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Real Estate Agents EXPOSED - Volume 1 - The Increasing Commission Rate

Real Estate Agents EXPOSED - Volume 1 - The Increasing Commission Rate

I've been in the Real Estate industry for over a decade now. I've seen agents come and go, time and time again. Some good, some not. One thing that has been a constant, has been some of the tactics used by agents to get clients that are less than honest and upfront. It's my hope that through this series of blogs, you the reader will be better equipped to ensure that your agent is doing what's right for you!

Real Estate Agents EXPOSED - Volume 1 - The Increasing Commission Rate

Here's the scenario : A seller wants to list their home for sale in what appears to be a hot market. The seller either requests, or the agent offers a "discounted commission for the first several weeks of the listing" with it increasing up to their standard rate after a certain number of weeks on the market. I.E. if it sells in:

  • the first 2 weeks the commission is - 3%
  • in 2-4 weeks the commission is - 4%
  • after 4 weeks the commission is - 5%

It would appear at first glance that if the house sells quickly and was less work for the agent, they would have less expenses and those savings would be passed on to the home owner. So why is this a problem? The reasoning is predicated on an assumption. That the house will sell with little to no involvement of the agent. If the agent has to do any work then this arrangement is a disincentive for the agent to sell the home quickly. Why would the agent invest any money or time in the first 4 weeks to get the home sold? Instead, they wait, and the home sits.

Further, this structure often causes incorrect pricing at the beginning of the listing process as the agent has no incentive to help the home owner price the property correctly. For example, the home owner may want to list his property for $250,000 while all the neighbourhood comparables show a list price of $220,000. If the commission structure above is being offered, the agent would rarely take the time to explain why listing at $220,000 is the best course of action. Instead, they list the property too high and for a discounted rate, then let time pass. By the 4th week the commission rate has risen to 5% and the home owner will likely reduce the price to $225,000 at that time as the home will not likely have sold.

What's a better option? Look for a straight shooter, rather than hokey offerings. Agree on the rate and the marketing plan up front. If the house sells quickly terrific. If it doesn't, then that's the risk the agent takes with the associated expenses that occur month after month.

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