Is Your Broker Worth Every Penny?



It's understandable that many sellers are looking for agents to shave commissions at a time of economic distress. What few people understand, however, is that saving a few dollars on the commission may actually hurt you in the long run. The clichés of "you get what you pay for" and "there's no such thing as a free lunch" never rang more true. (Note: Foxtons tried the model of 2% commissions and they're out of business.)

Here are the five reasons why you may want to rethink your negotiations.

1. Times have changed: Counter-intuitively, downturns are the worst times to cut commissions. It's actually times like these in which you get the best bang for your buck for every cent of the commission. Why? During the boom years, houses basically sold themselves. Therefore, the difference between a good selling agent and a bad one became murky because everything was selling so quickly. Now, properties are on market for 2-4 times longer, meaning that the quality and skill of the broker actually matters, and then some.


2. What's required in this market: Excess inventory means that every little effort and differentiating factor counts. Particularly during turbulent times, much more work is required to get the same results. This translates into agents who: a) Pitch in extra advertising dollars for creative ways of marketing your property via alternative venues;

c)Make the most of every Sunday and some weekday evenings to host open houses.

See the Other Side of This Arguement: Your Broker Needs a Shave

3. The buyer's broker payout: More than 85 percent of transactions (at least in NYC) involve co-brokers where the buyer has engaged a buyer's broker for representation. In a buyer's market, the inventory is so great that brokers are unlikely to be able to show their clients every single property that's on the market. A good financial incentive (or split) for the buyer's broker can make the difference between your property being shown and recommended ... or not. So if we look at a traditional 6 percent fee, 3 percent goes to the seller's broker and 3 percent to the buyer's broker. If you get down to 5.5 percent, a good seller's broker will keep 2.5 percent and offer 3 percent to the buyer's broker, precisely to maintain that incentive even if making less than the counterpart.

4. No additional wiggle room: Many deals get down to the wire nowadays. In this tough market, the difference between the deal happening or not may be $10k. Often, at this point, good brokers on both sides will be willing to compromise on their fee, in the interest of their clients, to make the deal happen. If the fee is discounted at the beginning of the process, there's much less room for negotiation at the end, when it can actually make a real difference.

5. What you pay for: Sometimes looking at the actual numbers can dispel the myths that brokers are somehow ripping sellers off. Let's look at a $700k home, where the broker's commission is 6 percent, or $42,000. This commission is split in two (between the buyer's and seller's broker), making it $21,000 each. Assuming the standard 50/50 split between the broker (the firm) and the agent (employee), the buyer and seller agents each receive $10,500. (Oh, and let's remember that this is payment stretched over the time on market for the property, now an average of 6 months in Manhattan; that's $1750/month.) So, assuming a conservative 2 hours per day, 6 days per week, we're now at $36/hour, for a job that includes:

· Developing and discussing an appropriate marketing strategy

· Organizing photo shoots, 360 virtual tours, and videos for the property

· Continuously and professionally advertising the property on public sites (newspapers, local listing services, etc.) and broker-to-broker databases, along with email blasts to agents and clients

· Gathering appropriate documentation and answers from the management company to understand every aspect of the building and its policies

· Consistently and promptly answering all questions about the property to brokers and buyers via email, work phone, cell phone (at all hours)

· Scheduling and hosting open houses and one-off showings

· Reviewing the offers and financial suitability of buyers

· Consulting with seller on all offers and negotiating them in the best interest of the seller, making sure to help the seller be as objective as possible throughout (read why studies have shown it's always better for a third party to negotiate on your behalf)

· Preparing deal sheets, document compilations and board applications for dissemination to all parties in a timely manner

· Overseeing the compilation and submission of the board package and all of its components, cross referencing all content

· Being the continuous point-person (sometimes therapist) between all interested parties

· Odds and ends such as coordinating move-in scheduling, forwarding addresses, special requests, etc.

· Attending and facilitating the closing

All of this for $10,500 or $36/hr on a pre-tax basis. The above is not intended to generate pity or a "poor agent; nice try" reaction. Rather, it's from a sense of pride and an attempt to provide a glimpse at the services a great agent provides in return for that commission.

So ... ask yourself, what kind of agent is willing to provide a significant discount to their fee considering the above? In answering this, think about what you do for a living and why you would or wouldn't reduce your salary or fee. Further, two additional points:

a) What does it say about the agent's own negotiating capabilities with potential buyers if they can't stand their ground with you?
b) What does it say about the value they place on their own skills and services, or their lack of existing business?
c) Which of the above duties or responsibilities are points of compromise for you?

-- For more of Ana Maria's views, visit www.theapplepeeled.com

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