A common homeseller question is ‘How much will it cost to sell my home?’ Hear the audio podcast presentation of this article by clicking here or on the ‘play’ button below.
How Much Will It Cost To Sell My Home? - Download This Episode
As with the sale of anything, there are a few factors for homesellers to consider. Seller costs typically include a real estate commission, plus factors like title insurance, escrow and recording fees. There are other attendant costs, too, like the ‘hassle factor’ and moving expenses.
Spoiler Alert: The answer to the question of how much it costs to sell your home is, ‘it depends.’
Why are homeseller costs variable? Well, for starters, Realtors frequently work using different commission rates. On top of that, you don’t always know with precision every single cost you may incur as a homeseller, such as negotiated home repairs. In addition, your final selling price is not always totally certain. Yet despite all this variability, homesellers can still receive an estimate of the cost to sell their home from a Realtor and while sometimes it’s within a given range, that estimate is typically close to reality.
First, let’s focus on specific hard costs to actually sell your home. When considering your ‘bottom line,’ it’s important for homesellers to include for calculation purposes any liens (like an existing home loan, home equity line of credit, or unpaid property taxes) that need to be paid at closing.
Price vs. Cost
In selling a home, it’s helpful to understand the difference between price and cost. Here’s a summary for homesellers to consider when looking at most efficiently selling their home for the least cost:
Price = The ‘sticker’ amount of what you’re buying, like hiring a Realtor to sell your home.
Cost = What you stand to pay if you don’t consider your return-on-investment. For example, if the agent you hire does a poor job, you can:
1. Lose time & opportunity (say goodbye to that particular home purchase you planned to make, since you expected your home to quickly sell while it was still available).
2. Receive less buyer activity and fewer offers.
3. Experience frustration (lost sleep, headaches and more).
For example, if you find a dentist to work cheaply, but end up with an infection or need to pay another dentist to get the job done to your satisfaction, the case can be made that a cheaper price is hardly a bargain. That’s because the cost can be significantly higher than the price you initially agreed upon.
Commissions Are Negotiable
The Realtor fee to sell a home is usually called a ‘commission.’ Regarding the real estate commission amount, because Realtors are independent contractors, if you ask more than one real estate agent, you may receive a few different answers. This article gives one attorney’s view of a Realtor’s value. A Realtor fee is truly the free market in action. Cream ‘rises to the top,’ so better agents usually are paid as much (sometimes more) than less experienced brokers, who may be less successful and/or offer fewer services.
Give Me A Number
By far the most common commission arrangement is that unless your home actually sells and closes, no real estate fee is paid. According to this 2017 Realtor.com article, the average prevailing commission for a home sale is about 6%. That said, you can expect the majority of professional agents to approximate each other. The commission amounts quoted are likely to be different, but so is the service and expertise of the agent. Like you, Realtors only have 24 hours in a day. When an agent is working with you, that’s time he or she could be spending with another client. And because commission sales are a results-based, expect to pay a competitive rate to hire a successful Realtor.
This isn’t so surprising, since if you were to pay for a doctor’s visit, a home furnace service call, or a mechanic to fix your lawn mower, there is usually a range of what is considered reasonable. Similarly, throughout our region that range can vary. This explains why it’s difficult to provide a precise and accurate dollar figure on seller costs when selling a home. It can also depend on the property itself.
Feeling The Burn
Expect ‘bargain’ commission rate quotes from less experienced or desperate agents. Also expect a low quote from less diligent agents who may simply stick a sign in the yard and either hope it sells, or intend on ‘beating the seller down in price’ in order to increase their odds of eventually being paid. If a ‘churn and burn’ attitude is not what you want, consider working with a helpful consultant type Realtor who actually represents your best interests and doesn’t use ‘strong arm’ tactics. To summarize, if a commission seems to good to be true, it probably is. In the end, you may pay considerably more than you bargained for, to become someone else’s ‘on the job’ training.
The Volume Discount
If a property is priced very low, such as a vacant lot located in a small and distant town, commissions frequently are higher to help make up for an agent’s considerable time and effort. Why? Consider that the real estate commission on a $25,000 lot can be around 1/10th of a $250,000 home, yet both require plenty of paperwork and attention to detail. Marketing the $25,000 lot may even take considerably longer and involve more sheer work. To attract a good, diligent agent may require paying a bit more in the real estate commission to adjust for the reality of that Realtor’s lost opportunities with other more lucrative properties while selling yours.
How A Lower Commission Can Hurt Homesellers
The thought that sellers are potentially damaged by a lower commission paid to their Realtor is counter-intuitive, right? Think again. Here’s an example using the above 2017 Realtor.com statistic of 6% as the ‘average’ Realtor commission.
Real estate is a business. And because Realtors are salespeople, they expect to be paid what they’re worth. This is especially true of experienced agents who are typically among the best at their profession. So let’s consider a seller, Mr. Jones who wishes to save some money. As a result, he talks with several Realtors and finds one willing to work not for 6%, but 4%. Great for Mr. Jones, right? Possibly not and here’s just one of numerous reasons.
Doing ‘The Split’
It’s helpful to understand that the Realtor representing Mr. Jones doesn’t typically get the entire commission, regardless of the amount. It’s common for commissions to be split four ways. There are exceptions, but here’s how the commission distribution usually breaks down:
1. Part to the seller’s Realtor
2. Part to the seller’s real estate company
3. Part to the buyer’s Realtor
4. Part to the buyer’s real estate company.
Given such a ‘split,’ no one is getting rich and compared to the national average of 6%, suddenly a 4% commission is looking pretty skinny. Here’s why that matters.
