Why Beating Up Your Broker Is Never a Good Idea

We live in a world where nearly everything is negotiable, and that is largely a good thing.  However, when it comes to listing a property, that may not be the best strategy for selling your property.  The standard commission on a real estate listing for an improved property in the Hamptons is six percent and the standard term is one year.  In listing a property with a real estate agent, many sellers try to negotiate a commission of five percent or even less in hopes to make a little extra money on the sale.  Many sellers also attempt to sign a brokerage agreement for six months or less.  If you are a developer, builder, or in the business of flipping properties and have many properties to sell, this is probably a smart strategy, as the potential volume of sales will likely still incentivize your agent to advertise and sell your property.  Also, in the event that you are selling a high priced home, let’s say over three million dollars, this may also be a prudent move. 

However, for the one-time seller it can often lead to a property sitting unsold for an extended period of time.  While a lower commission may increase your gain on the property, it may act as deterrent to your agent and the brokerage community at large in pushing your property.  It is simple economics.  Agents want to sell properties which earn them higher commission, and we certainly can understand that.  Additionally, Agents are less likely to spend their money (and they are indeed spending their own money) in advertising a home in which they are looking at a lower commission and for a listing which expires in six months, when the average market time period to market and sell a residence in the Hamptons is closer to a year.

When an agent takes an exclusive listing, your property is listed on either MLS or HREO, which means that all real estate agents in your agent’s office and all agents at all other real estate firms have the listing and know what the commission is and know when the listing expires.  The commission is often split between your listing agent and a selling agent, if your agent is not the agent who has procured the Buyer.  In that event, your agent has to split that commission with the selling agent and then split his or her commission with his or her office.  So, if your agent sells your property through another agent, your agents commission is likely to be around a fourth of the total commission.  On a one million dollar sale, your agent could be making a commission of as little as $15,000.00 [$1,000,000.00 x .06 = $60,000.00/2 = $30,000.00/2 =$15,000.00] less advertising costs, costs of open houses, etc., which often time amounts to several thousand dollars.  Not quite a home run for your agent.  In the event that your listing does not sell, the agent is out of pocket for advertising costs, catering costs for open houses, etc., and gets paid absolutely nothing for his or her time spent trying to sell your property.  So marketing a property for six months at a five percent commission is not terribly conducive to getting the best out of your agent.  I have seen sellers jump from broker to broker and agency to agency trying to sell a home which is not generating activity. In most cases it has less to do with the agent and more to do with your arrangement with the agent.

My suggestion is to find a good agent who has sold many homes in the price range of the house you are selling.  You don’t necessarily want to hire an agent selling multimillion-dollar homes to sell your home for $500,000.00, nor do you want to hire an agent who sells homes in the lower priced range to sell your ten million dollar property.  You need to find a broker who sells in your price range and to your demographic.  You need to carefully interview your agent and select an agent who understands your market and has a track record of sales in your market price range.  You also need to ask your agent what his or her marketing plan is for your property and where and when he or she intends to advertise your property.  Get the specifics, so that you both understand your expectations of your agent.  I suggest that you get this in some form of writing.  

Hiring a long-time personal friend or family member without properly interviewing them can often lead to lost friendships and family discord.   It is critical to hire the right agent for you.  Once you have selected the right agent, I suggest that you agree to a six percent commission for a one year term.  This way your agent can freely spend his or her resources on marketing and selling your property knowing that you are committed to him or her and giving him or her adequate time and opportunity to sell your property.  If you have properly interviewed and selected your agent, this is likely to be a formula for success.  Most standard real estate listing agreements have a termination clause, which allows you to terminate the agreement early provided that you reimburse your agent for advertising costs spent.  I suggest that you read the agreement carefully before signing it and perhaps review it with your attorney, if you are unsure of the meaning of any of the terms.  These agreements tend to be somewhat negotiable.

I am by no means suggesting that you should never attempt to negotiate the commission.  In the event that your agent produces a full price offer, by all means sell your property and pay your agent the full commission. However, if an offer comes in significantly lower than anticipated, and you want to sell the property, that would be the time to discuss a lower commission with your agent in order to bridge the gap and get a deal done.  At that point the agent will know how much he or she has spent on adverting and will also know if the commission will be split between a selling agent and your agent.  Obviously, when your agent is also the selling agent, he or she may have a little bit of room to negotiate the commission.