Real Estate Commission: 4% vs 5% vs 6%

[Michael Archard]

I have always offered 4% agent commission on the sales of my flips and personal residences (7 deals and counting) and have been able to get over asking price on 5 out of the 7. I have been told by a few real estate agents that offering a higher commission (i.e., 5-6%) will result in a higher sale price, and pay back the increased commission and then some. I have even seen some data that tries to support this, but the data was supplied by an agent and was not normalized by property value or asking price (the higher priced homes tended to have the higher commissions offered). 

I'd like to hear from both agents and non-agents to hear what proof may be out there to justify this strategy, or is this simply a ploy used by agents to make a few more bucks?

Thanks,
Mike 

[Charlie MacPherson]

@Michael Archard I have never heard of any correlation between commissions offered and sale price.  Honestly, it sounds like self-serving BS.

I think there may be one between abnormally high and low commissions and number of showings.  Whether that correlates with sales price remains to be proven.

Let's say that the prevailing commissions are X%.  I strongly suspect that offering 2% less than X% will result in agents being reluctant to show the listing.  Likewise, I strongly suspect offering 2% above X% will incentivize agents to show.

A better way to incentivize agents is to offer a bonus.  When I sold my last personal home in Massachusetts, I already had written a contract on our new home in Maine.  I needed to generate activity fast, so I offered a $1,000 cash bonus (paid at closing) if the property was under contract by a particular date.

When I was selling residential real estate, I made it a practice to not look at commissions when recommending properties to buyers.  If I based my decisions on what I'd make, I'd be violating my fiduciary duties to my client.  However, I also protected myself with a buyer's broker agreement which stipulated that I was to be paid a minimum of $X,XXX or Y%.  If the seller was offering less, the buyer was responsible for making up the difference.