Fair and Reasonable Commission Rates

Our clients don’t pay for cheap service. They have high expectations of us and any professional who they trust. People who trust us to guide them through the sale of their homes are most likely to be fair and reasonable people. I think they see our intent to increase their profit and keep them safe as fair and reasonable.  

You get what you pay for. So, pay for fair and reasonable.

Placing a high price on mediocre doesn’t make something less crummy. The phrase, “you get what you pay for,” suggests otherwise. So, what are you paying for when you pay for real estate brokerage service? I know what I expected when I hired REALTORS. They needed to show me they understood the contracts, possessed ideas to make the market work in my favor, and they would keep our interaction confidential. I’ve never paid a broker six percent commission to sell my house, and I’ve never been disappointed. If that’s what I expect and what I pay for, it makes sense that I deliver the same to my clients. 

Essential Real Estate’s business plan is different than other firms. We intend to guide home selling clients to higher profits, safer contracts, and less worry. Higher profits are a product of eliminating unnecessary expenses and using the strength of the market to increase a seller’s bottom line without depending on just getting a higher price on an offer.

Look at real estate brokers across the country. You can easily find a broker who charges more or less than we charge. I don’t think you will easily find a brokerage firm prepared to show you how they intend to increase your profit and eliminate risk. Essential Real Estate brokers are ready to show you how we increase profits for our clients and eliminate risk and worry. More profit, less worry. That’s what you get when you pay us to sell your home. 

The fee we charge and how we guide you through negotiating the selling costs and terms of the sale are fair and reasonable. You will pay lower commissions with us. You’ll get more of what you pay for. 

Prepare to WIN the hottest properties without overpaying.

Ask most buyer agent brokers for their best ideas to win the accepted offer for their clients this year, and you’ll hear something like: Outbid Everyone.  If that’s their best idea, they’ve got no idea. After three years of markets extremely advantageous to sellers, REALTORS should have more ideas to help their clients win in the home buying competition. 

Eight years ago, long before the market turned sharply against buyers, we started looking at ways to give our clients ideas to negotiate the competition out of the way without overpaying. We enjoyed a unique advantage for years while most agents continued to write offers the way they always had. By knowing the terms of purchase agreements, contingencies, and the transaction mechanics better than most agents, we guided our clients to outsmart the competition. We bet that home sellers are more likely to accept contracts that carry the least risk when the price is close. We were right. The good news for 2022 is that this strategy still works. 

Structuring an offer to appeal to the seller’s security needs is easy, provided the buyer does their part. Do these things first to win an accepted offer in competition without being the highest bidder on price. 

  1. Find a lender who will underwrite your loan application before finding a house to buy. Lenders will work with you and your agent to draft a letter for you to include with your offer that accomplishes the objective of the commitment letter most buyers promise to provide 30 days after acceptance. With this strongly worded letter, you level the playing field with many buyers who don’t need the protection of the commitment letter contingency. 
  2. Gather the evidence that you have access to all of the funds you need to buy without taking a mortgage. Most people who think they got beat by “cash buyers” are wrong. They got defeated by people who took a mortgage but showed the seller that they had access to enough money to buy if they didn’t get the loan. Consider all of your options before deciding you don’t have access to a half-a-million dollars. Many “cash buyers” don’t have the cash, but a relative does, and often the relative is willing to promise to provide the funds if the buyer cannot qualify for financing. Don’t rule this out. I’ve seen buyers discover they have trust funds they were unaware of or had a parent or grandparent who considered them a reasonable risk to promise to provide the funds with no strings attached, knowing they would never need to do more than give the letter. 
  3. Understand the limited value of contingencies. When the market favors the buyer, you can include any number of contingencies, and the seller probably won’t object; not today. The protection of some contingencies isn’t worth the cost or the risk that the contingency will discourage the seller from accepting your offer. Testing, inspecting, investigating, getting another person’s opinion aren’t helpful to your goal of getting your offer accepted. The seller’s goal is to get to closing with no worries. When you show you are the most committed buyer, your value goes up even when your price is less. 
  4. Select an agent who knows how to make the Offer work for you. The practice of real estate is a contract negotiating business often left in the hands of people who don’t like contract work or think they can protect a buyer from every possible risk. The State approved forms are dummy-proof. But, if all you do is check the boxes and fill in the blanks, every offer will look risky to the seller, regardless of the strength of the buyer. Prepare yourself by finding an agent who can show you how they can structure your offer to fit your tolerance for risk and best show your commitment to close. 
  5. Let the skilled agent lead. You’d think I would be wise enough to take the advice of my REALTOR when I tried to buy in this market. Eventually, I was, but my first efforts got the same results I helped my clients avoid. Trust the skilled agent. If they have a plan to get your offer accepted without depending on you outbidding the crowd, go with their program. Moving into your first choice home is more enjoyable than living and learning a few times over. 

