Commissions, Bonuses, and Buyer Incentives

Written by Don Martin You can follow all his work HERE. Please share this article with your buds using the above buttons. Thanks!

Price boldly, reward modestly

I have found that many people, after they have owned their house for a while, don’t always realize the value of their house has grown significantly. They keep thinking of their house in terms of what they paid for it when they bought it originally, but the times change and the housing markets change, and it’s good to be fairly sure of the value of your house before you put it on the market.

People who live in your neighborhood can usually tell you what houses are selling for in that neighborhood, so you don’t really have to pay for an appraisal, or necessarily have a real estate agent run the comparable sales for you. You already have a pretty good idea of what your house is worth.

Moreover, you have a pretty good idea of what you owe on the house and what you have spent on the house. Therefore, you probably have a pretty good idea of what you would like to receive for your house.

This is the point where sellers get a little shy and think that maybe nobody would pay that kind of money for their house. The trick is to get past that feeling. I propose that my customers go ahead and price their house boldly. The market value of your house will tend to seek its own level, but if you start out too low but you may lose money quickly that you may have otherwise have received. So I suggest you select a strong figure for your house, and evaluate the showings over the first two or three weeks.

If you put your house in the Multiple Listing Service, you have to offer a specific amount to a participating broker who brings a buyer to the transaction. That is a large piece of your price considerations. This amount varies in different parts of the country. We can’t just pick an amount, and call it standard, because nothing is standard.

But if we say that different areas of the country pay slightly different commissions, then we are not trying to fix their price at any particular level. Each commission is determined by each real estate company. In a traditional listing, the commission is paid by the seller to the listing company. The listing company often offers a portion of that to a selling company. sometimes it’s 50% of the total commission. sometimes its less. This also varies within a state and within the country.

If you are selling your house FSBO, then what you are offering is the half or portion that is offered to a selling broker. So let’s do some quick math. If the Commission in your area were 5%, and if it were split 50% to listing and 50% to the selling broker, then you would just offer half of 5% or 2.5% to a selling broker to bring you a buyer.

With my customers, about half of them sell to someone who is working with a Realtor and half sell to someone who is not. What that means is, if you are selling a $100,000 house as a FSBO in the MLS , you may end up owing an agent $2,500 in commission. You may also owe nothing if the buyer used no agent.

The fact is that in many areas of the country a more standard commission total commission is 6% and in some areas of the country the total commission is 7% or more. The thing to remember is that it varies. It’s not written in stone

Many of my customers start off offering 1 to 2 percent. Some of them offer a specific dollar figure. This gives them a pretty good handle on their cost of sale from the start. Always remember that an agent could bring you an offer that is good enough that he may get you to negotiate your commission figure to a higher rate. But that is your call, not theirs.

Right place right time

There was a time earlier in real estate when someone who wanted to buy a house would talk to a real estate agent, and explain what they were looking for in that new house. The agent would then go to his books or even his computer, and search through houses that were on the market to find a house that was suitable for this buyer. Sometimes the agent would give the buyer reports and lists of houses that qualified so that the buyer could drive by or tour those houses. That system was Realtor driven. The agent picked out the houses to see.

Now in real estate, when someone decides to buy a new house, they make themselves comfortable on their sofa, get online, and surf web sites looking for a house they like that suits their needs. When they find a house they like, if they are working with a Realtor, they call that Realtor and ask him or her to get them in a particular house. This system now is customer-driven.

Whereas in the old system, the agent worked to find the correct house for the buyer, the new system, commissions are often earned by the agent who is in the right place at the right time.

Half and half

We talked already how whatever standard traditional commissions are offered, they’re often split half and half between the listing and the selling companies. There are other splits involved. Individual agents must split commissions with their companies. Commissions are always paid to the broker (company,) and then the broker pays the agent. there are many different splits with different companies, some 50/50, some 75/25, some 90/10, depending on the company, the experience and production of the agent, and the amount of support the company provides to the agent. There are some companies good pay 100% of the commission to the agent, and the agent in turn pays monthly fees to the company.

So the amount of money you’re offering as a condition is not just handed to the agent who is doing the work. just remember a lot of people share that amount.

Commissions vary

I already mentioned that many of my customers start their listing offering 1 to 2%. It varies and it is negotiable. Also remember that each agent is usually working for a broker that determines an acceptable level of commission for that company. I work with one or two builders and house slippers who just call me and give me the address of one of their houses that is ready to be on the market. Some of my sellers I know to start out at 5% to the buyer’s broker. This is a high figure, but some of my builder customers have decided they are not in business to inventory houses, and they like to move them quickly. So you determine commission level partly by how quickly you need or want to sell your house.

Bonus

Sometimes it’s a nice incentive for buyers’ agents to offer them a bonus for an acceptable offer on the house. That is good proactive marketing. Have the listing agent mention it in the listing, preferably in all caps, and for a specific period of time so you can measure the results. In other words, “$1,000 bonus for an acceptable offer by May 10th.” Make it a two week window of opportunity, and then decide if it was worth while. If not, drop the bonus or change the bonus for the next period. Always be experimenting. Don’t let your listing get stale.

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The 26-week plan of action

Plan of Action for Your Listing Don Martin (615) 973-8970
Notes from Chapter 8 of Guerrilla Real Estate including incentives for agents – %, bonus and Joe Public – wide-screen TV etc. Hypothetical $100,000 house.
Week 1 and 2 – Honeymoon, full price,1 or 2% commission ($100,000-2%)
Week 3 – Drop price by $1000 ($99,000 – 2%)
Week 4 and 5 – Raise back price $1000 – add $1000 agent bonus for acceptable offer ($100,000 – 2% and $1000)
Week 6 – Buffer period ($100,000) (OPEN HOUSE)
Week 7 and 8 – Wide screen TV with acceptable offer ($100,000 – TV)
Week 9 – Buffer period ($100,000) (OPEN HOUSE)
Week 10 and 11 – Original price with 3% commission ($100,000 – 3%)
Week 12 and 13 – Drop price $1000 with 3% commission ($99,000 – 3%)
Week 14 and 15 – Add $1500 bonus commission for acceptable offer ($99,000 – 3% and $1500)
Week 16 – Buffer period ($99,000 – 3%) (OPEN HOUSE)
Week 17 and 18 – Wide screen ($99,000 – 3% and TV)
Week 19 Buffer ($99,000 – 3%) (OPEN HOUSE)
Week 20 and 21 – Drop price another $1000 w/ 3% ($98,000 – 3%)
Week 22 and 23 – Add $1500 bonus commission ($98,000 – 3% and $1500)
Week 24 – Drop price another $1000 ($97,000 – 3%)
Week 25 and 26 – 3% W/$1500 bonus & wide-screen ($97,000 – 3% and $1500 and TV)

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Broker Don Martin, founder and CEO of Martin Properties, besides helping hundreds of FSBOs save thousands of dollars, also delivers seminars, keynotes and motivational messages to real estate and sales professionals. His 30+ years of experience in sales, marketing, real estate, promotion, management and technology has empowered thousands to expand their knowledge and achieve their goals. Connect with Martin Properties on Facebook, TheReasonableRealtor.com, MLS-TODAY.com or Amazon.com.