Realtor Commission Fees
Folks: the trend on the mainland in the real estate field is a move to internet marketing and a move to using lower commissions by traditional real estate agents; i.e., charging 4.5% when selling an owner's home, or charging 4.0% when both selling an owner's home and then assisting that owner in purchasing another home.
Does anyone know of any realtors on STX who charge less than the usual 6.0% commission for selling a home?
It depends on the overall situation. When I work with investors who are buying and selling multiple properties, the commission is discounted to them on the ones they sell. With some sellers, if I list the property and then also bring the buyer, I almost always discount the commission. It's harder to discount if another agent brings the buyer since the advertising expenses don't drop, so the listing half of the commission isn't really the part that is being discounted. I don't think most agents on the island have as much latitude to discount the commissions on properties they list. There isn't a "set" commission rate, but each agent does have a contracted commission split with his broker that varies from agent to agent and agency to agency. Some agencies are more willing to be flexible than others with the commission charged to the seller.
Everyone's always trying to save a buck.
Why don't we just out source the realators like everything else is going to. You can just call up someone in India for you housing info.
Of course if this trend continues, the only ones able to afford anything will be the business owners and the folks in India.
I'm making lite of this to a point, but when you want good service, and the only ones there to give service, have to do it so cheap, pretty soon there will be no GOOD service.
The trend on the mainland is also that homeowners are dropping prices (except a few hot areas), and builders are giving $20k - $30K - $40K or more... to move their properties, because there is a GLUT of inventory (over 6 months worth). Condo conversion projects are reverting back to apartments for lack of buyers (though I believe only temporarily). Alexandra can confirm, but that is NOT the case on the islands. The cost to do business is higher on the islands, and the market is SOOO different, don't expect anyone to discount their commissions like on the mainland anytime soon. Take Terry's advice and be happy to pay for good service. Of course, "good service" is a subject for another thread.
Yes, the market on STX is very hot. The inventory is so limited that it is very much a seller's market. Prices are rising, no dropping. Our market is driven by different factors than the mainland's market; so don't expect any price reductions here anytime soon. We'd LOVE to have developers building some pre-sales and spec homes. It would take a lot more development to even come close to supplying the new demand, let alone catch up with the backlog. Sellers haven't really had much expectation that they should discount their listing commissions since their houses are listing for, and selling for, much more than they had expected them to. Investors who fix and flip property after property are the most likely to regularly get a discount from the Realtor they work with. This is one more reason for investors to be loyal to working with one Realtor and not hopping around if they are getting good service. If they aren't getting good service, then by all means shop around as you should with any professional service.
Realtors on St. Thomas are charging 6%. Internet marketing here is very different than on the mainland. Advertising expenses here on St. Thomas are higher. When was the last time a salaried person had his/her boss come in and ask, "How would you like to work for 20% less this month? No other reason than I would like to pay you less."
Why shouldn't Realtors get paid 20% less this month? Their effective commissions have doubled in the last few years. If a property sold for $300K in 2002 and the brokers got 6%, that's $18K in commissions. If the same property sells for $600K this year, and the brokers get 6%, that's $36K in commissions. The amount of work to sell it hasn't doubled, but the commissions have. There should be pressure from sellers and from competitive brokers to lower the %.
Good point STXBOB.
So when then market falls like it is doing on the mainland, and will sooner or later in the USVI, you will be willing to increase the commisions for the realator. The realators that have ridden this wave up maybe shouldn't get more, but the ones that came into the business later won't have to readjust thier lifestyle, just because the market has fallen.
I agree with glynswife.
STXBob - what you actually point out is that as the cost of living goes up, Realtors salaries go up commensurate with the increase in the housing market, which is one of the largest components in cost of living. Not all industries have a rise in salary that matches inflation, but they also don't have a salary decrease if the economy stumbles. Realtors only get paid if they get things sold. A Realtor's overall salary may rise during a boom time, but any excess must be carefully saved to get them through the leaner times.