Commission ‘splits’ or distribution can vary, but if the Realtor and company working with Mr. Jones receive around half of the commission, or about 2%, that leaves a less-than-customary 2% commission to be shared between the buyer’s Realtor and the firm they represent.
Why does that matter?
Because the buyer’s Realtor can easily look at the listing sheet and see precisely what commission is being offered to the buyer’s agent who writes an acceptable offer for the home of Mr. Jones. If the commission structure pays a percentage or two less than what that buyer’s Realtor is accustomed to receiving for selling a home, expect a tepid response, or possibly no response at all. After all, there are frequently other homesellers who ‘pay the going rate,’ whose homes are just as easy to show and sell.
Given this usual similarity, it’s not difficult for a buyer’s agent to get enthusiastic for those homes that pay what is seen as a competitive commission. So much for Mr. Jones ‘saving’ money. That’s because the end result of a lower commission could instead be fewer showings, a longer market time and diminished offer activity on his home. Remember, a main reason for multiple listing is to get more offers for a seller’s property. It’s generally a good idea not to work against that principle. Pay professionals a market rate and you usually won’t regret it.
There are different ways to sell your home. The most common and (usually most profitable) is to hire a full service Realtor. Another method is to go it alone, ‘by owner.’ Yet one more alternative is to work with a ‘discount broker.’ Let’s look at each of these scenarios to see which might be right for you.
Homeselling ‘For Sale By Owner’
If you do decide to try selling your property by yourself, you will soon realize there are good reasons why even real estate agents pay a commission to sell their own homes. That’s because in addition to taking on a second job, from a ‘bottom line’ standpoint, hiring a Realtor is usually the most profitable way to go.
The irony for ‘by owner’ homesellers is that in their attempt to save money, they frequently ‘leave the most money on the table.’ That’s because ‘by owner’ is often the least effective and most expensive way to sell your home. Since your property isn’t in the Realtor’s multiple listing system, you can expect to have far fewer qualified buyers aware of your property. Fewer buyers means less competition and less offer activity.
Home & Personal Security
Before offers, come showings. This brings the security of yourself and your possessions into play. Realtors routinely scrutinize buyers before agreeing to represent them. Don’t like the idea of unscreened and unaccompanied strangers in your house? Then selling ‘by owner’ may not be for you. The simple fact is that working with a Realtor provides one more layer of scrutiny and seller security.
‘By owner’ sellers routinely must deal with ‘tire-kickers’ who are unqualified to buy and therefore can be a significant waste of time. And if you do happen to get an offer when selling ‘by owner,’ there’s no Realtor to deal with under-handed offer tactics, contingency ‘landmines’ and other potential pitfalls, plus no documents to help protect your interests, such as the arbitration and mediation clause. As a result, lawsuits can become more of a likelihood. Didn’t complete a property disclosure or lead paint form? Don’t know a good repair contractor? Dislike ‘legalese’ in documents you’ve never seen? If you plan to sell ‘by owner,’ be prepared for some expensive surprises.
Convicted fraudsters can appear very unassuming. Some ‘sketchy’ buyers take advantage of ‘for sale by owners’ too. That’s because there is often less buyer competition, since you’re not in the Realtor multiple listing system and therefore buyers typically have both time and less buyer activity working for them. If you happen to be a real estate attorney with a ‘hot property’ that has buyers knocking on your door and you have it priced right, plus you don’t mind doing a lot of legwork, going ‘by owner’ may work for you.
Want A Second Job?
But if you already have a full time job, want maximum exposure and a professional to assist in pricing, marketing and transactional minutiae, involving a Realtor simply makes sense. Remember, sellers with a Realtor net a better return at closing compared to ‘for sale by owners.’ Some of the most parsimonious banks realize this. As a result, financial institutions routinely hire real estate agents to sell their REO (real estate owned), which are often foreclosed properties.
Homeselling by Discount Broker
For homesellers, a step up from ‘for sale by owner’ is the ‘discount broker.’ Some consider it akin to a low budget buffet, the kind where the food and service may find you walking away wishing you’d gone somewhere else. You could get lucky, but don’t be surprised if you get heartburn, instead.
That’s because while you’ll now probably be placed in a Realtor multiple listing system, a potential downfall is a possibly reduced commission paid to buyer’s Realtor. Unless you’re paying the buyer’s Realtor a competitive rate, don’t expect agents to rush to your door and sell your property. On top of that, some discount broker agreements require the seller to handle showings, negotiate the transaction on their own and even handle much of the paperwork. So much for being easier!
Homeselling by Full Service Realtor
This is the ‘full meal deal.’ You’re in at least one multiple listing system, have full representation, plus the abundant resources of a licensed professional at your disposal. Showings are followed up on, paperwork is handled on your behalf and you can expect priority to be made for your questions and scheduling.
The Bottom Line
Because any commission charged by your Realtor is only one piece of the seller’s ‘net at closing’ puzzle, it’s a good idea to request an estimate of closing costs, including real estate commission, prior to listing your property. This provides you with a better picture of what to expect at closing. This is a free service provided by Realtors and helpful in gauging an approximation of the funds you can expect at closing.
See Additional Articles & Podcasts Like This:
10 Reasons Why Homesellers Hire a Realtor
Why Does My Realtor Do That?
7 Strategies to Sell Your Your Home Sooner!
The Art of War for Homesellers
3 Steps to an Oregon Home Sale
Thinking About Selling?
Consider working with full service real estate firm like Oregon’s Certified Realty. For a free consultation of what your Oregon property could sell for in today’s market and your ‘bottom line’ of seller’s proceeds at closing, use the convenient contact form below or call 800-637-1950.