When you're referred to an agent:
Agents often pay a large fee when they are referred to a homeowner who is going to sell their home.
The agent pays this fee from the listing commission they charge the seller. For this arrangement to be profitable, he or she can't afford to offer the homeowner a lower commission rate.
This is going to cost you a lot of money:
You’ve decided to sell and informed your aunt Liz. She's a real estate agent from another part of the country. She tells you she has an agent friend that works in your town. Liz is rather insistent that she has her friend get in touch with you. Because Liz is offering help, you’ll feel obligated to list your home with her friend.
Liz failed to mention that she will be getting 25 to 30% of the listing commission for referring her friend to you. Also, if you use her agent to help buy your next home, Liz will be getting a similar fee on that sale too!
Since your listing agent must surrender a large chunk of the commission in the form of a referral fee to Liz, your listing agent won't have any fat left to give you a discount when he or she lists your home. Effectively, you just gave Aunt Liz a large sum of your money.
Liz’s new friend:
Liz doesn’t have to live close or even be related to you. Actually she could be living on the other side of the country and she’ll still get this referral fee. Usually she doesn't even know a real estate agent in your area. All she has to do though, is contact a local real estate company and ask an agent there if he or she would be willing to pay the usual referral fee to be "referred" to a homeowner who is going to sell their home. Agents do not turn away business when it’s dropped in their lap.
The next thing you know, you get a call from an agent who says, “I was talking to Liz and she really wants me to make sure your home gets sold.”
This referral practice is prevalent throughout the industry. The amounts involved in a single referral payment can be staggering and indicate that commissions are too high to begin with. Be leery if you get a call like this from an agent out of the blue. You may not even know they were referred to you.
Select an agent who is not paying a referral fee to represent you. This will help you get a good discount. If you're thinking of calling the agent who sold you your home, OK. But if that agent only represents buyers (which some do), they're refer you to a listing agent. Your old agent is going to get a referral fee and guess who's paying for it?
Retired agents can keep their real estate license and discretely maintain a relationship with a real estate company as a “referral agent.”
Although they do not appear outwardly active in the business, they too can get a large cut of the commission by referring hot listing prospects and potential home buyers to active agents. You could receive a phone call from an agent who says, “I was talking to your good friend Marge and she said you were considering moving.”
When your house is sold, the referral fee usually doesn’t show separately in your closing statement and you will be totally unaware that you just forfeited a potential discount on the commission to your old friend, Marge.
There are internet companies that are in the business of referring prospective buyers and sellers to real estate agents. Most agents will pay a large fee to these referral companies in order to be given a hot real estate prospect.
This referral concept has exploded due to the internet. As an example, some housing web sites request you fill out a questionaire or offer you a free appraisal of your home if you fill out an info form. They will then forward this information to a real estate agent serving your area who will give you a "free" market appraisal of your home with the hope of becoming your listing agent. If the agent can help you sell or even buy a house, the referral company will receive a nice fee.
Why are commissions high?
These are examples of why commissions are so high. These referral people and entities do not add any value to a sale. Instead, they are siphoning off chunks of the commission (profit from your home sale). In doing so, there’s no fat left for an agent to offer you a better rate.
Avoid this situation by interviewing several candidates so that you're charged a fair rate.
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