Our clients expect fair value and exceptional skills.

Raise Your Expectations and Profit.

We take on clients who expect us to be exceptional. No one asks us to reduce our fees. And still, our clients pay thousands less in commission than their neighbors, and they never pay 6% broker fees.  

The average real estate commission charged by brokers to sell a house in the United States hasn’t changed much in a hundred years. The six percent commission has survived every possible market condition. Its immunity is being tested today by the US Department of Justice. The lawyers want to dig deeper to see if the reason commissions hold steady is related to a lack of fair market competition. 

Some estimates figure real estate commissions cost the American home sellers $100 billion annually. The money we use to pay closing costs and real estate commissions comes from our home equity savings. If the average American homeowner has $153,000 in equity in their home and pays $30,000 in broker fees, they’ll use 20% of their equity savings before moving on to their next big plan. 

Is 20% too much?

I don’t know if 20% of your equity is too much to pay for broker fees. It’s more than I spend. We do know if the broker’s cost to sell your home is related to time on the market; an average of three days compared to 30 days might generate higher profits at lower costs. Can some of those cost savings be passed on to consumers?

Facts are Key to Commission Negotiation 

The following is just my opinion, and I could be wrong. There is no conspiracy among real estate licensees protecting the 6% commission. Real estate agents have persuasive information to make a case in favor of top-of-the-market commission rates. (To keep the lights on is just one argument you might hear) For consumers to successfully negotiate commissions with professional real estate brokers, they need to know how the MLS works. They must understand that they can structure their commitment to pay a commission at a time and in a way that leaves them room to decide to pay a top-market rate.  Facts about compensation and cooperation will dispel the myths that homeowners pay to avoid.

With facts in hand, consumers will spend less of their home equity paying our utility bills and keep more money in their own hands.  The economy doesn’t suffer when less home equity is spent on broker fees.

Multiple Listing Services. Do they help or hurt American Consumers?

Some people see the real estate multiple listing service (MLS) business model as a great benefit to the American consumer. Others (Not-REALTORS) have doubts. The Department of Justice and some judges are on the side of the doubters. I favor a competitive environment that allows more brokerage service and fee options for the consumer; the MLS model has room for growth. Essential Real Estate has proven long-held beliefs are myths.

The essence of the issue is that MLS systems are designed for the Seller to pay one commission to the listing broker, and the listing broker then commits to paying half of the commission to a cooperating broker. More often than not, that cooperating broker is working diligently for the buyer’s advantage to the Seller’s detriment and then collecting their fee from their opponent, the Seller. The rules of membership in an MLS result in listing brokers obligating their home-selling clients to promise to pay the highest typical rate of commission to the buyer’s agent in most cases. (I estimate that rate to be 3.0% in 90% of all listings)

Paying the other side to work against you is unprecedented. The closest example might be losing in court with the obligation to pay court costs and attorney fees for the other side. The Seller isn’t losing in a home sale, but they still pay the buyer’s broker. That’s peculiar. 

This article in the New York Real Estate News summarizes the complex issue. I’ll offer a solution suggestion. Split the commission in two. 

The MLS is a Private Club

To understand how the MLS works, consider it similar to a private club for people with specific credentials. In this case, it’s a real estate license. Licensees apply for membership and pay dues to join the MLS. The members promise to cooperate with all members in exchange for the privilege of access to every member’s inventory of listings. Cooperation is guaranteed, while meeting standards earn compensation.

One rule of membership in the MLS can not be an obligation to pay a set price commission to members. Over time, some practices become Standard Operating Procedures. About 88-90% of all listings in an MLS will include a 3.0% offer of compensation to be paid by the Seller. That’s not a rule; it’s the way it is. The following most likely number below 3.0% is 2.5%.  

