Heavily Discounted Commission Limited Service Listing Agents: How to Find Them & Why To Skip Them
- Adam Garrett
- Apr 21, 2023
- 1 min read
Updated: Jun 15, 2024
It's not uncommon for me to have sellers asking me what I charge for commissions. I have a spreadsheet that goes over those figures in detail, with very competitive commission rates considering what I offer, but it's important to lay out some caveats about heavily discounted commission agents in advance so that sellers don't lose more money net than they gain by using too low of commission agents who offer bare-bones marketing, with even 2 great agents at times having vastly different net sales prices even at the same commission rates.
Who is in the Best Position to Use a Limited Service Agent? Long Time Former Local Agents Willing to Put in Some Time & $
Long-time former real estate agents who are willing to take the time to get the latest on the top marketing best practices, willing to be diligent about holding the limited service agent to high standards, willing to act as an agent where the limited service agent wouldn't be willing (i.e. open houses, staging advice & especially functional staging items like floor mats, footies, and toilet paper, cleaning/repair advice, snacks/drinks for guests, & showings), and using a limited service agent who is willing to do some things that other limited services agents won't are some of the top candidates for hiring limited service listing agents.
Typically doing that will also involve independently hiring a professional photographer, Matterport virtual tour person, & drone pilot. Some photographers do all 3. Area photos are also ideal to include, especially on homes <3k sq ft & <.5 acres, whether you take them yourself and pay extra for captions to be added into MLS or whether the photographer happens to have some near your home (which is semi-rare). It's also ideal when 1 MLS covers 99% or more of a city/county, since additional MLS will typically incur additional fees with limited service agents.
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How to Find Heavily Discounted Listing Agents
They likely do high volume & what they offer needs to be "bare bones" in order for them to keep in the business
In order for a discount commission agent to stay in the business and not choose a more lucrative profession elsewhere, they need to be doing high volume. Per Career Explorer, median salary for a real estate agent in 2021 is $59.4k. If an agent does listings for $1k each on the listing side (often with a more typical commission rate on the buyer side to not dissuade too many buyers/buyer's agents), if they don't hire out any professional photography, don't pay for any marketing beyond MLS, don't belong to a local association of Realtors, don't belong to the National Association of Realtors, & spend $380/yr to list on My State MLS (which less than 1% of listings are found on, so virtually no agents are sending these properties to buyers except the low % of agents on My State MLS, drastically hurting your marketing if your listing is only on it), pay the $65 license renewal fee once every 2 years, assuming no desk fees and a 60% split with their real estate firm, no website hosting, no digital lockboxes, many other things that I do missing, no fees to administrative assistants, & not factoring in transportation expenses which can be high for agents, they would need to sell 100 properties to achieve that $59.4k. Here's how that looks:
$59,400= $1000*# homes needed*.6-$380-($65/2)
Sure enough, one time that I know I worked with an agent who had listed the property for $1k, he did more than 75 transactions in that year with no assistant, one of the worst experiences I've ever had with an agent where I had to get other people like the closing company to fulfill some of the rolls that he was supposed to as the agent because he was so unresponsive. It's hard to be responsive with that kind of volume with no assistant.
It's often said that around 80% of real estate agents cease full time real estate within 2 years after starting. It's very competitive, and many agents can't do the volume that they need to in order to survive in this business even at typical commission rates rather than jumping to another career.
Real estate agents are typically considered self-employed, typically not receiving any health insurance benefits from their employer or retirement benefits from their employer while paying double on social security (up to $147,000 in income in 2022 per the IRS) & Medicare vs those who are employed (which is typically around an extra 7.65% for Medicare & social security in 2022). That means that if their actual income isn't very high, they'd likely be better off doing something somewhere else where they'd be employed for the same pay but with lower costs because they are employed and with benefits because they are employed. Keep in mind that I am not a CPA and that this information should not be construed as tax advice.
They likely don't have many good reviews &/or the reviews are very mixed.
Discount agents will often do a discounted level of service vs. other agents. You may have heard the saying, "you get what you pay for." With discount agents, sometimes sellers expect the agent to perform like a typical agent would, but that's not a very realistic expectation for a heavily discounted agent. They only have so much time in the day, and in order to survive as a discounted agent, you need to cut costs in many places, so sellers working with heavily discounted agents shouldn't expect typical service, or anything close to top notch service.
Some agents don't have very many reviews but are actually fantastic agents. These agents typically don't offer heavily discounted commissions, but simply don't prioritize review acquisition much & the general public typically has no idea how meaningful reviews are to agents.
Contact agents with much lower average price than your property.
