As a seller, you know real estate commissions are a burden, eroding the profits you would achieve, even when selling your home on today’s market.
Real estate agents take between 5 percent and 7 percent of the transaction, a figure you may no longer feel compelled to spend given there are so many other options, one of those options being low commission real estate companies.
What Are Low Commission Real Estate Companies?
When a home sells, the standard 6 percent commission is divided among the seller’s agent and the buyer’s agent. The seller’s agent typically receives the larger portion: 3.5 or 4 percent of the transaction, with the buyer’s agent taking the remaining.
Yet real estate commissions are not set in stone, despite what some realtors may say. They are always negotiable. Unfortunately, many brokers are unwilling to negotiate, allowing low commission realtors to enter the space.
Low commission real estate companies typically take between 1 percent and 2 percent of the transaction at closing, with some low commission companies charging upfront fees in addition to these costs.
7 Critical Facts You Need to Know Before Using Low Commission Real Estate Companies
Considering traditional real estate agents charge a 3 to 4 percent commission, many sellers are reluctant to choose a company with low real estate commissions because the consensus is they aren’t as thorough. But if you understand these fundamentals facts about how the process works, you can make an informed decision.
Fact #1: These Companies Have Similar Qualifications to Traditional Agents
Beyond thinking lower commission agents won’t be as thorough, sellers are often wary about using low commission real estate companies because they believe the lower commissions compensate for their lack of qualifications. On the contrary, whether an agent chooses to have low or standard commissions, all agents must have a real estate license in the state they operate. Sometimes, lower commission agents may even have more experience, given they complete more sales than their counterparts.
Fact #2: Many Low Commission Companies Offer Limited Services
While some low commission brokerages are full-service, often the number of services they provide is limited, compensating for their lower real estate commissions. If they limit their service, they will remove much of the in-person interactions, requiring sellers to complete the process online and only offering assistance at closing.
In this case, their services will be identical to flat fee real estate companies, making their “low commission” less valuable.
Fact #3: Low Commission Real Estate Companies Often Represent Both The Buyer and Seller
If you’re wondering how these companies keep their commissions low, one way is by representing both buyer and seller; in other words, being a dual agent. While this is not unethical, it can change the way the agent manages the transaction as many agents may develop a bias, making it challenging for them to represent your best interests at all times. They may favor deals from buyers who have agreed to work with them over buyers giving you the best offer.
If you’re concerned about dual agency, you should discuss whether this is common practice in the company and how they manage this.
Fact #4: Low Commission Brokers Conduct Minimal Marketing
Another reason low commission brokers exist is that they’ve removed much of the overhead involved in acquiring and managing clients. They often don’t spend as much on marketing to get clients as other real estate companies, allowing their lower real estate commissions to attract sellers. They may not have a traditional office or travel frequently since much of their work is online.
Fact #5: These Companies Aren’t Always As Attentive
While this isn’t always the case with every realtor working for a low commission real estate company, many agents can pay less attention to the process. Given they aren’t getting as much commission from the sale, agents are not incentivized to push for a lucrative sale. These agents may also feel overwhelmed by their workload, working three times as much as their counterparts to achieve the same commission.
Fact #6: Spend Minimal on Selling Your Home
Lower commission real estate agents aren’t only able to charge less because of their minimal overheads but also because it doesn’t take a considerable amount to sell a home. The cost for everything a realtor does to sell your property rarely exceeds $1,000. That means that if your home is the cost of the average single-family home, approximately $250,000, these low commission real estate companies will walk away with at least $1,500 profit. That may not seem like much, but if you consider they probably invest no more than 4 hours into your home, these profits add up.
Fact #7: There Are Other More Cost-Effective Options
Selling through a low commission real estate company is not the only way to save money on the transaction. Given that most low commission real estate agents only list your home, you can save even more by selling through a flat fee listing service.
Flat fee listing services offer many of the same services as low commission agents but swap out the real estate commissions for a flat fee.
They help list your home on an MLS, which will attract buyers’ agents and help your home sell quicker.
If you compare popular low commission companies with popular flat fee companies, like Houzeo and Beycome, you’ll recognize that their services are identical.
The truth is: low commission real estate companies have their place. However, they are only beneficial if they offer a full-service. In the more common instance where they limit their services, sellers will have far more saving potential approaching a flat fee listing service.