Split the Commission. Let the Free Market Decide. 

Cooperation between MLS members will not change, and the consumer will not suffer if the practice of one commission paid by the Seller ends. My proof is two years of running an alternative business model with more options for the home seller’s advantage. Instead of obligating the Seller to pay a 6.0% commission expecting half of that commission will be delivered to a buyer’s agent, listing contracts with clients of Essential Real Estate are signed with commitments set less than 6.0%. 

Where the same Seller has an option to sign a listing contract at 6.0% with another broker member of the MLS, Essential Real Estate Clients might sign a contract committing themselves to no more than 4.0% commission and promise to pay the buyer’s agent 2.0% commission instead of 3.0%. This way, our selling client retains the opportunity to agree to pay a higher commission and can decide after seeing the quality of offers. The results are compelling. An uncommon member is a broker who demands a 3.0% commission from the Seller in exchange for their buyer’s Offer to Purchase when the Seller offers 2.0%. 

It’s a Seller’s Market. They should get all of the advantages.

The compensation method we use is the kind of advantage owners deserve in this market. Locking a Seller into an obligation to pay top rate commission for any offer artificially supports the highest commission rate placing the seller at an avoidable disadvantage. Free markets drive prices up and down. The commission is the price of the service. There might be some artificial support for the commission to hold firm at 3.0% in any economy. Splitting the commission into two sides might remove one of those supports. 

To win the accepted offer in a hot home selling market, avoid these five mistakes.

Tight inventories will continue in 2022. If you’re preparing to compete to buy a house this year, take advantage of the lessons learned by people who tried and failed before you. Avoid these common mistakes to outsmart the competition, even if you can’t outbid them.

Mistake 1

Thinking you have leverage. Ignore negotiating ideas conceived before June 2021. Old-school strategies of feeling out the other side and including throw-away conditions you intend to concede to appear as conciliatory will get you excluded from the conversation. As a buyer, you and I have no leverage.

Mistake 2

You are trying to meet in the middle. If your offer is not your best price, what do you gain by setting a price where the seller can meet you in the middle? Owners are not looking to compromise on price in the first two weeks on the market. This strategy only works as leverage for the seller to inspire other buyers to fear losing the house to a better offer. (No one, except the seller, will know your offer is a non-factor.)

Mistake 3

You failed to give the owner security. The owner is most interested in two lines on the offer: price and closing date. Money and security. The remaining nine hundred lines and 23 pages of the purchase agreement protect a buyer from committing to close until the last possible moment. Many good-price-offers get rejected for their high-risk contingencies. Review your offer from the seller’s perspective; look for a commitment to go right to closing safely and securely. Contingencies are luxuries of a buyer’s market. If you won’t make an offer without the protection of an escape clause, this might not be your time to become a homeowner.

Mistake 4

You give up because you don’t want to get into a bidding war. The competition isn’t what you think it is. Be assured, out of ten offers on the table; the owner might have two offers they could accept as written. More likely, it’s one acceptable offer. Keep this in mind: you’re not competing with ten other buyers even if the owner has ten other offers. You’re only competing with the one or two buyers who submitted offers acceptable as written. 

Mistake 5

Your offer includes drafting mistakes or ambiguous terms. Most purchase offers submitted this year won’t be rejected because of the price. Owners refuse or pass on most offers because they are not acceptable as written. The Wisconsin purchase agreement forms are almost dummy-proof. Almost. The drafter still has to fill in blanks correctly (Numbers go in blanks preceded by $ signs, and words that complete sentences go in those blanks not preceded by $ characters.) Ambiguity is a fatal flaw. Subjective criteria, undefined terms, and unresolvable contingencies require counteroffers. Owners are not sending counteroffers when they have clean offers in hand. Given a chance to fix their offers, I’ve been told by buyer agents, “just send us a counter.” Some people never know how easy it would have been to get their offer accepted.

Bonus Mistake

You allow your buyer agent to speak for you. The proper way to negotiate an offer is in writing. We will not verbally negotiate with buyer agents. There is nothing but trouble when two agents hammer out some details and expect their clients will understand the scope of the commitment made on their behalf. It’s not often, but sometimes an owner will give one buyer a chance before committing to another offer on the table. I know the buyer agent is trying their best for their client when they tell me their client will never accept the counteroffer I sent. I’ve seen these “unacceptable” counteroffers accepted enough times to know the buyer agent should say nothing but thank you and present the offer. When a buyer agent speaks for his client without presenting a counteroffer, they run the risk of the listing agent reporting the buyer agent’s feelings back to the seller. I’ve seen sellers withdraw counteroffers based on the negative first reaction of buyer agents. No one knows what a buyer or seller will do. Don’t give your authority away.