What many people don't take into account when objecting to commission rates is that real estate is 100% commission based income and there are a LOT Of business expenses. We only get paid when a property sale closes. A downturn in the market can mean we work for nothing for months. We still spend hundreds of dollars a month on gas to drive people around (I drove more than 16K miles in 2005... on an island just 27 miles long!), hundreds more per month to advertise, hundreds more for office rent and expenses, etc. For every sale that ultimately closes, Realtors work with many other "buyers" who never do make a purchase. Would you want to be paid only for an occasional day that you work and not for all the days that you work? It's kind of like volunteering lots of time to show lots of people property and then being paid very well now and then for one job. If the successful closings didn't pay well, none of us could afford to work for free the majority of the time as we have to do in a commission-only industry. We never know which buyer is going to be one that brings income but everyone needs to be dealt with as if they were the one that would. Commission sales have an extremely high turnover rate in personnel. Every new agent assumes it's easy money going in and then learns otherwise. Most people can't cope with the uncertainty of whether they will be able to bring in enough $$ to feed their families on any given month. Even for buyers who close on property purchases, it usually takes a minimum of six months of effort to bring that transaction to fruition. Sometimes it takes years of sticking with them.
Realtors also do drive property pricing somewhat as we see trends and demographics in our local markets. So when a seller enjoys a dramatic price increase that means he makes tens of thousands of dollars more than he expected to get for the sale of his home, is it really unreasonable for him to pay just 6% of the increase to the Realtors involved in making this happen for him? Most sellers would not get the same sale price without the services of their Realtor. The commission paid gets split four different ways... half to the listing office and half to the selling office, and then split again between the broker who owns the real estate company and the agent with that company who actually did the work. In some cases, an agent is his/her own broker and gets the full 3%. Brokers have extra expenses for providing the business office and any clerical help that may be on staff, so that portion of the commission gets divvied up further.
I think that a lot of people look at commission rates and assume ALL the cash goes to just one person every time a sale happens and that thought sometimes causes some upset. It rarely goes all to one person. If it does, that person did an awful lot of work to pull all the parties together without any outside assistance. More often there are multiple parties, each with business and office expenses that eat into his/her portion of the commission paid.
You could save the commission as a seller by selling your property on your own... although you'd likely lose more on the sale price than the 6% a Realtor costs you and you'd have to do the work and advertising on your own. You could skip going to a doctor and perform your own surgery if you wanted to save some $$, also. Sometimes using professional services just makes sense and is well worth the price.
Maybe some of the disgruntlement about Realtor commissions comes from irritation over the not-so-hot service some buyers and sellers receive from the Realtors they work with. That is often due to a licensing and training issue that will hopefully be addressed by some new legislation in the works regarding the licensing of real estate agents in the USVI. Many brand new agents don't get the training they should and there can be headaches for the clients and customers they work with during their learning process. The real problem comes when a Realtor never does learn to do their job adequately and continues giving bad service year after year. If you as a buyer or seller weren't satisfied with your Realtor, don't recommend them to someone else! Many people will still recommend someone they worked with even when they weren't happy. It's odd but true. I think people just like to be helpful and tell someone a name that comes to mind if a recommendation is requested. Sometimes they would be more helpful to NOT recommend someone who wasn't up to snuff. Doing so only propagates bad service and undoubtedly makes some lousy Realtors believe they must be great if their former clients are sending them friends and family as referrals. It's like tipping extra for bad service at a restaurant. Why would you do that?
and something I always mention to realtors. Never really get a coherent answer.
that I'm not necessarily against agents making 6 pct
promoguy - if you do the math on Bob's example...
When the property sold for $300K, the Realtors received $18K total commission and the seller received the balance of $282K minus his other closing expenses.
When the property sells for $600K, even if the Realtors receive 6% and split $36K, the seller is now getting $564K minus the other closing expenses.
Do you think the USVI government lowers the stamp tax for properties when the price rises? On the contrary! Instead of the 2% the seller would pay on the $300K property, the rate rises to 2.5% or 3% depending on the ultimate sale price once it goes beyond a certain threshold. The government won't discount, why should Realtors discount across the board? The seller is still getting an enormous profit way above and beyond what he would have reasonably expected a couple years ago if his property has now doubled in price. On the mainland, you are told you can fairly reliably expect an AVERAGE of 7-10% increase per year over time. It may be 30% in one year, 3% in one year, even drop one year, then blip up again. But nobody really expects a doubled value in a couple years. That's been happening here recently. Are the sellers the only ones who should benefit? The Realtors are working in the market year around bringing added value to the market by discussing values and causes for price increases with buyers.
