet and the efficient market theory to believe the market will set the price, no matter how big of a knucklehead the listing agent is so long as s/he is professional and responsible.
During our negotiations of trying to get the commission price below 5%, I told him that listing my house at a 100% higher price point than his average listings will open doors to a new set of clientele and boost his resume. Even if he accepted 0% commission, it would be good for his career long term. I wasn’t asking him to accept 0%, but he seemed to take my suggestion literally and became extremely defensive.
My real estate agent could not see past his 5% commission for my house, whereas I know other agents would. All he could see was dollar signs now, rather than a wave of dollar signs in the future if he made me feel like I was getting a good deal. I already told him clearly that I think 5% is still a big time rip off.
Let’s say I am an ecstatic client because of his service and price. I will not only use him to buy my next place, but also refer him to all my friends for free. Because I am neither impressed with his service, and feel like I’m overpaying on commissions, I will do neither.
Let’s do the math on his lost payout:
* Refusal to agree on a 4% commission rather than a 5% commission. Let’s say house sells for $1 million. My real estate agent makes $10,000 more than if he agreed on a 4% commission.
* I decide to buy a $1.2 million place and not go through him. 2.5% (his cut of a 5% commission) X $1.2 million = $30,000 commission lost.
* I have six friends who currently are looking to buy property in the Bay Area, and can easily convince three of them to go through my agent. The average place of purchase is around $1.3 million. 4 X $1.3 million = $5.2 million X 2.5% = $130,000.
Conclusion: He made $10,000 more from me but will lose out on $160,000 for a net loss of $150,000!
WHY CAN’T PEOPLE LOOK LONGER TERM?
I don’t know about you, but $150,000 is a good chunk of money. Everything snowballs after a while and the more transactions you execute, the more transactions will come your way.
I’m fiercely loyal to everybody who shows goodwill and helps me out. In fact, I try and help out the person who has helped me out even more so.
My real estate agent’s attitude perplexes me. Perhaps he’s just dumb not to understand the benefits of long term goodwill? Perhaps the reason why he’s not a top producer and transacts in his current range is because he’s not good at cultivating relationships.
Whatever the case may be, I highly suggest all of you avoid the allure of short term profits at the expense of long term gains.
Readers, why do you think some folks are so short-sighted? What other examples do you know of where the temptation of short term profits often trumps long term gains?
Photo: Cherry Picking. Someone had to have the foresight of planting the trees years ago and opening a business for the public to pick cherries on their own and charge them $2.5 a pound for the privilege! SD