Low commission real estate agencies have been around in one form or another for decades now. The appeal is easy to understand. Real estate commission often makes up most of the overall closing costs when you’re selling your home. Saving some dollars on such an expensive, high stakes transaction sounds like a good plan. But are low commission real estate agencies really worthwhile? How much money do you actually save?
When clients ask me how I feel about low commission agencies, I tell them to think about it this way: Would you want your triple bypass surgery done by a full-time physician with years of experience and a solid reputation? Or are you okay with someone who dabbles in heart surgery part-time and has a below-average surgical success rate? Now, I’m not saying a realtor will save your life… but a good realtor is a professional with industry-specific expertise that you’re trusting with a transaction that has lifelong financial implications for you and your family.
Like other professionals such as accountants, lawyers, financial advisors, etc. the level of service, experience, skill, and professionalism you receive is commensurate with the professional fees they charge.
If you’re considering a low commission real estate agency, you’ll want to do some research first.
Learn more about Wally Fakhreddine who was recently nominated one of the Top Agents in Western Canada by Top Agent Magazine
Low Commission Real Estate Agencies: How Much Are You Actually Saving?
Another important aspect to consider is that the sale of a house typically involves two realtors: the seller’s agent and the buyer’s agent. Think of the deal as a competitive cooperation between two agents, both working to get the best deal possible for their clients.
Typically, commission is split 50/50 between the two agents. In Canada, the MLS® System rule states that the posted remuneration offered to a cooperating buyer’s agent cannot be zero. It can be as low as one cent, but it cannot be zero. When realtors view active listings within MLS, they also see what commission they will be paid if they bring a buyer to a listing and write a successful offer.
If that commission is significantly discounted, what level of cooperation can you reasonably expect from a buyer’s agent? The reality is that no one really wants to take that risk, so generally speaking, the buyer’s agent commission is not reduced or discounted.
Traditional Real Estate Commission Rates in Alberta
Common real estate commission rates in Alberta are up to 7% on the first $100,000 and then 3% on the balance of the sale price. Using these rates as an example, the total commission earned on a home sold for $425,000 is $7,000 + $9,750 for a total of $16,750. Split between two agents that’s $8,375 each.
So, if it takes two agents to negotiate the sale of a house and if your discount real estate agency has promised a rate of 1-2% commission, who's paying the buyer’s agent’s commission? Surprise! You are! Low commission real estate agencies may either offer to pay the buyer’s agent on your behalf, as part of the total commission paid to them, or you can have your lawyer arrange payment to the agent’s brokerage.
You are relying on the buyer’s agent to bring an interested buyer to your listing and write a successful offer. So even if you do negotiate a low commission rate with your listing agent, you’re likely still on the hook for $8,375 (using our previous example) for the buyer’s agent in order to close the deal. You may still save money overall, but it might not be as much as you initially thought.
What Do Traditional Commission Rates Buy You?
Are all low commission realtors bad? No, of course not. There are competent agents working at discount brokerages and many sellers have had successful, positive experiences. But there’s no denying that they have to sell a lot more homes to earn the same living as their traditional commission counterparts.
Prioritized, undivided attention
To offset the inherent risk involved in working in the real estate industry, agents working for discounted commission may have other jobs to supplement their income. With their resources and time split among many listings and possibly even another job, how confident would you feel that your listing is being prioritized?
Your home won’t be undersold
And how much incentive does a discount realtor have to sell your home for the best possible price? When your listing is one of dozens, an agent may be more inclined to push you to accept the first offer that comes along rather than negotiate the best deal, leaving your money on the table.
Can leverage network of professionals
A career realtor brings a wealth of professional expertise and can leverage an expansive local network to your benefit. Over years in the business, a good realtor will develop professional relationships with inspectors, mortgage brokers, contractors, lawyers, and investors and can connect you with the expert help you need in order to sell your house.
Specialized negotiation skills
Lastly, not everyone has what it takes to be a good negotiator. It is a valuable skill that develops with experience. Very few real estate transactions are smooth sailing from start to end. And it’s an experienced realtor who has the specialized skills necessary to help navigate you through those choppy waters.
Full-Service Realtor Checklist
Whether you decide to go with a discount real estate agent or a full-service real estate agent, you’ll want to ask whether or not they offer the following:
- Seller advice on preparing home for the market
- Professional home staging
- Professional real estate photography
- Seller advice on a pricing strategy
- A key lock box
- For sale signage
- Property listing in local MLS
- Showings with buyers and buyers’ agents
- Thorough explanation and advice on offers
- Assistance with negotiations, counter-offers, and offer acceptance
- Help navigating the home inspection, negotiation, and sale closure process
Find out what a full-service Top Edmonton Real Estate experience is worth today. Call/text Wally at 780-238-7384 for a no obligation consultation.