Your Piece of the Pie

Our friend Lisa is hopeless at catering. She always orders too much food, over-anticipating how many servings she’ll need to feed everybody. Her confusion is over the fractions – although the average pizza might have eight slices, how big are each of the slices?pie

It’s common when a property owner is thinking of selling to request appraisals from several different agents. And one of the key numbers that many people consider during the decision making process is the percentage commission the agent will charge. Some will ask for as much as 3%, some as little as 1%. But although it looks at first glance like one is charging double the other to do the same job, all is not as it seems.

Here’s an example. If a property sells for $200,000 and the commission is 1%, the total payable to the agent is $2000. The seller pockets $198,000, less costs. But let’s suggest the property was actually sold for $215,000 and the commission is 3%. In this scenario, the agent gets paid $6450, but the seller pockets $208,550 – $10,550 more than scenario one.

Real estate does not have a fixed price. The net financial outcome for the seller all depends on how much the property actually sells for – and that depends largely on the quality of the agent. It’s only logical. Getting the best possible price takes time, commitment and skill.

This is why low commission rates should be viewed with caution. After all, it stands to reason that if an agent can only sell you on themselves by discounting their fee, they’ll probably use the same tactic to sell your home.

And if you buy them as your agent, you’ll end up with a bigger slice, but most likely of a much smaller pie.

All the best

Michael Kirwan