While I do discount for repeat customers, there is usually more work involved in a first time transaction with any particular buyer or seller. Once you have a good working relationship, it gets much easier to complete additional business together and passing some savings onto such customers and clients makes more sense. It's more of a partnership in that I tell them about properties I see as being good values and then we both make some of the profit by the purchase, repair, and sale of such properties. I do the research to make the business case and they provide financial backing. They get the lion's share of the profits, but I"m not left out in the cold. Give and take and compromise always makes transactions work out best. It is possible for all parties to "win".
So your point is that since the seller is making more that the agent should be making more. My question would be, all things being equal, does it take any more effort to sell the 400K home of two years ago vs the same home today at 600K. If market conditions change, yes maybe. But in a rising market where demand continues to be high, I'm not sure it is.
Just one guys opinion who lives in over inflated Los Angeles home
DON'T FORGET... Realtors on STX have a vested interest in convincing folks the market is "very hot". And when a realtor writes "don't expect any price reductions here anytime soon" readers should perk up and realize that post is a realtor's biased opinion, not a fact. The livelihood of a realtor depends largely on selling real estate for the highest price, both today and tomorrow. And when a realtor writes that the USVI market is "driven by different factors than the mainland" that again is a realtors biased opinion, and may be poor advice. If over 50% of USVI real estate buyers come from the mainland their financial situation would have a direct bearing on what they can and can't afford to buy. Real estate investors should use common sense, get accurate market data from the past say 3 months, and take a realtors opinion for what is or is not worth. This message board is a great tool for sharing information, but it also allows enormous potential for manipulation. In my humble opinion realtors who post to these message boards should state the fact they are realtors in EVERY post and back up their opinions with facts and current MLS market data.
The increase in prices on STX has been driven largely by baby-boomers buying vacation and retirement homes. They are not the primary force behind the change in the mainland market. It's not just my opinion, it's factual data.
The statement that the market is very hot isn't just an opinion. It's also based on simple factual data available to all. The inventory on the market has been cut in half in the past eighteen months and the prices have ridden according to the new supply/demand ratio. The best new listings are selling within 1-7 days instead of lingering on the market for months or longer as they were doing a couple of years back. Not opinion, simple fact.
The MLS market data is supplied frequently and on-going. It is also available by request as it is needed. It doesn't ALL have to be supplied in each and every post. Wow, would that be boring!
People who are afraid to post their identities while blasting others and claiming they have an ulterior motive are clearly the ones with the ulterior motive!
Promoguy - yes, actually selling the same house for more $$ today usually does cost more than selling it for less a couple years ago. Sellers with houses priced in the lower ranges have different marketing expectations of their listing agents than sellers with pricier offerings. The ads are more numerous and larger and perhaps in color, there may be informational packets given out to all agents who tour or show a property and possibly delivered to each brokerage for a new, upper tier listing. Sometimes you need to advertise in different ways and means to locate buyers in a different demographic group than you normally market to, which means an additional cost and use of time and resources. Listing agents are often present at all showings for higher priced houses rather than just giving the buyer's agent a key to go show the house on their own. There are lots of additional ways that costs and time consumption go up as prices go up. Good question, though!
OK, I'll jump in too. I'm going to make some generalizations. Please realize that these are simply my experiences and opinions and that they mostly relate to real estate in the States. If you are a realtor please read this post to the end because I do have a positive (pro-realtor) story in here somewhere.
As the public has ever-increasing access to listings, it seems that there is less for a realtor to do. In the past, when you were ready to look for a property you called your realtor, who learned about your needs and prepared lists of possibilities. The realtor had to do some work. Now many buyers come to realtors with MLS printouts in hand, simply requesting appointments for viewing. First-time buyers probably need more hand-holding, but people who've bought before probably don't require that much.
