Frequently Asked Questions (FAQ)
All our listings start at a 1% listing commission. There are several reasons we can charge you a significantly lower commission, but it’s really just simple math. In a traditional transaction, the seller likely pays a 6% total commission: 3% to the listing agent/broker and 3% to the agent/broker representing the buyer. Since the 3% to the buyer side of the transaction is consistent in both the Home Sense and traditional brokerage models, let’s just look at the other 3% that goes to the listing agent, because this is where the savings occur.
For example, let’s consider a home selling for $200,000. The listing broker commission is 3%, or $6,000. So the seller pays his broker/agent $6,000 to sell the home. But let’s see if the seller actually gets $6,000 worth of services.
Many real estate transactions involve a referral from another agent/broker. In exchange for the referral, the referring party usually receives 25% to 33% of the commission a broker normally receives on either side of the transaction. So, if the starting commission is 3% for the listing broker, when a referral is present, this commission effectively drops to approximately 2.2%.
By law, commissions are not paid directly to the agent working for the seller, but rather to the agent’s Principal Broker. Typically, the principal broker retains 40 to 60% of this commission (average 50%) on every home sold. The remaining 50% is paid to the agent who actually interacts with the seller, enters the listing on the MLS, shows the home, markets the home, handles the offers, etc. Since the seller typically only interacts with the agent and not the Principal Broker, the seller is frequently only getting half his/her money’s worth and paying the Principal Broker for unseen administrative and supervisory duties. So, the seller is effectively only getting 1.5% worth of services, not the full 3% worth. Now, what if a referral is present? That 1.5% drops to 1.1% and the seller is effectively getting $2,200 in service ($200,000 X 1.1%) from the agent.
What if the Principal Broker happens to be the same person as the agent? This is where Home Sense comes in. Home Sense is both agent and broker, so we do not charge twice for half the work. Now, we’re getting closer to the 1% Home Sense charges for seller representation, but let’s look at a few more factors.
Most real estate firms have large offices, often times to house most, if not all, of their agents. Typically, the only way a real estate firm makes money is from real estate transaction commissions (the traditional 3%). So, paying for that office space comes from the commissions. And what about office staff, regional marketing expenses, franchise fees, gourmet coffee for clients, etc.? Again, these expenses are paid from real estate sale commissions. When you don't have these expenses, you don't need the typical 3% commission model to be profitable.
Tradition and geography play an important role in average commission rates. In Canada, the average total commission per residential transaction is 3%. For the United Kingdom, this rate is 1.5%. But in the USA, rates hold fairly steady at 5.5 to 6%, but may range from 4% to 7%. It’s difficult to trace the origin of the 6% USA commission model, but it's been around for decades.
A typical real estate agent represents some buyers, and some sellers. To acquire either type of client, an agent normally conducts marketing efforts, which take time, cost money, and do not yield guaranteed results. And if an agent represents a buyer, much of their time consists of showing homes that the buyer does not buy. And what if the buyer or seller back out of an agency agreement after extensive involvement by the agent? This “lost time” is compensated for by charging a 3% commission model for those transactions that DO result in commission payment. So oftentimes, a transaction that DOES yield income to the agent/broker helps pay for the "lost" time from previous "dead end" transactions. Most business models use this approach and understand that not all leads will result in a sale and commission.
As you may hear, “Time is money.” So when a listing agent conducts several Open Houses for a given home, that effort and time are built into the commission as well. Most research indicates that Open Houses do not result in a quicker sale or higher sale price. Rather, Open Houses more often benefit the listing agent by attracting unrepresented buyers with whom the agent can court and offer a 3% commission service to in a separate transaction. If a house is priced right, it will sell within days because most agents who represent buyers are notified immediately when a new listing appears on the MLS, especially when it’s a home that fits certain buyer requirements. Motivated buyers will normally not wait for an Open House but rather visit the home as quickly as possible and when casually-interested parties are not present.
Finally, Home Sense also understands that, in most cases, a home sells itself. Buyers are savvy these days and will typically not buy a home because an agent has pressured them or exaggerated certain features. Buyers take their time, know what appeals to them, envision their furnishings being present in the home, and research nearby shopping, schools, and amenities before they submit an offer. If a seller’s home is staged correctly (Home Sense offers a $150 refund on professional home staging services) and priced correctly (Home Sense provides each seller with a market analysis and recommended asking price range), a home will sell itself. And when a home showing does occur, the owner typically is not present. So, we let the owner coordinate with the buyer agent when “conducting” home showings.
Home Sense is the broker and agent, does not require big offices or conduct Open Houses and home showings, is very innovative, lets the internet do the marketing, and only focuses on seller representation. We therefore trust our 1% commission is viewed as a fair, honest deal compared to the traditional 3% rate.
Your home will typically sell faster when you partner with a real estate agent instead of going it alone. Here are some statistics from The National Association of REALTORS.
- Only 9% of homes sales consist of For Sale by Owner (FSBO) transactions.
- 70% of FSBOs state they have difficulty selling their home.
Honestly, it is very possible that your home could sell for just as much using the FSBO approach compared to marketing your home on the MLS. And you could therefore pocket more money by not paying the typical 6% commission. However, the problem is the FSBO approach typically works well only in certain conditions, such as very small markets that do not attract out-of-town buyers, homes with very high traffic counts, or manufactured home parks. But your home will likely remain on the market longer because you are not exposing it to the network of REALTORS. Normally, an agent will not show an FSBO home to a prospective buyer because there is no commission structure present. This requires the agent to negotiate one with that specific seller, which takes time (time is money), and may not even be possible.
Yes. Home Sense will be your seller (listing) agent, and our commission is 1% of the sale price. But the buyer agent (the agent representing the prospective buyer) will require compensation as well. This is typically 2.5 to 3% of the sale price, depending on location and other factors. Advertising this commonly-acceptable rate preserves the incentive for buyer agents to want to show your home to prospective buyers, so your property gathers interest from as many prospects as possible. When Home Sense evaluates comparable sold listings for your home, we also review the buyer agent commission and recommend using this average rate for you home.
Certainly, any commission rate beyond the typical 3% would expect to attract more attention from buyer agents, and potentially result in more home showings. But that may not necessarily result in a quicker sale, as there are only a limited number of buyers looking for a home at any given time. Plus, an unreasonably high or low commission for the buyer's agent/broker may indicate something suspicious about your property. So, we require advertising a buyer agent commission of an industry standard 3%.
Currently, we serve all of Middle Tennessee, including the following counties:
Please contact us here for any other questions you may have.