Commissions..."List For 1 Percent" and Other Scams

Real Estate

Real estate is broken, and here is a perfect example. Pull up Craigslist. Look under “Services,” then “Real Estate.” You’ll find one Denver agent who advertises constantly with this headline:

“List Your Home – 1% Flat Fee.”

As you may know, most agents charge between 4 and 6 percent to list and sell a home. How can this guy do it for 1 percent?

It’s simple. He can’t. He is lying. And to understand how, first understand this. In most real estate transactions, two agents will be paid. One represents the seller and the other represents the buyer.

Normally it is the home seller who pays BOTH agents. Why? It’s a convention that dates back to the beginning of modern real estate practice. Right or wrong, the assumption is that the seller will have cash to spare, while the buyer is stretching to fund the down payment, inspections, an appraisal, etc.

So when our friendly Craigslist agent offers to list a home for 1%, what is he really offering?

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Again, two agents will be paid: one on the seller side and one on the buyer side.  Mr. Craigslist’s “1 percent fee” is for the SELL SIDE ONLY.  Call his office and he will hem and haw and eventually get around to telling you the truth.

Which is this: Your total commission cost is likely to be 2.8 or 3 percent ON TOP of what you’ll pay to your slippery listing agent. That’s a total commission load of 3.8 or 4 percent, or about FOUR TIMES what was implied in his ad.

Another question entirely is whether an MLS-listed assistance is worth 4 or 5 or 6 percent of the contract price in a sale.  I say absolutely, yes it is, in the right hands.  But again that’s a question for another day.

Here is today’s question.  If an agent’s very first promise to you is a lie, how well will he or she serve your interests going forward?  My answer is, not very well.

What is a fair selling commission percentage? Let me know your thoughts.