David's thoughts on anything real estate related

Demystifying Commissions

Many people recoil at the thought of paying a Realtor a commission to sell their home. It seems like just another cost. In fact, entire brokerages market themselves as being able to minimize this cost.

As a Developer who has hired and paid many Realtors to sell new projects, I more than sympathize with this sentiment. However, as a Developer I understand the value of hiring an agent to represent me, and as a Realtor, I endeavor to educate my clients about the importance of a commission in selling their home. In this newsletter, I will address:

1.Why is a commission important in selling my home?

2.Is there a 'standard' commission?

3.What should I expect my Realtor to do in return for the commission I pay?

Why is a commission important when selling my home?

When you list your home for sale, you will sign a Listing Agreement with your Realtor which discloses how much commission is payable. What you may not realize, is that this same document also discloses how much of this commission, which you are paying, will be offered to the Buyer's Agent. Personally, I offer nearly half of the commission you pay me to the Buyers' Agent, as I know how hard they work to find their client the perfect home.

Why is this so critical? In a nutshell, it is this commission that attracts Buyers' Agents (and their buyers). In fact, this commission is the only way in which Buyer's Agents earn an income, as buyers generally do not pay a commission directly. If your Realtor is not offering up a reasonable portion of "their" commission to the Buyer's Agent, this could influence the Buyer's Agent's decision to bring their clients to view your home.

Is there a standard commission?

It is important to understand that there is no typical or standard commission (see Sidebar). The marketplace drives competition and Realtors compete fiercely for listings. Although there is no standard or typical commission, I charge a commission of:

•7% on the first $100,000, and 2.5% on the balance.

Out of this, I offer the Buyers' Agent an amount of: •3.255% on the first $100,000 and 1.1625% on the balance.

What should I expect my Realtor to do in return for the commission I pay?

Offering a commission to a Buyers' Agent isn't the only expense a Listing Realtor should have. For example, out of the total commission, I also create and pay for a marketing plan that includes: •Advising on pricing •Research and presentation of comparable properties •Professional photos and/or video tour •Home staging and preparation advice •Floor plan creation if beneficial •Direct mail advertising •Listing on Multiple Listing Service (MLS) including and •Print advertising •Web site creation and hosting (, TRG Realty, CraigsList, etc.) •Social networking sites (Twitter, Facebook) •E-mail distribution and advertising

While all of the above items are important, nothing beats having your home accurately priced. I like to say that 80% of marketing is accurate pricing! However, once it is priced accurately, MLS is unequivocally the best and fastest way to expose your listing to the widest possible market. The MLS system instantly exposes your listing to over 9,000 real estate agents in Greater Vancouver alone through a Realtor's version called MLXchange. Because the majority of real estate transactions involve a Buyers' Agent, it is the most efficient way to reach your market.

Please don't hesitate to ask me more about commissions and how they can work in your favour.

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