How to pay your realtor less

Thanks to new flat-rate realty services, you can cut commissions by $10,000 and still get the services you need.

 

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From the November 2010 issue of the magazine.

 

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After his wife died in 2003, it took Pat O’Sullivan 379 restless nights before he finally worked up the nerve to sell his Calgary townhouse so he could move closer to his son. Once on the market, however, his home only took two days to sell. Pat, 64, was thrilled to get the full list price so quickly—but he couldn’t help but wonder: “What did my realtor do for her $18,250 commission in those 48 hours?”

He’s not the only one asking that question. Canada’s Competition Bureau is currently taking a long, hard look at whether real estate agents are offering good value to consumers. Their conclusion? We’re often being fleeced. Especially when we’re forced to fork out $20,000 for a full suite of services, when all we really want is an ad on the popular Multiple Listing Service (MLS) website.

There is some good news though. After months of debate with the Canadian Real Estate Association, the Bureau is getting some concessions. Consumers will finally be able to purchase some services à la carte. Several large real estate brokerages, such as Royal LePage, say they won’t play ball, but some independents are already switching to the new model. Joe William of Ottawa’s Best Value Real Estate, for instance, will let you post a simple listing on MLS for just $109. Other innovative payment models are also becoming popular.

If you want to save a few thousand bucks the next time you sell a house, read on. Here are three strategies you can use right now:

Sell it yourself
One radical option is to completely omit the realtor (and the fee) and opt for the grassroots For-Sale-By-Owner (FSBO) method. The cost of posting a listing on websites such as ForSaleByOwner.ca and PropertyGuys.com ranges from free to just over $2,000. Like the MLS, these dedicated Internet portals allow homeowners to include descriptions, photos, price and contact information.

But be forewarned: While studies show the average sale price of FSBO homes is actually higher than for MLS homes (which is great for the seller), you have to be patient. FSBO homes stay on the market significantly longer—anywhere from 60 to 90 days, compared to 35 to 68 days on MLS. Also, only about 7% of buyers have embraced the FSBO option, which means a smaller pool of potential buyers for your property.

Negotiate a lower fee
Shaving just 1% off the average 6% real estate agent commission could save you $4,000 on the sale of a $400,000 home. Unfortunately, not all realtors are receptive to the idea of dropping their rates.

A 2008 study by Consumer Reports found that only 46% of U.S. sellers attempted to negotiate a lower commission. Of those who did, just 71% succeeded. Here in Canada, realtors may be even less receptive to negotiating. A Vancouverite called Cris recently told me that when he sold his home earlier this year, he called 10 realtors and asked each to lower his or her rates. Half flat-out refused, he says. “They were surprised I even bothered to ask—and even more surprised that other realtors considered discounting their rates.”

Only two of the realtors agreed to drop their rates, but both refused to drop the 3% commission that goes to the buyer’s agent on completion of a sale, calling it “career suicide.” Cris was told that if he offered a lower buyer’s agent commission, agents would steer their clients to other properties. He eventually negotiated a 1% reduction in fees on the seller’s commission—for a $6,000 saving­—but only because he agreed to let the listing agent also act as the buyer’s agent. The experience “forever left a bad taste in my mouth,” he says.

Obviously trying to negotiate the fee down can be a big hassle, but if you can pull it off, the service you get likely won’t suffer. A Boston study found that lowering commissions to 2% had a negligible impact on both sale price and the time-on-the-market—even though the seller could save $10,000 or more in commissions.

Pay a flat fee
When you go the flat fee route, you get an MLS listing, but you do most of the other legwork yourself. The catch is you still have to pay the buyer’s agent commission. “This service is for people who have sold a home before and don’t need the added services provided by a realtor,” says Tony Miele, a 22-year realty veteran, who recently quit a large Ontario brokerage to open Smart Sell Realty in Burlington, Ont.

If you need more help, try the flat rate service option. This is similar to paying a flat fee—you pay an up-front bill for an MLS listing—but you also receive the guidance and expertise of a full-service agent, including marketing, negotiating and market analysis services. Miele charges $1,995 for the whole package. Over the last five weeks, he’s sold 19 homes on a flat-rate basis, he says, saving his clients $128,300 in fees.

Other agents are beginning to pop up with their own variations on this theme, and some of them feel quite strongly that switching to a flat-rate model is the right thing to do. “I want my value to be scientifically determined,” says Bill McMullin, founder of Viewpoint Realty in Nova Scotia, and an outspoken advocate for industry transparency. “When clients realize all the work I do, they won’t mind paying my fee.”

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