We have heard from other Realtors that home sellers are constantly questioning the commission percentage being asked for when signing a listing agreement. The sellers often ask “why should I pay the same percentage for my $900,000 house that Joe is paying for his $250,000 house. The math looks tough: 6% (an average commission rate) for house A would be $54,000, while for the less expensive house, it would be $15,000. Why should the more expensive home cost more to sell? — That is the gist of the seller question…

The answer is not as straight forward as the question… Think about it: the market for the more expensive property is proportionally smaller, since far fewer buyers can afford such a house as compared to the $250,000 house. This means that to get to those buyers, more effort must be made, and the advertising costs are proportionately higher for the more elite magazines. Also, because the market has fewer buyers, it is likely that the ads will have to run for a more extended period of time, therefore also costing more. There is the expense of professional photography for the more expensive house, and staging costs. Additionally, a successful Realtor will have relatively higher overhead costs, such as this blog, web sites, print marketing materials, mailings, etc. that standard book keeping practices will allocate to the cost of sales for these properties based on marketing dollars. These expenses, and more, are part of the marketing of any house, but they cost more for more expensive properties.

I once had a sign in my office, back when I was an executive for a software development company. The sign read: “Bad planning on your part does not necessarily constitute an emergency on mine.” An unacceptable explanation for charging more to sell an expensive house would be that “because Realtors waste time with unqualified prospects, they have to cover the cost of these wasted endeavors by making more on the clients that do actually do business with them.” Hogwash! I can understand the rationale, but I don’t think that bad management on your part should constitute expense on mine. While your Realtor does have the right to try to make a living, their efficiency should not determine the cost of selling your house. The market should.

Market efficiency is such that for equal work and expense, and of course “value,” all parties should pay the same. That is a very summarized interpretation of what we know as the free market economy. In short, the answer is that it costs more to sell the more expensive house, both in cash outlay and in time. As a result, in order to average the same hourly income, and to cover the relevant costs, the fee is higher… makes sense, no?

However, if your Realtor does not operate efficiently, has little experience, and does not market the property in the same ways or at the same expense of other Realtors, and does not perform the other closing and related tasks that the true full service professional offers, why should they then be paid the same? The answer is they should not. There are “discount” services available, and should you, as the seller, wish to save money by performing some of the tasks and assuming some of the expenses, yourself, then you should be able to pay less.

But do not pay for inefficiency, unless it is inherent in the market.

Fortunately we do not hear this complaint from our listing clients. Perhaps the reason is that they see the results and the expense we go through to promote the property, to make sure the sale closes easily and painlessly, and to otherwise make the process as easy and efficient as possible.