These days, prospective buyers have unprecedented access to information on properties that are for sale. A realtor is necessary to arrange a showing, but I'm unclear on what other labors are involved. Filling out an offer form? I suppose the hours can be bad, but it seems like realtors have to do less work these days. I'm sure there are plenty of exceptions, but I believe my opinion to be a reasonable deduction and a fair generalization.
The VI market is different in that it can be hard to do an independent drive-by (speaking as a buyer) because of the lack of street signs and such. Here in the USVI there is probably more work that has to be done by realtors. Realtors may also be essential if you are buying a property from afar.
All in all, though, being a realtor seems like a pretty good gig. Guess that's why there are so many realtors. Too many, I guess-- that makes it harder for any given realtor to make a good living at it.
A personal story: I sold my home in the states before moving. I chose a realtor and when I was ready for her to put the place on MLS she was out of town and wanted to wait a week until she returned. I insisted that it be put in before then. She had told me that a partner could cover for her when out of town so my expectation was that her absence should not be a problem for me. Meanwhile, I was anxious to get started so I posted an ad on Craig's list. Within two days I had a more than full price offer from a buyer in California who saw my ad on Craig's list--before the MLS listing even came out. He bought the place. Unfortunately I had already signed the listing agreement. Did my agent take her commission? Yep. A boatload of money for typing an entry into MLS. The remainder of the entire transaction was accomplished between me and the buyer's agent. It was particularly crummy because she was the wife of a friend, and that friend is very wealthy (ie, it's not like she "needed" the money, although I realize that's a very presumptive statement). I didn't complain or say anything about it to her because after all, I did sign the agreement. It was her legal right.
I sold my previous house by owner. Stuck a "for sale" sign in front and sold it to a rich young guy who drove by and stopped. No realtor on either end. Nice easy transaction. Saved $42,000 in commissions. I hear realtors say that if you are selling by owner, realtors won't want to show your property. I did not find that to be the case. In this instance, I did let realtors know that I would pay a 3% commission to buyer's agents. I did have showings other than the drive-by buyer.
OK, now for a pro-realtor story. Four or five years ago I decided it was time to buy some property here on STT. I used a realtor, even though I was well-versed on essentially every listed property. She earned her money: she knew of a fabulous lot that wasn't on MLS but might be available. So in this case, I wouldn't have been able to buy the wonderful property because it wasn't listed. That was indeed a valuable service. BTW, the commission for unimproved property is 10% rather than 6% (correct me if I'm wrong, Alexandra). I guess that's because land is cheaper than houses. Just think about 10% when you see the prices of land in Peterborg, Mahogany Run, or anywhere on STJ. Kinda makes you want to be a realtor, doesn't it? 🙂
Of course, local market conditions and the value of your property can also influence whether a realtor will be worth the money. And again-- I realize that buying and selling real estate on a far away island is a different thing than buying a home in the States.
These are just my experiences and thoughts. Your mileage may vary.
Alexandra said: "as the cost of living goes up, Realtors salaries go up commensurate with the increase in the housing market, which is one of the largest components in cost of living"
STXBob replies: Yes, but a broker's cost of living is the same as everybody else's. The cost of living has not doubled recently, nor has the cost of selling a house. Really, you're charging whatever the market will bear, and there's nothing wrong with that. Since the market is so hot, sellers should be demanding lower fees, and competitive brokers should be offering them.
Common Sense, you don't have a clue to what you are talking about. Don't complain because you can't play in the sandbox.
Everyone shouldn't be tripping over the pennies one may have to pay a realtor, and forget the DOLLARS you are making in real estate in the VI. If you feel it is not fair...RENT! You can't pick on just realtors in the buying and selling process, and Alexandra easily EARNS her commission. Hmmmm... when was the last time anyone complained about the attorney fees in these real estate deals? Seller's attorney, buyer's attorney, and lender's attorney... how much does that add up to? BTW, did you know the mortgage broker is making far more money per deal than most realtors? Look for the YSP POC on your HUD1 statements.
Alexandra... don't forget what my mother told me!
