The Scam of the 1%

Have you heard that you can sell your home with an agent for 1% of the sale price? Have you also read the fine print? There may be some information that has been left out about the reality and true nature of these listings…

Before you sign with a 1% brokerage, you need to understand what you’re actually paying for, what you will be paying for in addition to the 1%, and how it may cost you even more in time.

You Get What You Pay For

Traditionally, the seller will pay ~6%* in commission of the sale price of their house, with a commission split between the Buyer’s and Seller’s agents. From that ‘future’ commission, the listing agent will pay for all the necessary marketing such as professional photos, flyers, the open house, listing on the MLS, house cleaning, etc. If the house doesn’t sell, the agent has spent money they will never receive back. It is the nature of the industry.

No Extra Services. Read the fine print! When you pay 1% commission, you are only paying for an agent to list it on the MLS and anything else needed for the sale of the home is extra, including the other agent’s compensation, which is required to allow a home to be placed on the MLS.

You will get what you pay for. Other than no extra services, there will also be no guidance from your agent. You will essentially be on your own in making decisions. The 1% you pay is simply to list on the MLS.

The buyer, on the other hand, will still need representation that YOU will be offering compensation to. It is a requirement to offer compensation to the buyer’s agent if home is listed on the MLS. The commission offered had better be a minimum of 2.5% or the agent will not be incentivized to bring their client to your home.

So really, you are already paying 3.5%, and you have no one with your best interests at heart.

You Eventually Pay For More Than 1%

Let us give an example. If your home is going to list for $500,000, you’re paying the 1% commission of $5,000 to the listing agent. –– Again, that will only include the listing pn the MLS online.

All flyers, marketing, open houses and signage will be your responsibility. Those will come out of your pocket and you will need to do the research on finding the services.

Oh, but there’s MORE!

[not so] Fun Fact: If a family falls in love with your home, their agent is going to expect to be paid their earned due commission. The buyer’s agent will demand in the negotiations that a fee be paid to them from the sellers. For a $500,000 house, that will cost $12,500 from the sellers, on top of the $5,000 they are already paying to the listing agent.

Paying only 1% of the sale price of your home is not accurate or realistic! (more on this later)

It Takes Longer To Sell Your Home

Houses sold with less than 2.5% offered to the buyer’s agent take longer to sell, if they sell at all. Many of these homes end up expired listings with zero interest. The buyer’s perception at that point - ‘There must be something wrong with that home’.

Less traffic in your home. The listing agent may promote that they can sell faster with their online advertising, but they are really doing nothing for the 1%. It gets thrown out to syndicated sites. They will tell you its on hundreds of other sites, like Zillow and Trulia, but that is simply a defaulted suggestion when entering it in the MLS. Selling your home actually comes down to buyers finding the property and the buyer’s agents showing your home to the potential clients.

Here’s a question:

With so many homes on the market, why would a buyer’s agent show your home to their clients if they won’t be earning their full commission?

When a buyer’s agent finds a home for their clients, they typically receive a minimum of 2.5% commission (coming from the sellers end). Often when they do a search for homes, they only bring their clients to listings that will give them that 2.5% commission (or higher!!). An agent is going to be less likely to show a home knowing they will not be receiving their expected commission rate from the sale. (As discussed previously, yes, they will still fight for the commission, it’s just more unwanted work on their end).

It is also a requirement of the entry of the property into the MLS to identify the type of listing the home is under. Many agents will not show or direct clients to a listing that is anything less than ‘Full Service’. Why? Because all the liability and the paperwork fall on that buyer’s agent. They end up working both sides of the transaction with none of the typical support provided by the listing agent in negotiations, repair requests, contingency removals, etc.

Small advertising budget. A 1% broker is simply listing your home. They may help you promote an open house that YOU want to hold on the MLS. However, an agent receiving a reasonable and expected commission will put in the time, through advertising and social media, to ensure potential home buyers will be walking through their listing. Studies show it will sell faster!

Is it really worth the time to list for 1%? For many, the 1% listing is actually too high a cost.

Discount Brokerages Are No New Trend

Brokerages offering a discount have been around. What’s important to note is they are misusing the word “discount” and deceiving people, time and again. A true discount is the same service for less money. However, these discount brokerages are not offering the same services as a “Full Service” brokerage. They are more so offering a “limited service” for less money.

When looking for a listing agent, determine whether you are looking for a good price or a good value.

Perhaps “scam” as used in the title is too strong of a word. We simply want you to understand the strong downsides of listing with a 1% brokerage, versus the high upsides of listing with a traditional, full service brokerage. If you’d like to know more information about what One Realty Group offers in their listing package, please don’t hesitate to contact us! We would love to explain our listing process and the value of what we offer you.

*Please note that all discussions of commissions and splits are hypothetical and are for educational purposes only.