Our Client is the Hero

You may know this person. We call them our HERO.

Our hero is a caring person and they own a home.

They know this to be true: if you don’t overpay when you buy, you make money; overpay, and you’re spending equity you haven’t made yet. Our heroes often begin homeownership with a bit of equity. After 5, 10, 15, 30 years, our careful owners increased their equity by a lot.

They made improvements and resisted spending equity on instant gratification.

Equity is important to our clients, but it’s only part of the value of their property. There’s more value in the memories.

Our clients know when you sell, you leave bricks and mortar behind; the memories go with you.

We believe you should keep your memories safe when you sell your home. Protecting your equity is our job.

One day, it occurred to me that we all sell for the same reason—to get the equity to do our next plan in life.

And when we sell, that’s the time our equity is at risk. This is when an expert real estate guide is essential.

However, selling is when the real estate sales system works against the careful owner.

The system is designed to be good for consumers and profitable for the broker, the bankers, the government, and service vendors. Home sales drive the American economy, and the machine runs on the fuel of home equity.

As good as you might be in saving money, the people who want what you have are better at getting what they want than you are at keeping what you got when your emotions get in the way.

Ask any broker, and they will tell you: real estate commissions are negotiable. 

That’s true. Commissions are negotiable.

The problem is, there’s no negotiating happening.

Since 1989 when I started, the commission has been 6.0% of the sales price and negotiable.

Here and across the country, the avg commission is still at or near 6%.

Our clients are intelligent people. Remember, they’re the hero of the story.

Whether they say it or not, they question the obvious: How can their home values rise and fall with the economy, but broker commissions remain immune to market pressure? 

In the recession, when homes were on the market for six months and sold far below asking prices, commissions were six percent.

Today when homes are on the market for six hours and selling well above appraised values, commissions are still six percent.

Six percent must be magical.

Six has staying power because one side has no idea how to negotiate, and the other side is highly skilled at not negotiating.

Brokers handle the commission question the way they were trained for a hundred years.

It goes like this: Our commission is six percent. It’s negotiable, of course.

But, you don’t want to do that because… (manipulate fear here)

And homeowners are easily persuaded by fear.

Home sellers don’t know how to negotiate. What they’re doing isn’t working.

 A typical home seller who pays the full commission will spend $24,000 of their equity paying commission.

We fixed that by. We show our heros where and when to negotiate the commission and our typical client pays about 33% less. That’s about $8,000.00

It’s possible to get better terms and pay lower fees, which add up to more equity savings. That’s what we do for our heroes. They love it.

If I said it before, I will say it again–you pay the costs to sell and you pay for negotiating errors with the money that would be your equity.

I know, you might think you’re likely to lose money by underpricing your home. This market seems to have solved that problem as lower prices just draw more buyers and more competition pushes prices higher.

You’re most likely to lose money by being misled into paying for things you don’t need and paying fees you could avoid.

Selling a home is something you will do a few times in your life. When you’re on a journey you’ve rarely or never taken, a guide who’s been there, who knows the system, knows the contracts is invaluable.

Careful people who value their equity and memories don’t need a social media marketer, or expensive sizzle to sell their homes. Zillow is going to put your home in the face of every person who thinks of owning a house like yours.

 Careful people who would rather keep what they earned than give it away turn to us. We’re their guide avoiding traps and negotiating better terms. After all, real estate is a contract negotiating business, and buyer agents don’t work for home sellers.

At Essential Real Estate, we guide careful people to save home equity money by paying lower fees and avoiding costly negotiating errors.

If commissions are negotiable, how does one negotiate?

A REALTOR wrote a social media post this week lamenting the trend of brokers offering 2.5% compensation to buyer agents instead of the expected 3.0% commission. The agent believes buyer agents work hard for their money and should be compensated at the highest market rate by the one lucky seller who happens to accept her client’s offer. Should market demand push home prices one way or the other, but not move broker commission?