Less work? I wish! I work 7 days a week all year around, holidays included, and all hours of the day and night, whatever is needed. Buyers I work with can attest that they get emails from me at 2 AM and 3 AM with photos and listings, etc. There aren't enough hours in the day to do all the various things that should be done to assist buyers and sellers with their real estate transactions. Not all Realtors do everything I do or work the kinds of hours I work, but if they do much volume in their business at all they will be working full time hours at least. In some ways I pity mainland Realtors. The market is much more competitive in metroplitan areas where there are literally thousands of Realtors. Much of the work mainland Realtors are obliged to do is to market heavily to make a place for themselves in an overcrowded industry. It's not only time consuming, but also emotionally exhausting. I used to be in the thick of that. I have LOTS more fun as a Realtor here! And the buyers and sellers are so much more excited and enthusiastic. Each story is compelling to hear. I love my job. Because it's not just a job, it's truly an adventure every day.
Being a Realtor in the islands is quite different from being a Realtor on the mainland. There are a lot more services necessary here since so many of the buyers are thousands of miles away. It's not just a sales job, it's a relocation service, as well. If the additional services aren't made available to the buyers, many of them get cold feet about making such a monumental relocation and would not purchase a home here. That would make it much tougher for a seller to find a buyer for his property. Sellers may pay commissions thinking that what they're paying the Realtor for is just to get their property sold, but it's more complex than that. In order to get it sold, the reality is that Realtors are wise to go far beyond what is traditionally done by Realtors on the mainland.
It is far more complex and prone to failure for mainland buyers to try to purchase property in the islands entirely on their own. Buyers who are thousands of miles away need eyes and ears on the island to check things out for them in a hurry when new listings come on the market. A Realtor can do that if you don't have friends or family on-island who are able to jump to help you out on a moment's notice. Many buyers come to the islands for just a few days on a weekend trip and wouldn't be able to arrange to see all the properties they want to see without a Realtor setting up their tour. The purchase process includes a few oddities that you don't come across in mainland transactions and buyers could be caught unawares in the midst of a transaction if they didn't have someone educating them on the variations in the process. There are undoubtedly cases where mainland buyers have managed to locate and purchase property without the assistance of a Realtor, but those are the exception and are not necessarily situations that other mainland buyers could easily emulate. Some women give birth in the wilds without a doctor or anyone else to help, but that's not advisable for the mainstream pregnant woman. Going it alone doesn't generally save the buyer a penny and it does add a lot more stress and effort. It may save the seller some $$ to sell FSBO, but it's hard to be sure what price a property might have sold for had it been marketed through a Realtor. Sometimes it does make a difference. Many sellers truly wouldn't have a clue how to go about selling their property on their own. Others have the skills to handle it just fine.
Jules is right that in some cases a property owner can easily sell his own property and pocket the realty fees. Some locations are so hot at a given point in time that even people who don't want to sell have hopeful buyers knocking on their door begging to make an offer. Other areas and times are not as amenable to an easy sale when Realtors are not involved in the marketing. Hopefully owners selling FSBO have the information available to do a good market analysis on their own and price the property at market value and not undervalue the asset as some sellers can do in a rapidly rising market. Realtors tend to be up on the very latest realities of price movement in the local market. The general public more often is less on top of the data since the average person doesn't sell or buy real estate with any great frequency.
Jules - The commission rate for undeveloped land tops out around 10%, but many of the higher priced pieces of acreage are listed at a much lower commission rate. In many markets, any property (land/condo/house/mobile home) priced under $100K is charged a 10% commission. It just isn't worth it to agents to market a property if they are only getting a thousand or less each in commission after lots of work and advertising expense. For properties over a million dollars, a tiered commission structure is often used, with one percentage rate paid on a portion of the total sale price and a lower percentage paid on the balance. I've seen some listings that simply paid 4% to 6% on the total for large pieces of vacant land. Even with houses, once the prices go up over a million it isn't at all uncommon for the total commission percentage to drop significantly. We don't have nearly as many of those types of houses on STX as are on STT and STJ.
