2009 Nov 30th

Lopsided Hoboken Realtor Commission

Does This Set Up Really Serve the Hoboken Condo Seller?lopsided-dog-faceoff

We all know that sellers agree to pay a realtor commission when listing their condo with an agent.  In Hoboken, the typical fee is 5% which is then split between the listing agency (part to the agent, part to the company) and the agency that finds a buyer (also part to the agent, part to the company).  In all my years, I’ve always seen the split between the listing agency and the selling agency be 50/50.

The other day, I came across an unusual listing 5% listing.   By law, the percentage commission is always negotiable between the seller and the listing agent, but what made this listing so  peculiar was that the split was 60/40.  I thought it might have been a typo so I called the listing agent to ask.  She told me it was intentional and that her office would in fact get 3% and mine only 2% were I to sell the property.  Why was that?  According to her, it was to reimburse her for marketing the property.

What I wonder is how many agents working with potential buyers would find this arrangement so unusual that they might even perhaps decline to show the property?  Was this unconventional practice disclosed and, more importantly, explained to the seller? Would you consider or be happy with this arrangement if you were selling?  I’m very curious to know what potential sellers think.

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  1. CA

    What’s especially odd is that even when there is an uneven split, it’s usually in the form of a selling bonus to the agent that brings the buyer (to incentivize agents to show the property.) As far as the commission split goes I’ve never seen anything other than 50/50. I think this seller is really getting cheated.

  2. tom

    I wouldn’t care as long as I, the seller, got the price I wanted to sell at. But it hardly matters in the long run b/c the internet will see to it that 5% commissions go extinct.

  3. a

    Tom re: “got the price I wanted to sell at”,
    That’s the point. If as a result fewer buyers are being shown the home, maybe you won’t get the price you want, or maybe it will take a much longer time until you do get it.

  4. Tiger

    I agree a, if I ever sell I will make sure my unit gets listed on the MLS, compelete with pictures, details, and yea, I’d like to see the private notes part too. Comission should be market standard, nothing funny.

  5. lori

    The internet has been around for what, 15 years or so now? Yet commissions are still at 5%. I’d be interested to know when the internet learns how to show a property or negotiate.

  6. homeboken

    Lori – The difference is that real estate information has been held behind lock and key for those 15 years. If buyers and sellers were privy to the same date you provide to us on a wide-spread basis for the last 15 years, how different do you think your industry would look?

  7. lori

    You know I’m all for providing info. My point is that there is more to buying a home than knowing market data. You still need someone to physically show the property and negotiate and manage the deal. I spend many years in the travel industry and there, too, people thought expedia and travelocity would put all travel agents out of business. Instead, the industry evolved to work with the technology. Those who were willing to change and embraced it, succeeded. Those who didn’t, are history. That is what needs to happen in real estate too.

  8. elle

    Travel agents have been destroyed by the internet, not 100%, but almost. Now it’s a very small niche industry and a tiny shadow of what it once was.

    The internet has been around 15 years and it is only now that it’s really destroying newspapers. Sometimes these things take time.

    Lori, I fully agree with you that the internet cannot negotiate and show property. Realtors can still hold that role. But their compensation will be a fraction of what it is now given that the value the realtor provides has decreased significantly. On Wall St. 20 years ago it was possible to make huge spreads on bonds b/c clients did not have the tools or information to price those assets properly. But as Bloomberg and other information services surfaced, there was transparency in the market and you didn’t need an investment bank to tell you the bond price. This killed spreads investment banks were taking from clients. Since then, Wall St. has had to come up with more complex securities constantly in order to take out spreads from clients.

    If the realty industry can come up with a way to sell a more complex product then it is possible to make money another way. But the days of 5% commission on plain-vanilla house selling are clearly numbered. That’s not a prediction–just common sense.

