Commission - shouldn't it be based on EQUITY? (RE market, incentive, agent)

[Grass Is Greener]

Not trying to change the world here but I keep wondering how fair it is for the commission to be based on the SALE price instead of the EQUITY you have on the home.

Imagine you are selling your house for $500K but you have only $100K equity in it. This means you're paying $25K (5%) commission on a sale that you received $100K, which makes it a 25% commission!!

[sweetana3]

I think you are making a common mistake. You paid $500,000 for the house cash. THis is one transaction. This is the hopefully fair market value of the asset.

You did not have all the money you needed so you asked someone else (bank) to use some of their money for awhile (mortgage). Some people don't need to use anyone else's money or only need some. This is really a different transaction than the contract for the purchase of the home.

When you sell it, the proceeds will go to you and eventually to the bank to pay off the debt, however much it is.

It shows up on the same statement because the other person (bank) has protected themselves with a lien on the property. If they did not, the check would go to you to use for whatever you want to do with it.

So these are two separate transactions. The agent is selling a $500,000 house whether you owe nothing or $500,000 on it and have to make up the difference.

[NewToCA]

If based upon equity, and you bought it with little down and the market is stagnant to negative appreciation, would you set a threshold payment for the agents? If little or no equity, what would this threshold be?

[olecapt]

Originally Posted by Grass Is Greener

Not trying to change the world here but I keep wondering how fair it is for the commission to be based on the SALE price instead of the EQUITY you have on the home.

Imagine you are selling your house for $500K but you have only $100K equity in it. This means you're paying $25K (5%) commission on a sale that you received $100K, which makes it a 25% commission!!

Nothing magical about a percentage of sale price. I will take a lump sum...or a percentage of equity...it will all come out to about the same number of dollars however.

We RE Agents are after the dollars. The particular convention chosen is not important as long as the dollars are right.

Now if you are suggesting we should take less dollars if equity is low the question would be why? The equity you have has no bearing on the job to be done.

[MJinNC]

Originally Posted by olecapt

Nothing magical about a percentage of sale price. I will take a lump sum...or a percentage of equity...it will all come out to about the same number of dollars however.

We RE Agents are after the dollars. The particular convention chosen is not important as long as the dollars are right.

Now if you are suggesting we should take less dollars if equity is low the question would be why? The equity you have has no bearing on the job to be done.

Doesnt it make you sick sometimes to hear how they justify their commission.

[magellan]

I agree with olecapt. Why should a family's financial wherewithal (how much they save, how much cash they have lying around, how much they want to put down) have anything to do with the amount of work it takes to sell the home? A $500K+ home will take more marketing dollars and know-how to sell generally than a $150K home, no matter how much principle the owner has.

The commission is already based on "sale price", so there is already incentive for the agent to get top dollar for your listing.

[Grass Is Greener]

I'm sure if i had posted this on a non-RE-Professionals forum i would get a much different response lol

In any case, I am not so sure if I agree with this statement:

A $500K+ home will take more marketing dollars and know-how to sell generally than a $150K home

I think a $150K sale could be fairly complicated in some cases. And a $500K house in perfect conditions in a great neighborhood could be relatively easy to sell.

[Mike Peterson]

Originally Posted by Grass Is Greener

Not trying to change the world here but I keep wondering how fair it is for the commission to be based on the SALE price instead of the EQUITY you have on the home.

Imagine you are selling your house for $500K but you have only $100K equity in it. This means you're paying $25K (5%) commission on a sale that you received $100K, which makes it a 25% commission!!

And if someone has $1000 in equity should we only take $50 in commission on a $500,000 house.

If you have 2 people with homes exactly the same, side by side, selling for the same price but one person paid cash and the other had 100% financing you think the person who paid cash should pay more in commission?
This does not make much sense.

[southernlady5464]

And what happens to the agent who is trying hard to sell a house with a NEGATIVE equity? Is that fair to them? To get nothing at all if it was based on equity and not on the sale price?

Get real people. Liz

[DawnW]

It should be a set amount $5,000 is more than plenty to sell a home.

We found a broker to sell our last home. We paid the buyer's agent 2.5% and our agent took 1.5%. For a $600,000 home I think that $24,000 is more than enough. I bet they spent 50 hours max on the paperwork for our home.

Dawn