Realtor commission rates can be one of the biggest factors when it comes to deciding whom to use to sell your home. Obviously, the lower the commission rate, the better. After all, lower commissions mean more money in your pocket.
However, does a lower commission come at the expense of service? It depends.
What to Expect From a 1% Commission Realtor
The current national average for real estate agent commission is 6%. However, if you hire an agent who charges a 5% commission, you should still expect to receive full support. The difference in service for that 1% commission is not really going to exist.
However, if you hire an agent who ONLY charges a 1% commission fee, then you can be sure that there will be a huge gap in the type of service that you are going to receive.
Here is why:
How Can Agents Only Charge 1% Commission?
There is nothing new under the sun. Discount real estate agents have been helping people to buy and sell homes for decades. But you truly do only get what you pay for.
But first things first: the name “1% commission agent” is a misnomer. This is because these agents typically offer at least 3% commission to a buyer’s agent (the typical fee) PLUS whatever they negotiate for their own services.
While a 1% commission is the base option on these contracts, it hardly ever comes with all the services you will actually need to sell your home.
The “Menu Mentality”
When you list your home with a discount broker, you are really signing up for a la carte services. This means that while the agent might only actually charge a 1% commission fee to list your property if you want anything else done, you have to pay more.
If you want to be listed in the MLS (industry speak for a Multiple Listing Service, a database of listings), you have to pay for it. Do you want photos of your home for marketing purposes? You have to pay for them – and there is no guarantee that they are actually going to be good.
A virtual tour? It costs extra. So do flyers, open houses, showings, etc.
The main reason most sellers would use a 1% commission Realtor is to save money at the end of the day. However, as you can see, the costs can add up quickly anyway – making it hardly seem worth it.
If you are going to be paying 3% for a discount broker’s services, why not just pay the 5% for a full-service Realtor who is completely dedicated to supporting you?
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Is a 1% Commission Realtor Ever a Good Idea?
In 2005, the National Association of Realtors did a study. The findings reported that 77% of buyers use the Internet to search for a home. If your 1% discount broker has a strong Internet presence, it could be worth it.
This is because a well-established online presence can work wonders when attempting to attract high-quality buyers to a sale.
However, you would need to ensure that the agent is not simply popping your home onto an MLS for the 1% fee. This is because you can do that yourself. And, more importantly, if you list your own home in an MLS, it is usually cheaper than paying someone else a 1% commission on the sales price to do it for you.
What Level of Service Can You Expect from a 1% Agent?
It’s hard to make a living on a 1% commission.
Think of it this way: if you sell your house for $500,000, the commission is only $5,000. Then, the listing agent splits that with the buyer’s agent. So he is left with $2,500.
Typically, the agent then has to pay his brokerage firm or home real estate office. If he also has to do a 50:50 split, then he is left with $1,250.
Given all the time, effort, and traveling it takes to sell a home, $1,250 is hardly worthwhile – and most homes sell for significantly less than $500,000.
With this information in mind, it is easy to understand why 1% commission agents are often unreachable. This is because they take on many listings to cover themselves financially, so each client hardly gets any service.
In a seller’s market, this laissez-faire style of marketing might just work out in the seller’s favor. But in a buyer’s market, you should fully expect your listing to sit stagnant on the market without significant elbow grease from both you and your full-service Realtor.
Final Thoughts on Using 1% Commission Realtors
You may save significantly on commission, but it is likely because of the “menu mentality” that you will not.
You might be able to gain valuable experience in selling real estate on your own, but it’s likely you will never want to go there again.
In a seller’s market, using a 1% Realtor might work out. In a buyer’s market, it will be a disaster.
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