At the same commission rate, real estate agents selling an $800,000 home receive eight times the compensation of those selling a $100,000 home. But does it take eight times the effort to sell the most expensive property?
Does it cost agents more to market a more expensive home? Is it more difficult to find buyers who can afford such a place? Is the sales process taking longer? Is there more paperwork involved? More rules and regulations that need to be followed?
I ask because a new report from the Consumer Federation of America questions the relationship between house prices and commissions.
Intuitively, you’d think the commission charged on the more expensive homes would be lower, if only because the agents would make a lot more money. At 6% in the example above, the agent selling the house for $800,000 would earn $48,000, while the agent selling the house for $100,000 would only earn $6,000.
But that’s not always the case, according to the CFA, which found “no consistent relationship” between prices and commission rates.
No consistent national trend
Previous research has found a “trend” in lower commission rates as house prices rise. But in the CFA study of rates charged in 17,800 recent sales, sellers of more expensive homes in eight cities were charged higher rates, while those in eight other markets paid lower commissions. In 15 other locations, prices were either uniform or fairly similar across the price range.
Former Department of Housing and Urban Development official John Weicher once said that commission rates are “generally expected” to vary inversely with house prices, “on the basis that the effort required to sell a house is not proportional to the price of the house”.
But that was in 2006. The market has changed a lot since then. Buyers used to hop in an agent’s car to find a home that suited their needs. Now they do the lion’s share of their research online – so apparently the agents are doing less work.
Some agents say they have to work harder and at a higher cost to sell a more expensive property. Expensive locations tend to be larger, requiring more inspections, ownership clarifications and “making sure both buyer and seller are happy,” Northern Virginia broker John Marcario told the CFA. .
But others disagree.
“I don’t think the cost of selling a house [here] in Massachusetts for $100,000 versus $4 million is different,” said 40-year real estate veteran Tom Wemett of Homebuyer Advisors. “What’s different is profit.”
“Generally speaking, an $800,000 house is no more work than a $300,000 house,” added Derek Eisenberg of Continental Real Estate Group in New Jersey.
Different Markets Impact Workload
There are market conditions to consider, of course. In wildly expensive places like California, where $800,000 homes “sell like popcorn,” it’s probably harder to sell a $100,000 home, the group’s consultant Marilyn Wilson told me. WAV.
It may be true. The CFA found that in Bakersfield, California, commissions on two-thirds of homes sold at $450,000 or more were higher than those sold at $300,000 or less. Yet in San Diego, commission rates varied little, regardless of price.
Another anomaly could be whether it is a buyer’s or seller’s market. Danetha Doe, an economist at Clever Real Estate, told CFA that when the market favors buyers, “it takes more effort” to sell a more expensive place.
Another consideration is the type of ownership. According to Eisenberg, more work is involved in the sale of condominiums, homes governed by homeowners associations and homes whose owner is in financial difficulty. Other factors are the condition and location of the property.
What some agents say
That said, I asked the question to some agents with whom I am in regular contact.
“The amount of work required to sell a home is not distinguished by price,” said Robert Goldman of Michael Saunders & Co. in Venice, Fla., but rather by “five factors: condition, location, staging, marketing and price”.
Chris Carter of Waterfront Realty in Naples, Florida, said he puts in the same effort no matter the price. But he points out that when their cut is bigger, some agents are likely to spend more on marketing materials: better photos, perhaps including drone shots; color printed postcards; and sole proprietorship websites. Again, when the market is hot enough, agents may do nothing more than list the house and wait for offers.
Lisa Abrams of Florida and DC-area licensed Berkshire Hathaway said her efforts didn’t change with price, but found it harder to sell cheaper homes.
“Generally,” she told me, “buyers in the lower prices tend to have financing issues and down payment issues.”
Carter said the same thing: Buyers of expensive properties tend to be “more sophisticated and experienced” and “don’t need as much grip.”
Charles Hunt of New York-based Hunt Real Estate Group agreed, adding: “Selling a cheaper home may have more steps due to financing and inspection contingencies that may not exist on a more expensive property.
Lew Sichelman has been covering real estate for over 50 years. He is a regular contributor to numerous shelter magazines and housing industry and housing finance publications. Readers can contact him at [email protected]