When you're looking at the possibility of selling your house, running numbers in your head can have you mentally spending the proceeds with visions of grandeur. Selling a house is not the same as trading in chips for cash at a casino. It isn't a dollar for dollar transaction, there's a cost of doing business.
Along with closing costs, transfer taxes, and other fees, the home seller pays their listing agent's brokerage, on average, a fee amounting to about 6% of the price of the home. On a $250,000 house, this amounts to roughly $15,000. This may seem like a huge amount of money, but don't assume you're getting ripped off!
Here's where the money goes, and why it's totally worth it. If you're picturing your real estate agent pocketing the whole sum, think again. Sellers are often confused or even offended by the commonly quoted 6% commission fee, and it's because many agents don't explain clearly why it's being collected. First of all, that commission is split between the buyer's agent's brokerage and the seller's. They might evenly split it, but typically the buyer's agent will collect 3% for their brokerage no matter what is the total agreed upon percentage. Negotiating a lower total commission percentage only cuts what your agent will receive from (and spend on) your listing. The buyer's agent will not be affected by negotiating a lower commission. From those splits, the brokerage takes their cut, which varies, and the remaining amount goes to the agents.
Most agents do not collect a salary, so that fee pays for all of the time and money that the agent has spent to market the home. It also includes costs like professional photographs, signage, advertising, as well as the cost to list it on the MLS, or multiple listing service. The agent pays out of pocket up front for these services and time, and they get nothing if the property doesn't sell. So like many personal injury attorneys, you pay nothing unless they deliver.
Buyers tend to pay more in closing costs, but sellers aren't totally off the hook. You can expect to spend an additional 2% of the price of the home on this expense. Closing costs are typically fixed, including transfer taxes, escrow expenses, and notary fees. You will also have to pay any outstanding property taxes, a prorated share of the water and sewage bills, and the remainder of your mortgage.
Selling by Owner to Save Money
In a hot market, many sellers may think they can sell by owner to avoid commission fees. Most people don't realize that they still have to pay the buyer's agent's broker fee, which is 3% of the sale price of the home. According to realtor.com, over 93% of active buyers are represented by an agent. Refusal to pay the fee will severely limit your buyer pool and end up costing you in the end. It's the only way to attract these agents, and their buyers, to even consider viewing your home.
When you sell by owner you are assuming all of the responsibilities that your agent would bring to the table.
- Marketing, signs, advertising support, and professional photography
- The time and hassle of having to be present for showings (and open houses), manage calls, setting up legal representation for paperwork, and conducting the negotiations
- The legal protection that comes with working with a licensed real estate agent
- The professional market knowledge that can help you strategically price the house
- Negotiating expertise that allows your agent to secure the best terms and price from the buyer
- A wider pool of potential buyers that comes with listing your home on the MLS
- Access to other agents, who have or know potential buyers
In the end, it doesn't typically save you money to list by owner. You get what you pay for, and you earn what you save. You're going to pay one way or another, either in time, stress, and hassle, or money. Add in the benefit of having a professional aggressively negotiate the best terms on the sale, it's well worth the price of hiring an agent. Think long and hard about your potential limitations in terms of time and expertise before heading down the solo home selling path.
There are a lot of moving parts involved with selling property. Ultimately, unloading property requires the service of professionals, and the seller must pay for that service. The sale of a home will likely be one of the largest transactions of your life, so it's not exactly the ideal time to cut corners hoping to save a few bucks.