The higher your property value, and the lower an agent's average property price, the higher the likelihood that they'll be willing to provide a substantive discount. If an agent's average transactions are only $100k, and you interview with them about a $1,000,000 property, they might be willing to do a 1% commission even if they won't do that on a $100k property. That said, keep in mind that the quality & offerings available of $100k average price point agents vs that of million dollar agents is substantial.
Contact new agents without many sales.
The newer an agent is, & the lower their sales volume, the hungrier they tend to be. While one of the most important criteria I recommend using when looking for agents is how experienced they are by total transaction volume, the newer the agent, the more negotiable they'll tend to be.
Offer to sell a high volume of properties.
If you have a high volume of properties to sell, be sure to let the agents you interview with know. For those selling 5 properties, 10 properties, or more, you'll find that agents who are offered to sell the whole bundle of properties are going to be more apt to be negotiable about commissions than those that you only sell 1 or 2 properties through.
Contact many agents at many firms located in the area of your home.
1 thing you can do if you really want a discount agent is to contact lots of agents. In some cases, my firm included, brokerages have policies severely restricting minimum commissions, especially if the firm is a "full service" agency and doesn't want to get a bad reputation for the low quality inherent in discount service agents. By contacting lots of agents at lots of firms (i.e. via email), you'll get a lot of responses if you ask what the commissions are that the agents would charge. If you contact 100 agents at a single firm, there could be a minimum commission rate that all of the agents are restricted by. The lower the number of reviews for the firm, or the worse the reviews for the firm, the higher the likelihood that they don't have a very high minimum commission policy.
What to Watch Out For with Heavily Discounted Listing Agents
Are there any admin fees?
If an agent would charge you only $1k commission to list their house, be sure to ask if there are any additional admin fees involved. Even for standard commission agents, sometimes they'll include admin fees that they don't mention until you are ready to sign on the dotted line. If the agent doesn't mention anything about it, be sure to ask in the interview process.
What will the agent offer?
The big question with heavily discounted commission agents is that of what all they would be offering for whatever commission they'd be charging. You can compare those to what I offer sellers, keeping in mind that I charge competitive commission fees, though not heavily discounted. I offer a main commission rate and a discounted rate, and even what I offer at a discounted rate will be much more than what many standard commission agents offer. My discount offering vs that of heavily discounted commission agents is typically night and day.
What commission will be offered to the buyer's agent?
Sometimes a listing agent could base advertising on total commission between buyer and seller while taking much more than the buyer side. The commission goes to the listing side first, but sometimes isn't split 50/50 or anything close to it. The listing side commission that won't be going to the buyer's agent is the primary matter that you should focus on when considering what commissions are being offered. I've even seen a 0% commission on MLS where the seller may have had no idea how negatively his property was being impacted by it. Typically, buyer brokerage agreements include stipulations about minimum commissions. These are typically anywhere between 2%-3%, but I've met at least 1 agent that has a minimum commission of 4%. If your commission amount for the buyer side is too low, agents have a financial incentive to speak negatively about your listing, even though doing so is supposed to be against their fiduciary duties. It's such a problem that the primary MLS of Hampton Roads eliminated the option to view buyer agent commission side by side with other listings in spreadsheet form. In addition, even if the agents say nothing wrong about your listing, some buyers won't go to a property where they need to pay any commission, even .5%. Some buyers can't afford to come up with the extra funds and some would prefer not to out of policy even if they can afford it.
Do they regularly participate in dual agency?
While legal in VA, dual agency, where one agent acts as a middle man between buyer and seller, is so fraught with problems that it's prohibited at Garrett Realty Partners and illegal in many states. If the agent regularly engages in dual agency, they could be listing with you, doing poor marketing, and by poor marketing resulting in low activity/interest help their own buyers to get a better shot at your listing. If the offering for the buyer is substantially more than what it is for the seller, it's not unusual to see dual agency from a low commission agent offering substantially more for the buyer side.
How detail-oriented are they?
Because discount agents need to get to the next appointment to keep up the volume, time how long they're at your property and the depth of the emails and other communication they're sending you.
What do their sales in your price range at the commission level they are offering say about their marketing?
It's a good idea to check the agents' recent sales history yourself and compare that with what you can find online. Ask the agent for the past 5 sales in their price range that they've sold as examples, and check online yourself to see if they are skipping any listings. Also ask if they can be ones that were the same commission amount as what they are offering, as what the agent can offer can differ greatly based on commission amount offered to them. In some cases, pictures and other features will be removed from public listings after sale, so it's a good idea to get the old MLS listings rather than just relying on Zillow. For instance, Matterport tours often get removed from listings soon after they are sold if space needs to be made for new Matterport tours. It's unusual to get a service like Matterport though from a heavily discounted listing agent anyways. Also in some markets, like Hampton Roads, Realtor.com won't display many old listings of agents unless the listing was placed in somewhere besides the main MLS of Hampton Roads, REIN.