Your experience with finding an unlisted property through a Realtor is not all that uncommon. I have a few pocket listings for properties that sellers aren't ready to have publically listed in the MLS just yet. Some of them will sell before the seller is able to allow them to be put in the MLS and others may eventually be openly listed someday. A divorce in progress is one example of a situation where a property might be held as a pocket listing until the settlement is finalized. A plat development in process is another.
Sorry to hear about your Craig's List frustration story. For the agent to take the commission was somewhat questionable if the listing wasn't even active yet and she had done nothing whatsoever. C'est la vie. There are other times a seller refuses to negotiate with a buyer who makes a reasonable offer and then sells privately for less money right after a listing expires. They figure they come out ahead if they don't pay a commission, but it's not always done ethically.
You're right about the cost of living not rising as fast as the real estate market, but you're still tripping on pennies. Alexandra is not "charging what the market will bear" or she could command a higher than 6% fee. Her "Industry" works on a 6-7% commission and has for years, and she didn't set that standard. How is a seller in the VI "demanding lower fees" going to get them competitive brokers, when everyone else is happy to pay 6% to cash in on their windfall. When was the last time you had Ditech give a $395.00 flat fee loan to ANYONE in the VI? The stateside market you can apply that to is NOT the VI market, at least not at this time.
Uhoh, Ed, now you went and done it! That's quite a target you just painted on your backside! lol
Since commissions are ostensibly paid by the seller and mortgage fees are paid by the buyer, Realtors are the more common target. The truth is that the buyer pays for everything. If the buyer wasn't coming up with the cash or getting a mortgage for the purchase, there wouldn't be any $$ to pay all those line items on the settlement statement. If the seller acts as his own listing agent (FSBO), then the seller pockets the realty fees as well as the residual balance after all else is paid.
Actually Ed, in my first response I stated clearly that I do discount my commission rate for repeat buyers/sellers. It's a business decision that is done on a case by case basis. No commission rates are written in stone, although some brokerages have an in-house policy that makes it extremely rare that they deviate from what is pretty much standard/average.
Some realators probably are over paid. Some earn all of their money.
I have mentioned this before in other posts, but I will again.
When first looking into buying on STX from the mainland, many of the realators that would EVEN answer my emails,( some never did answer) they would only answer a couple of questions, and only wanted to set an appointment. I had an appointment with a realator that stopped returning my email questions when I got an email from a really interested realator. Another realator who didn't want to be bothered with a small $100K sale, gave the interested realator my info. This new realator answered ALL of my questions about many different properties, sometimes even on Sundays.
I finally asked for an appointment the day after the first appointment. I wanted someone who I felt comfortable with, in case I didn't find what I wanted on my first trip. I wanted to make sure that we were on the same wavelenght, so I wouldn't waste my time comming back to look at something that I wouldn't want.
After telling the second realator that I had a first appointment. I was told that I should just deal with the first agent, as she didn't want to be accused of stealing another's client. Since the first realator STILL wouldn't answer ongoing questions, I cancelled the first appointment, and went with the second realator who asnwered everything.
We found the condo we wanted, the realator helped guide us through the process ( she actually handled it all ), since it is a little different than on the mainland.
After the sale was over, and she had recieved her money, she STILL was helping us. She did the legwork in changing out the power, she let in tile guys to give me an estimate, for when we came back the workman would be ready to start, and she even went and tried to close the storm shutters. They were left open, and it took several days of soaking them with WD40 to get them to close.
I don't regret for a moment the commision that ALEXANDRA recieved in the purchase of our condo. She deserved every dollar. When we get ready to upgrade into a house, she WILL be the one I deal with!
Unless I missed it in this discussion, I found no comments about the percent of the sellers "profit" a Realtor receives.
Lets say you bought a house for $400,000 and sold that house two years later for $450,000. That would be a nice 12.5% profit. (normal for most real estate years). My real estate agent would get 6% or $27000. I would get only $23000 profit on my sale. I maintained the house and did the work and the agent skimmed my profit.
I have always contended that real estate agents should participate in the sellers profit and not skim the cream off the top. A percentage of the profits seems fair to me.
Right now in the states there are buyers of three year old homes who cannot sell because the pay off and the real estate commission are more than the value of their home. They must sell it themselves to cut their loses.
Thats not right.