The compensation method standard in real estate MLS associations has proven to be immune to market pressure. Is that immunity due for a change? Modern real estate practice uses a compensation-sharing formula designed for an old model where agents were (supposed to be) working for the seller on both sides of the transaction. Until about 1991, disclosed Buyer Agency was uncommon in our market. Everyone worked for the benefit of the seller (the only person with a contract promising to pay in exchange for service). The buyer agency assumes an agreement between the buyer and a broker to exchange services for compensation. The broker serves, and the buyer compensates. Does the buyer pay their agent? It depends on your perspective.

Who’s money is it?

Buyers bring the money to the table. Before the money gets to the seller, expenses get paid. By the terms of the purchase agreement, the seller often agrees to pay the buyer agency fee out of the proceeds received from the buyer. Arguably, the buyer is paying the buyer broker with the money first going to the seller. It’s also arguable that the seller is paying the buyer broker with cash that once but no longer belongs to the buyer.
However you sort the money, the fact is that the amount of commission paid to each broker affects the price of the property and the seller’s profit. And that’s where there’s room for improvement.

Without getting into the difficulty of the work or skill required to facilitate a home sale, can we agree that compensation in a free market should rise and fall with demand and expertise? I don’t know that happens in the cooperative system of a broker-to-broker commission payment. I see a scenario where the listing firm obligates the seller to pay a top-of-the-scale fee to a buyer agent to get their property listed on the MLS.

The free market works when we let it

The free market system is working if there is a trend away from 3.0% compensation offers by sellers to buyer agents. Old beliefs and standard practices that once made sense cost American real estate consumers billions of dollars in lost equity. A fair compensation system would require the buyer to pay the buyer agent and the seller to only be obligated to pay the listing agent. The parties would negotiate any change to this arrangement, and the negotiations would start at zero.

Only in real estate do we expect a consumer (the home seller) to promise to pay a top price before seeing the quality of the product (the offer). All offers are not equal in money or risk. Disconnecting the commission into the two parts allows the seller room to negotiate commission and space for the buyer to negotiate the price. If commissions are negotiable, the home seller should not get locked into a non-negotiable position before seeing what they’re buying.

Competition in Real Estate

Wisconsin consumers have options in selecting real estate professionals. (The WRA has more than 16,000 members). Where alternatives exist, competition should thrive. And competition is the marketplace ingredient that delivers better service and a more comprehensive range of fees. With no shortage of people practicing, real estate brokers must be feeling the pressure to better train agents and lower commission rates. 

The National Association of REALTORS is being pressed by the United States Department of Justice and multiple court cases to be more transparent. This morning I received an email from NAR outlining their position on the competition. Here’s the link: www.nar.realtor/competition-in-real-estate

I believe the Association favors competition to drive brokers to produce higher-skilled REALTORS and alternative business models offering service at a range of prices. Whether or not their actions inspire change across the country is undetermined, but I know our business model is way ahead of the crowd and consumers are seeing the difference.

We created Essential Real Estate to give consumers a choice to work with agents who have better contract awareness and prioritize negotiating better agreements for our clients. After two years, we can prove our strategies reduce selling expenses for home sellers and give our buyers more options to improve their offers without depending on outbidding everyone on price.  

It’s our responsibility to use our knowledge of the real estate business to aid our clients where they most want help; conserving equity and safer negotiations. While the NAR is now working toward more transparency, we’ve been there since 2020. Our clients pay less in commission, receive more ideas to reduce their selling costs, and have more intelligent negotiating advice. 

There are thousands of real estate brokers and salespeople. We’re different. We show you how to increase your profit, decrease selling costs, save on commission, and improve the terms of your offer. 

A Smarter Way to Price Your Home in 2022 .

Have you heard these terms? Zestimate, broker price opinion, mortgage appraisal, tax assessment, market value. Everyone who compares and contrasts your home’s financial value uses information from the same pool of facts. And, then they temper the facts with opinions. The result is likely a price opinion within 5% of each estimation. 

The method of comparison and contrast works well when we can pull from a pool of properties similar to the subject. When real estate inventory is down and stays down for consecutive years, we don’t have to throw up our hands and guess at a price. The information that matters most to home sellers is always available and easy to find. 

