“Honesty is the first chapter in the book of wisdom.”
– Thomas Jefferson
I’m sure you’ve heard:
“Realtors are driving up the property values for their own commission gain.”
This one has a lot of factors at play, so get cozy, this is a very transparent breakdown. If you want to know what’s going on with real estate right now, it’s worth giving a couple minutes of your time to understand how it all works.
Principle of Selling Using an Industry Broker
You can only sell something for what the buyer is willing to pay for it. After that, the broker receives their commission. It’s about reaching the right audience through strategic marketing expertise, not raising the price to accommodate for commission.
Example of Strategic Marketing
Imagine having a vintage $1,000 Beanie Baby. You put it in your garage sale and on your local Facebook Marketplace for $1,000 but all the offers coming in aren’t even close to your listing price. You checked on E-Bay and the same Beanie Baby sold last week for $1,100. So, you decide to list your Beanie Baby on E-Bay – but you must pay a commission to get to market your listing to the audience of E-Bay – people who are serious collectors from around the world! Maximum exposure reaching the right audience of buyers = getting top value for your item.
Typical Real Estate Transaction in the State of Missouri
The listing agent does their research and positions the home for maximum exposure using their own marketing dollars. The buyer’s agent brings serious and qualified buyers to the home through their own home searching process. The buyer finds their perceived value of the home and offers it to the seller. The seller decides to accept, counter, or reject. Agents work together through each stage of the process, negotiating and advocating for their own clients to decrease risk and get everyone happily to the closing table. After closing, the agents are paid for their professional services, advocacy, expertise, document facilitation, and replenish their personal dollars invested.
How Real Estate Commissions Have Always Been Paid
This is dense, but straight forward, just stay with me on this one. In the state of Missouri, to exclusively represent either a buyer or seller, you are required to have signed a designated agency agreement to work on their behalf. Both agreements transparently discuss how much commission or what flat rate, will be paid by whom to the agent after closing in the signed agreement.
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Seller decides how much commission will be paid out of their home sale proceeds (funds brought by the buyer). This could be a small percent of the proceeds to pay only the commissions of the listing agent. Or a larger total percent of the proceeds can be paid in commission to both agents depending on what the buyer’s agent asks the seller for in the offer for bringing them a qualified buyer.
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For buyers, if the seller isn’t willing to pay commissions from their proceeds, then the buyers will have to pay the buyer’s agent a commission. Buyers who have to pay their own agent’s commission for representation – on top of their down payment, inspection fees, appraisal, and closing costs – limits the buyer pool for those listings.
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5% or 6% from the sellers’ proceeds (funds brought by the buyer) has been the shareable standard for agents for a long time. If the listing agent finds a qualified and serious buyer on their own, they can renegotiate the commission percentage with the seller. However, the buyer will be unrepresented and responsible for scheduling the showing, writing the contact, routing it to all parties, facilitate inspection and appraisal procedures, get to closing, and key exchange – not to mention the packing and moving side of things, too.
The Sudden Extreme Rise in Property Value
Realtors determine the market value of a home based on the comparable data of recently sold homes in the area. This is a matter of calculated facts and recent market data, not a number pulled from our bums. The reason property values are on the rise is due to demand causing buyer bidding wars, and then sellers accepting offers for more than their home is appraised at. When a home that is appraised for $200,000 is sold for $250,000 because a willing and able buyer paid that $50K cash out of pocket to close the appraisal gap and the seller accepts it – every home on that block and in that neighborhood just increased in value massively. This is also affecting property taxes, which I’m sure you’ve noticed.
The Impact of Large Real Estate Corporations
It’s not secret, or it shouldn’t be, that corporations are targeting homes in ‘the average first time home buyer price range’. These companies are out bidding first time home buyers and families, turning those dream homes into rental properties for their passive income. Corporations overpay for these homes because they know they will get it back in the rent they plan to charge the future renter. These companies typically do NOT use or need to depend on a Realtor for representation.
Lastly, and I cannot stress this enough…
Choose your Realtor wisely!! I know far too many Realtors like me who have sound morals and values, genuinely guiding clients through the real estate transitions. To learn more about identifying quality Realtors, check out my blog [Why Choosing the Right Realtor for You Matters More Than You Think]. Also, you might find these other blogs helpful, too: [Understanding CMAs] & [The True Value of a Realtor].
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