Look for things in the listings like:
How's the picture quality & is it professional? You'd be surprised what agents can post online even of gorgeous homes.
Is there a virtual tour & what's the quality? You typically don't see those in heavily discounted listings unless it's an added cost or if the seller did it themselves.
Are there aerial photos? You typically don't see those in heavily discounted listings.
Are there area photos? You typically don't see those in heavily discounted listings that aren't taken from the property that's being listed. Even the majority of typical commission listings don't have many if any of those.
How detailed is the listing including the remarks and the number of features that are listed?
If you have a higher price range than you're seeing with their sales, what do the sales they've done that are highest say about their ability to market properties?
Do they care about staging, cleaning, and repairs to your property?
Flippers make their money in part because most buyers don't want to buy homes that need a lot of work or are very dirty. That's one of the reasons why I got such a good deal on my first home; I purchased a fixer upper. I used a conventional renovation loan, hired out the vast majority of the work cost effectively, and my after repair appraisal was around $40k higher than my costs for the home plus renovations, wrapped into a single conventional renovation loan. Quality agents can assist sellers with directing them in how they can clean up their properties to maximize their net profits, even if they don't have any funds on hand in some cases for repairs. By doing that extra work in advance, sellers can gain much higher net profits at times.
Be sure to not ask the agents about it, but be sure to look out for if an agent interviewing you at your property provides feedback on what you can do to stage your property, make repairs, and clean. many agents, even those who aren't heavily discounted agents, will say nothing. They know that saying that your property needs anything will take up more of their time and could hurt the probability of you listing with them. If an agent is honest with you about what you can do to improve your net profits with cleaning, staging, and repairs, that's a very good sign, not a bad sign.
Fast Facts
Agent quality, not commission amount, is the most important consideration in your home selling process.
Did you know that in some cases, the amount that one agent can net you that is greater than another agent can exceed the entire amount that the agent receives?
$40k difference in sales price with 2 different agents
I once listed a property that received 3 different offers while I was listing it. I recommended that the seller counter or accept the highest offer. They refused, the listing expired, and it was passed onto one of the top agents in VA by sales volume to handle. It sat on the market for around a year with that agent, with the sellers paying for taxes and utilities on a vacant property, and eventually had a sales price $40k below the offer that I had received when I was representing the sellers. What agent you use can matter much more than the commission rate that you offer in a scenario like that one where $40k was greater than 6% of the sales price (6% is a typical commission for buyer's agent and listing agent in Hampton Roads, split 50/50).
Commission amounts are important to consider in your agent selection process.
If 2 agents offer virtually the same thing, and one agent charges less, you're probably better off with the one who charges less. If out of 10 agents, 1 charges rock bottom prices, but another agent who charges a competitive commission is offering things that blow the lowest commission agent out of the water while being superior to that of other agents who are charging higher commissions, it's probably a better idea to go with the one who offers much more at a competitive price.
The lowest commission agent out of 10 agents is typically not your best bet.
While the lowest agent out of 3 agents you reach out to might actually offer more than what the other agents are offering, the higher the number of agents you reach out to, the higher the probability that the lowest commission agent won't be the one to go with because their offerings will tend to be so much less than what a good agent offering a competitive commission can do for you to achieve your highest net profits.
I've worked on the other side of contracts with at least 1 agent who received less than half a percent of commission. That was the least involved agent I ever worked with who wasn't posting a listing for a "for sale by owner" home.
The highest commission agent isn't always the best agent.
Two different agents charging the same commission can achieve vastly different results. Likewise, there are many agents who charge a higher commission than I do who don't offer nearly as much as I do & they would typically achieve lower net profits for sellers.
Very low commissions are like For Sale by Owner (FSBO) sales in yielding significantly lower profits in many cases.
Per the National Association of Realtors, in 2021, "The typical FSBO home sold for $225,000 compared to $330,000 for agent-assisted home sales." FSBO homes tend to sell for less, and heavily discounted commission agent homes might sell for a bit more, but net proceeds tend to be highest with excellent agents who offer competitive commission rates.
Some excellent agents offer competitive commission rates.
I'm an example of an agent that offers many things that many agents don't offer who charge more than I do to sellers. Commission rates are important, but the total package depends on both commission rates and what the agent offers.
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