Selling a home is a significant financial decision, and homeowners want to maximize their profits when they sell their property. One of the most significant decisions homeowners make when selling their home is whether to use a realtor and, if so, how much commission to pay them. While some homeowners may try to save money by paying a lower commission or selling their home themselves, research has shown that paying a higher commission to a realtor can often result in a higher selling price and net the homeowner more money in the end.
One reason that paying a higher commission can be beneficial is that it can attract more realtors and buyers to the property. When a realtor lists a property for sale, they typically offer a commission to other realtors who bring a buyer to the property. The higher the commission offered, the more attractive the property is to other realtors who are more likely to show it to their clients. Additionally, buyers may be more willing to offer a higher price on a property if they know that the seller has hired a reputable realtor and is willing to pay a higher commission.
Another reason to pay a higher commission is that it can incentivize realtors to work harder to sell the property. When a realtor is offered a higher commission, they are more likely to put in extra effort to market and sell the property. This can include advertising the property more aggressively, hosting more open houses, and putting in extra time and effort to find the right buyer.
A study conducted by the National Bureau of Economic Research found that properties listed with higher commission rates sold for higher prices than those listed with lower commission rates. The study analyzed data from the Multiple Listing Service (MLS) in Madison, Wisconsin, and found that homes listed with a 6% commission rate sold for 2.5% more than homes listed with a 5% commission rate.
Another study conducted by the Stanford Graduate School of Business found that homeowners who paid a 6% commission rate to their realtor sold their homes for an average of 4.4% more than those who paid a 5% commission rate. The study also found that homes listed with a higher commission rate spent less time on the market.
Paying a higher commission to a realtor can net homeowners more money when selling their home. A higher commission can attract more realtors and buyers to the property, incentivize realtors to work harder to sell the property, and lead to a higher selling price. Homeowners should consider the potential benefits of paying a higher commission when selecting a realtor to help them sell their home.
References:
Barron, J. M., & Staten, M. E. (2003). The impact of buyer brokerage on home selling prices. Journal of Real Estate Research, 25(2), 103-121.
Do, Q., & Panle Jia Barwick, P. (2019). The Impact of Commission Structures on the Outcome of Real Estate Auctions: Evidence from Residential Properties in North Carolina. National Bureau of Economic Research.
Papanikolaou, D., & Tsoutsoura, M. (2014). Real Estate Broker Commissions and the Sale Price of Residential Properties. Stanford Graduate School of Business.