  9. Tiger

    I agree that the internet changed / will change the real estate business, hopefully for the better. HOWEVER, being an IT professional myself with several years experience in intelligent systems and data mining, I think the internet has ways to go before it revolutionizes the industry. From my own experience looking for a home, Internet search was a useful first step, but definitely not primetime ready. Scatter of info, lack of info, and needless to say duplicates make it incredibly hard. If it wasn’t for a **massive manual** effort from Lori and Howie you wouldn’t get any relevant info for the Hoboken real estate. And we are lucky for that.

    Some common standards would need to be established (by the MLS, perhaps?) and an updated system would need to be built in order for this to happen. You quote the travel example; if it wasn’t for SABRE’s re-engineering of their backbone system, coupled with airlines, hotels, car rental agencies unifying their standards, the internet wouldn’t have revolutionized this industry.

    In 5 years? 10? maybe, but not now.

  10. Josh O

    This discussion has gone a little off track here. Yes, the Internet has streamlined many facets of our lives, and all but destroyed some professions (ie travel agents and the like). The difference with realtors (and I say this because I’m NOT a realtor) is that they’re providing a service of knowledge about property laws and information for assets valued in the hundreds of thousands of dollars (if not more). Those who have bought and sold properties may not value a realtor’s services as much as say a first-time buyer, simply because a first-timer needs a realtor’s experience in order to make an educated decision.

    And yes, I think the 60/40 split could definitely affect the seller’s ability to attract buyers…marketing is a cost that has always been attributed with selling. And Lori’s potential reluctance to show the property shows what other realtors might do as well.

  11. MikeD

    Lori – general question, why is it always a percentage of the sale price – shouldn’t it be a fixed fee?

    If you have House A at $500K and House B at $1MM, aren’t you going to put the same amount of time and effort for both homes?

  12. Lori

    The theory (and I’m not saying I agree with this) is that more expensive properties are harder to sell since the market for them is smaller so more work is required to market the property. My preference would be for a menu based commision structure. Remember that this is a highly political and regulated industry that fights change every step of the way. Maintaining the status quo keeps thosenon power in power. There is the NJ real estate commission, the NAR, the NJAR, the local real estate boards and the MLS all with a stake in the game. Change comes slowly, especially in NJ.

  13. MikeD

    “Highly regulated industry” = inefficient.

  14. Recent Buyer

    The fact that it is a percentage and not a fixed commission creates a serious conflict of interest in my opinion.

  15. Aaron Miller

    60/40 split is common in many markets. And yes, the excuse is marketing expense. Not saying I agree with it, but I have seen it before.

  16. CA

    Conflict of interest??? What is the conflict? That realtors are going to sell you a higher priced property to make more commission? That makes no sense because until the offer is made and the negotiations over sales price take place no one even knows what the final sales price will be.

  17. realtor

    I do a 50/50 split between agencies and I expect the same from others. Most agents do the same in Hoboken from my experience. I have had very few closings where the listing agency took more than half, and I was not happy about it in all honesty. I think it reflects poorly on the listing agent’s reputation. I would still show the property regardless but I could never figure out why a seller would agree to that.

  18. TS

    MikeD,

    How can you have a fixed fee rather than fixed %? A 50k fee for a 1mm house wouldn’t impact the sellers that much, but on a 100k house would almost wipe them out.

  19. MikeD

    Well that’s looking at from one direction. What would be the true cost of selling a 100k house, and would a 1MM house be ten times worth that effort?

    After all, going by the Lori’s theory (which she doesn’t necessary agree with), a house’s DOM is linearly correlated with its price. I highly doubt that’s the case.

  20. Confused

    So the extra 1/2% is for marketing the listing? What does the listing agent get the usual 1/2 for?

  21. rich

    I have bought and sold a bunch of properties over the years. I would say for the most part the agent does way more work for when I am buying.

    If anything the 60%/40% split should go the other way.

    On the listing side they set up the listing, do a few open houses, stick in the MLS and do some basic marketing. when working with me at a buyer you are running all over the place and picking up keys and then showing me places.

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