We all sell for the same reason: to use our equity for a new life experience. Typical examples are buying a bigger or smaller house, relocating, divorce, and settling an estate. Everyone who contemplates selling has a good idea of the mortgages against the property and at least an inkling of the amount of money they want to have after paying off mortgages and selling expenses. When we know what we owe and have an idea of the money we want, we have most of what we need to set a price.   

Know what you want to do with your home equity. People with a plan have a good idea of what they want to have in hand after the sale. For this example, let’s assume the number is $100,000. If we know the mortgage payoff is $200,000, we know $300,000 will not be enough because we have selling expenses on top of the mortgage. Add ten percent as a roundup number. We have to sell this house for about $330,000 to net the $100,000. Is our home worth $330,000? It might be worth more for some people and less for others. Fortunately, for the first quarter of 2022, there are too few homes for sale to satisfy the demand.  

You’re only setting an asking price. It’s not our place to tell the market this is a fair price for a property. The market tells us. All we can do is use whatever facts are available to guide our thinking. Reasonable judgment is possible when we factor in the relevant facts, and there are always facts to consider. 

Is my asking price $330,000 or $350,000? In this market, pricing to appeal to the broadest market will give us a chance to see buyers compete with buyers. When a person fears losing the house to another buyer, their motivation to improve their offer is the greatest. Without competition, the market is balanced, and that’s not the situation you want if getting the safest terms and netting the most equity is your goal. 

Suggestion. Know the amount you owe. Know an amount you’d like to net after paying mortgages and selling expenses. You now have your lowest price. Consider the facts you can find. Are there any recent sales? How fast is the market? In what way is the market trending?

By tempering your expectations with facts, you will have an idea of a possible selling price and a probable selling price. A possible price is the one that will leave you with more equity for your next move. Probable is the number you intend to beat. 

People who set their asking price closer to the probable price than the possible price are more likely to have the strength of the marketing working in their favor. The perception of value drives demand. Selling is a process of negotiating what each side wants. You know you want to walk away with more money instead of less, and the buyer wants to spend less. In a regular market, it’s more likely that a buyer will win the struggle. Eventually, we will see normal again. Today, set your price at probable and let the power of the market drive buyers to offer more money and security.

How necessary is an inspection contingency?

Most offers are not rejected on price. They’re rejected because the terms of the offer would leave the seller in an uncomfortable holding pattern for two weeks or longer. When owners can get all the money they want, they certainly don’t have to take on the risk and worry of waiting for a buyer to decide if they’re going to proceed or renegotiate. If you think you’re taking on a significant risk to buy without a contingency to inspect, take some time to decide if there is anything that amounts to a risk worth fearing.

Every house has some conditions that owners consider insignificant, and buyers will consider defects. A buyer rarely asks the seller for a concession in a balanced market after discovering conditions that might require a repair. When homeowners have one offer and nothing on deck, conceding to a two thousand dollar price adjustment or making a minor repair is a simple solution to get to closing without starting over. Most renegotiations over inspection issues involve minor concessions of a few thousand dollars or less.

When your auto insurance policy has a $2,500 deductible, is a $2,500 repair to your $350,000 house a risk at all? What if the cost of fixing a hidden defect is $5,000.00 or $10,000.00? Now we’re talking about significant cash. Or are we? Most people agree to pay $5,000 or even $10,000 more than their highest offer to win the accepted offer in times like these. We see it all of the time. In competition, given a counteroffer and a choice to pay a little more than they planned or hold the line and keep looking, homebuyers make the wise decision and pay the price.

Making an offer without including a condition to inspect the property may not be a risk beyond your comfort zone. If you’d pay $10,000 more than your best offer to own the house, maybe you can accept the responsibility to take on a $5,000 repair that may or may not be necessary. There are some homes where the high-cost repairs could be lingering. It’s a rare inspection that turns up anything more than deferred maintenance. The cost of including a contingency to inspect and renegotiate is a rejected offer. Before having an inspection contingency in your offer, decide if an inspection is likely to find anything that you couldn’t live with or you couldn’t cover the cost of the repair.

Inspection contingencies are oversold in part to protect the broker. I think home inspections find their way into offers, not because a buyer thinks it’s necessary, but because the buyer agent fears something and prefers to have the protection of a professional inspection. Don’t let an agent’s fears influence your decision to make your offer more attractive to the seller. Price, security, and convenience will get your offer accepted or rejected this year.