How sellers are pressured to pay 6%.

Why do Sellers still list with agents charging 6% (or even 5%), especially in this market where money is tight and a seller may or may not have much of a profit from the sale? At the peak years we heard sellers not really caring about the cost of the commission. When someone had a property bought years ago for $150,000 and they could get $350,000 for it, having to pay 6 or 7% was not much of an issue (they were local companies charging as high as 8% in the mid part of this decade and YES people were falling for it!). Nowadays though, the average seller has much less of a gain in the value of the house to play with, if any at all. So why is it that the high commission brokers can still talk sellers into paying 5 or 6% or 7% commission and to top it off charge them an administrative fee of $300-500 at closing?

This is a continually perplexing question to people in the industry and economists who study the field, and one which probably has several answers. First, many sellers don’t realize that commissions are not fixed. The big real estate companies spend a lot of effort training their agents to focus on the service-side of their pitch and not on their fees. To support their rigid pricing structure, many agents will argue that if you pay less, you will get less. Its all a smokescreen, of course. It perpetuates the perception that if one pays more money for something you are going to get something better. The internet is proving that comparison shopping for an item or service, you can pay less and sometimes substantially less. The real estate industry has done an incredible job convincing people that paying more commission is necessary even though there is absolutely no data to support such claim. Would you buy or pay more for a home because the owner is paying more commission to an agent? Of course not. On any given day, hundreds of homes expire unsold in our local MLS that were on the market with any of the high commission companies. There is no shortage of unhappy sellers who were going to pay 6% and did not sell or sold at a much lower price than they were told. No reasonable person can argue that paying a high commission will give one an advantage over someone who's paying roughly our 1.5% commission. The comparison stats are overwhelmingly close and at times better (such as Days on Market, Solds to Listings, etc). Actually our much lower fee gives a seller flexibility in pricing his property better than the competition and selling quicker, if one so desires.

Loyalty is another reason, as sellers will often return to the agents who helped them buy their house initially. And although we certainly cherish the same long-term relationship with our former clients, we continue to work towards having sellers take a closer look at a comparable service such as ours that will cost thousands of dollars less. Or sellers will list with the agent that is helping them buy another home even though that agent will make twice as much and offer no breaks on the commission (double popping the client is the industry term).

Finally sellers will gravitate toward a relative or a friend who's in the real estate business and sometimes a colleague who is in real estate just part time (talk about getting even less due to inexperience)! One would think that these close relationships would earn the seller a big discount in the commission. NOT SO for the most part. We have listed properties of (smart) sellers who had close family in a traditional realty but could get very little break in the commission (most of the time the agent you list with will end up with about 1/4 to 1/3 of the 6% commission because the listing office, selling office and selling agent will get their cut - in the traditional world about 90+% of the homes are sold by another agent NOT the agent you list with). In the early 90's we actually had a mother working for a traditional broker persuade her daughter to list with us because all she could do was charge her just 4.5% and not make any money!

People are coming around, as the number of listings with high commission brokers is decreasing. Real estate commissions in the United States are higher than any other industrialized nation. That means that home sellers typically pay more for real estate services in the U.S. than the rest of the world, unnecessarily. Everyone in the industry knows that price, exposure and agent experience is what sells homes. That's exactly where Homeowners Concept has an advantage over the traditional high commission model. The proof is in the pudding having completed 25 years in business and sold 23,000+ properties.