Springfield, MO Real Estate: The true cost of Realtor commissions.

Realtor commissions take $90 billion dollars out of the equity of home sellers every single year.  Since the commissions usually come out of the seller’s proceeds from the sale buyers assume that they don't have to pay anything.  But, make no mistake, the buyer pays for that commission too in the form of a higher sales price than could otherwise have been negotiated if there were no commission involved.  The reality is that every single property listed by a full price or even “discount” real estate broker has a price that is either inflated to cover a commission or the seller has less negotiating flexibility because of the commission.  In other words, every seller who pays a commission to an agent to sell their home passes the cost of that commission on to the buyer in the form of a higher sales price!  Need an example?

Let’s say I’m selling my home and need or want to net $235,000 from the sale.  I can sell the home “by owner” for $235,000 and net $235,000 since I don’t have to pay a commission.  If I hire an agent to sell my home for me I will have to ask $250,000 to net $235,000 since the agent will likely charge a 6% commission ($15,000).  If a buyer buys my home through the agent at $250,000 they will have paid $15,000 more than I would have otherwise taken had I sold the home “by owner.”  Essentially, the buyer overpaid for my home by $15,000.  Agent commissions always result in higher sales prices than could otherwise have been negotiated.  But, the worst is yet to come for the buyer! 

If the buyer bought my home with a 30 year 6.5% mortgage, it will take 57 principal and interest payments of $1,580.17 before the mortgage principal has reduced $15,000!  That means the true cost of the commission to the buyer was not $15,000, but was really $90,069.69!!!  That is the true cost of an agent’s 6% commission.  Here are examples of the true cost of commissions on several price ranges of homes: 

Sales Price       6% Commission            Monthly Payment          True Commission Cost
                          In Dollars               (30 yr mtg @ 6.5%)   

$50,000                 $3,000                         $316.03                         $18,013

$100,000              $6,000                          $632.07                         $36,027.99

$150,000              $9,000                          $948.10                         $54,041.70

$200,000              $12,000                        $1,264.14                      $72,055.98

$250,000              $15,000                        $1,580.17                      $90,069.69

$300,000              $18,000                        $1,896.20                      $108,083.40

$400,000              $24,000                        $2,528.27                      $144,111.39

$500,000              $30,000                        $3,160.34                      $180,139.38

If you want the best deals in real estate , period, and don't want to pay any kind of commission or the gigantic interest payments associated with that commission, shop 'by owner' homes first !