Why Your Real Estate Agent's Incentives May Not Be Aligned With Your Incentives

Uncertain whether to accept an offer for the sale of your home or keep your home on the market to get a higher price?

This is often the most difficult question to answer when selling your home. To make matters worse, your real estate agent is incentivized to push you to accept a low offer even if they could get you a higher sale price with a bit more work.

Why is that the case? Well, your real estate agent earns a commission on the sale price of your house (often 2.5% to 6% depending on the location and whether the real estate agent just represents you or represents both you and the buyer).

If you believe the true value of your home is $1,100,000 but you accept an offer for $1,050,000 your real estate agent might earn $26,250 (2.5% of $1,050,000).

In contrast, a real estate agent who has your best interests in mind might offer to work even harder to find a buyer to buy your home for $1,100,000 but by doing so would only earn an additional $1,250 (2.5% of the $50,000 higher purchase price).

Many real estate agents might be tempted to encourage the home seller to instead accept the offer of $1,050,000 because on an hourly basis they would be earning far less working an additional twenty hours to possibly obtain a sale price of $1,100,000 (only $1,250 more) than encourage the home seller to accept the $1,050,000 low ball offer and then moving on to the next client to get another 2.5% commission on the full sale price of a million dollar home.

This is particularly the case given that the real estate agent would not only be spending more time but also likely more  money on advertising to get the optimal sales price of $1,100,000.

And to top things off, there is the risk that even after the additional work and expenditures the real estate agent might not find a buyer that is willing to pay $1,100,000 for the purchase of the home. 

It is, therefore, crucial that you work with a real estate agent who is going to keep your best interests in mind to help you get the best purchase price for your home instead of accepting a low offer.

Do a gut check: Is your real estate agent likely to accept a lower offer so they can move on to the next deal to earn the 2.5% commission on the full purchase price on the sale of another home? Or will they make every effort to help you squeeze out another $10,000 or $20,000 to make sure you get the top price for your home?

As a home seller, you should also take a real estate agent's advise as to whether accept an offer with a grain or two of salt. Is it really a good idea to accept the offer? Or should you work with a different real estate agent who is willing to work twice as hard to make sure you get the top purchase price for your home?

Need help with the sale of your home? Give us a call at (415) 295-6370. We will put in as much time and hard work to make sure you get the highest possible sale price of your home.