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Try a red-hot commission instead of burning your property in a fire sale

February 2, 2015

 

It seems as natural as gravity. To sell a property quickly, cut your price. To get a property that has languished for years back in the game, cut your price.

To make sure your property is noticed first, as the market picks up, cut your price. To express real desire to sell a property, now, cut your price… a lot!

It is hard to argue with a tactic that works time and again, but the equity that can go up in smoke, especially in “fire sales,” is a price sellers may not need to pay so easily. Not to mention lowering the price of your property as the very first tactic to get it moving surrenders potential net proceeds you likely will never get back again.

Lowering prices for buyers is only one approach to attracting attention to your property. Another involves using the realtor’s natural instinct to seek the highest possible rewards for their services. Substantially increasing the real estate commission provides the ideal incentive for realtors to notice your property on the market more quickly, bring clients they have in hand right away, and move to close the sale as fast as possible. In almost every case the increased cost of the realtor commission pays for itself in disproportionally higher net proceeds at the closing.

Just look at this example:

Suppose your property compares favorably in its area and is reliably expected to sell for $200,000. You have it listed with a five percent commission, which will cost you $10,000 at closing. Net proceeds equal $190,000 before closing costs.

Unfortunately your time is short and you need to sell now, so the conventional wisdom would be to cut the price at least 10 percent to be noticed. If that worked, you would accept an offer of $180,000 and pay $9,000 in commission at closing. Net proceeds come to $171,000, before closing costs.

Now consider that if you were willing to raise the commission instead of lowering the price, you could offer 10 percent at $200,000, and the net proceeds would still be better than cutting the price. At that rate, the commission would look huge at $20,000, but net proceeds would be $180,000, before closing costs. Plus you would have most realtors in your market area clamoring to sell your property. And that is exactly what you want – realtors fighting for the chance to sell your property because of the size of their payday when it closes.

We all understand the model of supply and demand, coming together at an agreeable price for an item. However, as a property seller, you can use a realtor’s income motivation to move the intersection of supply and demand to where net proceeds are maximized for you.

Don’t be afraid to invest more in the real estate commission. It could be the smartest sales cost you ever paid.

Allen Lungo is an 11-year resident of Costa Rica, founder of the Summerland Group, which includes Costa Rica Real Estate Store, Vacation Rentals of Tamarindo and Summerland Property Management, and he currently serves as president of the Costa Rica Global Association of Realtors (CRGAR).

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