Poll: Realtor fees eat into your net worth

Value, not savings, is the real key to deciding whether or not to pay a full-service broker.

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Almost two-thirds (62%) of homeowners consider paying a realtor the standard 5% commission to be a direct attack on their personal net worth, according to a new Harris/Decima poll.

To help Canadians conceptualize this attack the poll’s sponsor, PropertyGuys.com (a leading for-sale-by-owner website) offered the following:

  • The 5% commission on a home that sells for $375,000 would require the homeowner to pay $18,000 in fees to realtors.
  • If invested in an RRSP this $18,000 could grow to $76,000 nest egg over the next 20 years.

But, despite my history in advocating for more transparency in the real estate commission transaction (see: How to pay your realtor less and Find the perfect real estate agent) and my desire to educate homeowners to become better negotiators when it comes to their single largest financial asset (see: The delicate art of negotiation), I don’t think these findings accurately present the real decision to be made.

(I also question whether or not this fictitious nest egg will really earn 7.5%, given that returns for the 54 funds in Morningstar’s Global Equity Balanced category have an annualized return of 1.76% over the last 10 years.)

The decision on whether or not to employ a full-service realtor shouldn’t hinge solely on whether or not you’ll save money, but on whether or not you’ll get better value.

For instance, if a seller is willing to:

  • Meet with buyers, appraisers and inspectors (sometimes at odd hours);
  • Meet with the buyer or the buyer’s representative and negotiate terms, price and fees;
  • Can stage and show your own home, keeping in mind that clutter and personality will detract from the final sale price;
  • Can research market comparables and objectively set the best list price for your home;
  • Find a lawyer to review the documents…

…then it’s ridiculous to pay a 5% commission.

But what if you’re uncomfortable or incapable of performing these (and other behind-the-scenes) tasks? This is the realization one southern Ontario radio talk-show host came to after watching his home languish on the market for more than 30 days. In the end, he ended up signing with a realtor in order to sell his home. Part of the problem was that he couldn’t get adequate exposure for his property. Part of the problem was trying to juggle a family, a career and the task of showing his home based on the buyer’s timeline.

In this, and every case, the real decision isn’t whether or not you’ll save money. That’s a no-brainer: you will. The real decision is whether or not you’ll save enough money to warrant the extra work.

3 comments on “Poll: Realtor fees eat into your net worth

  1. That’s more than sesnbile! That’s a great post!

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