Realtor commissions are easily one of the most contentious aspects of real estate. Homeowners have built up equity in their home – and have often made improvements to it over the years, adding additional value – only for agent fees to take a hefty 6% bite out of their earnings.
If that sounds bad, the reality is actually worse: you’re losing more than 6% of your profits when you work with a traditional brokerage.
Realtors charge based on the home’s selling price, not your equity
To some people, 6% (3% to the listing agent and 3% to the buyer’s agent) doesn’t sound all that bad.
The math doesn’t quite “math” on this, though – if you’re an average homeowner who is still paying off their mortgage, you’re likely actually losing way more than 6%.
Take the example of a $400,000 home. You buy it today with 10% down and a 6% mortgage rate. In 10 years, you’re ready to move into a larger house that better accommodates your family’s needs.
According to Bankrate’s mortgage calculator, at that point you’ll have paid off $63,972 of the principal, and $212,252 in interest, which means you’ll have a loan balance of $296,028.
On average, homes appreciate 4% per year – which means that in 2033 this home should be worth about $592,100.
Once you pay off the remaining balance, your profit is $297,000.
When you sell the home, you’ll have to pay $35,500 in commission fees (3% for each agent) – because that’s what you owe based on the selling price of the home.
But as a percentage of your actual profit, you owe not 6%, but 11.92%.
That’s nearly 12% off your profits – twice as much as you thought you were paying.
The reality is most people don’t own their homes outright. Due to life circumstances, the average family sells their home after 13 years. That means that most people are paying a disproportionate amount of their equity in agent commissions.
There’s another way
Why are real estate commissions so high to begin with? It’s a good question, considering that it’s gotten easier to sell homes. Buyers find homes online, eliminating the need for binders full of for-sale properties at the brokerage. Technology has made it easier to conduct everything from open houses to closings. When we look to other industries, vast improvements in technology and efficiencies have made things less expensive over time – not more (take the flat-screen TV, for example: when it debuted, you’d pay a whopping $22,900. Today a flat-screen TV with better image quality can be purchased for 5% of its original purchase price in 1997).
In short, it’s hard to justify the 3% cut – especially as home prices have soared over the years, further lining agent pockets.
Brokerages have been able to maintain their high cut due to little pushback and industry-wide adherence to the 3% split model. When sellers have no option but to pay a total of 6%, that’s what they did.
So what is a fair commission for a real estate agent? Several next-gen brokerages are saying homes can be sold for far, far less than 3%.
Trelora, along with its sister brokerage, Houwzer, is offering full listing services for just 1% commission. That means sellers get everything they’d get with a traditional brokerage – MLS listing, professional photography, digital marketing, an open house, and an expert Realtor handling the transaction and giving advice. Trelora recommends offering 2-3% to the buyer’s agent, depending on what the seller is comfortable with offering.
So all in all, sellers can save up to 50% on commission fees by working with Trelora.
Low Realtor fees might seem hard to believe, but they’re simply bringing the commission fee back in line with what it actually costs to sell a home today. Instead of pocketing the extra money that would come with a 3% listing commission, they’re passing it on to home sellers.
Quite frankly, there is no reason sellers should still fork over 6% or more of their hard-earned equity in commission fees alone. That’s money they could be putting during home renovations, their next down payment, or a family vacation.
Commissions aren’t the only costs when it comes to selling your home
Another reason to be wary of traditional real estate’s 6% commission cut is that this isn’t the only thing you’ll need to pay for when you go to sell your home.
Costs for selling your home can vary widely depending on where you live, and that’s because different states have different standards and requirements for home sellers.
Most states charge a transfer tax for real estate. In Pennsylvania, for example, the buyer and the seller split the 1% transfer tax cost – meaning each party is responsible for paying .5%. For a $500,000 home, that translates to $2,500.
Prep work and repairs are typical expenses for all sellers, regardless of where they live. In a more competitive seller’s market, buyers might care less about a fresh coat of paint – but in a more balanced market, buyers have a preference for turn-key properties. In a market that favors buyers, sellers may need to add additional incentives – like a one-year home warranty – in order to stand out.
Most sellers have to either make some repairs to address the results of the home inspection, or give the homebuyer back some money.
In this market, it’s important to save money
Two years ago when interest rates were low and buyers flooded the market, some sellers scoffed at the idea of saving money on commission fees. Who cares about saving when they’re expecting their home to go for $60,000 over asking and no contingencies?
The market has shifted, though, in response to rising mortgage rates that have made monthly payments soar. As a result, buyers have pulled back from the market and are being choosier about the homes they try to buy. Bidding wars are not so typical anymore, and sellers who overprice their homes often end up sweating as the days on market turn into weeks.
Sellers are now more open to the idea of profiting more from their home sale by reducing how much they spend on the commission fees. Trelora is also a good choice for home sellers who need to buy a home because of their bundle rebate – anyone who buys a home with Trelora and opts to use their in-house mortgage and title services receives $2,500 back at the closing table.
Ready to profit more when you sell your home?