It may be hard to believe that the structure of the real estate industry has changed dramatically over the past 30 years and especially over the last ten. In the past, the majority of costs for marketing properties were borne by brokerages. They concentrated their efforts on selling their listings first. Only the listings offered by their company could be sold by real estate brokerages in City. You could only purchase homes that are listed by Re/Max agents if you hired one. The real estate agent just acted as a bystander and assisted in completing the brokerage's function with no real input regarding the marketing/advertising of the property. The reputation of a real estate brokerage depended on the number of homes it listed, their selling prices, and the speed at which it sold the properties.
Although the real estate business is much simpler today, few people really understand its workings. Nearly all real estate brokerages City today will list a property to sell and offer a “buyer’s broker co-op” fee to the buyer's agent. This fee is usually a percentage of the gross sale price. This fee is taken out of the net proceeds of the seller and paid at closing. A listing fee of 7% (3.5%) is usually paid to the seller's agent. The other half goes to the broker who finds a buyer for the property. The split for a listing at 6% would be the exact same. The typical split would be 3% for the seller's agent and 3% for the buyer. If your home is sold, both brokers will receive a commission. They will market, advertise, negotiate, complete legal paperwork, ensure the sale proceeds go smoothly, and anticipate market trends that could affect your sale. Remember that not all deals are successful and sometimes a deal can fall through even after all the work has been completed. The agent will have to absorb the loss, start over and resell the property to another buyer. It is also expensive to properly market and advertise a home (which very few agents/brokers do). The typical costs of advertising and marketing a property can consume 25-50% of the revenue that a commission generates.
How is a commission split? What are the costs of listing your home? The quality of the services, knowledge, marketing, and expertise you receive in today's technology-driven and highly competitive market is more dependent on the agent that you choose to list your home than the brokerage. Real estate agents are just like any other profession. They have different abilities and marketing budgets. Agents do not have the budget to market your property and most agents don't do much business. They rely on a sign and MLS for the work and then wait for a buyer. Sometimes it happens, sometimes it doesn't. You should be careful about who you hire to list your house for sale. It may seem nice to hire a neighbor or relative with a new license, but if your home isn't selling in 6 months or more, and the neighbor/relative offers 10k they could have won for you, it might not be the right thing to do. You may not realize that this could happen, and it is possible for you to be unaware of any problems. As a general rule, 6% is the average charge for agents. It's best to hire an experienced and competent agent. The same amount will be charged for a less skilled agent.
How about discounts? All real estate fees can be negotiable. However, it is hard to believe an agent/brokerage could turn a significant profit at less than 3%. This is unless they are making a loss by denying clients exposure or shortchanging them. Numerous “Discount Model” City real estate brokerages have been founded and gone out of business. Foxton's was a recent example. It had millions in start-up capital and was planning to revolutionize the real estate industry with extremely low fees. Foxton's was unable to make a profit and Foxton's had Wall Street backing and millions in start-up money. Consider this: No discount brokerage (defined below the average of 6.6%) has a dominant or leading market share in large metropolitan areas. They survive, I believe, because people believe that lower prices equal the same quality service as non-discount brokerages. They say, “Why should I pay 6% when you can sell for 4.5% and get the same product?” Two questions are always my answer to people who ask me this question. 1) Do you choose the lowest-priced surgeon to do your surgery? 2) If the brokerage is capable of doing everything a full-service brokerage can do, then why would they start their negotiations by saying that they will accept a lower price than other brokerages right away? Are you looking for someone to negotiate your home sale?
