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Shaving real estate commissions can save sellers thousands

Some brokers are willing to lower their fees or help their clients save in other ways. But you have to ask.

December 06, 2009|By Mark Yemma
  • Everything's negotiable in a real estate deal.
Everything's negotiable in a real estate deal. (Alex Nabaum / For the Los…)

David Herron doesn't consider himself a particularly hard-nosed negotiator. After all, Herron works as a technical service specialist for the Fantasmic show at Disneyland, and that happiest-place-on-Earth attitude tends to rub off.

But when Herron decided to sell his Lake Forest home last year, he was determined to find a real estate agent who was willing to cut a deal on the usual 6% commission -- the fee traditionally paid by home sellers to the listing agent who quarterbacks the complex transaction. That agent, in a system akin to "The Sopranos" but handled more tidily in escrow, must hand over cuts of the cash to the buyer's agent and other brokers involved in the transaction.

And who could blame Herron? In a year that finds frugal Californians pinching pennies at Wal-Mart or opting to regift their way through Christmas, why leave thousands of dollars on the table?

Herron obtained a discount of roughly half off the customary fee to sell the $660,000 house by using the same agents to help him purchase a bank-owned property in Rancho Santa Margarita.

"I knew from the Realtor's flier that I could negotiate," Herron said.

Sales commissions amount to serious money, but many sellers don't know they can dicker over the fees.

A Los Angeles County seller of a median-priced house of $325,000 would shell out $19,500 of his proceeds by paying his sales agent a traditional 6% commission. Such a seller might find himself outraged over having to pay out a few hundred dollars in surprise repair expenses as he navigates escrow with a difficult buyer, yet that same seller could have saved $3,250 just by persuading his agent to lower the commission to 5%.

Agents resist

As with the rest of the American workforce, real estate professionals are scrambling to find work -- seemingly good news for consumers. Although thousands of discouraged agents have dropped out of the business, California still fields an army of more than half a million licensed agents, many of whom signed up during the stampede for riches earlier this decade.

While consumers appear to have the upper hand in the current market, those agents lucky enough to get listings have to work harder to sell houses these days, making some recalcitrant about parting with their wages.

"You'd be foolish to give part of your salary away. I'm worth what I get paid," said Elizabeth Weintraub, a Sacramento broker. Weintraub, author of "The Short Sale Savior," laments that frequently the first thing potential clients ask about is paying less commission.

"I expect them to ask me. And then I tell them why I'm not going to do it," she said.

Kellie Jones, a licensed broker working for Century 21 Beachside in Orange County, said agents in her area "are really digging in their heels because they aren't selling as many homes." During the bubble, they could lower their commissions and make it up on volume, she said.

But Jones expressed amazement that many potential clients don't bother to request a break on the commission. "We're timid; we just don't want to ask," she said of some sellers. Jones, a pragmatist, said she would cut her commission "if I think I am not going to get the listing unless I do so."

Do the math

In hopes of negotiating a lower sales commission, Marsha Boutelle -- a self-described "serious shopper" -- interviewed three agents to sell her home this fall in the Northern California town of Carmichael.

"Of course I would rather pay less commission, and I would always try to negotiate," Boutelle said. "I do a lot of research."

Her experience, however, offers a cautionary lesson.

One agent she interviewed offered a 1-percentage-point discount "without even being asked," but also suggested a sales price that was about $40,000 less than the house eventually sold for.

Though Boutelle paid a full 6% commission on the $385,000 sale, she walked away with tens of thousands of dollars more than she would have reaped had she employed the discounting agent pushing a much lower sales price. Boutelle expressed suspicions that the discounting agent was simply after a quick sale.

Not surprisingly, real estate agents love to hear such stories.

"Sometimes, you get what you pay for," said Elaine Stark, a Realtor who runs her own business with her husband, Don, a licensed broker.

The couple, who specialize in areas of Irvine and Lake Forest, advertise commissions as low as 3.5% if they can sign up a seller and also represent that same seller in buying another home -- thus earning the buyer-agent cut of the second, piggyback deal.

Jones explained another type of deal she's found herself in, known as dual agency, when the sellers could have paid a lower commission -- if only they bothered to ask for a price break.

Listing agents, when they manage to bring their own buyer into a transaction, can perform as a dual agent, legal in California when fully disclosed to all parties, though rife with potential conflicts of interest.

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