Are San Francisco Realtor fees worth it? It depends on the value and quality of your San Francisco Realtor and, in particular, on their ability to negotiate the highest possible price when you are a seller, or the best possible price when you are a buyer of San Francisco real estate.
Like in all things, you tend to get what you pay for. Besides a solid marketing plan—follow the formula that works and sprinkle in some magic!—what you are really paying for is your agent's ability to negotiate. That's the value, and that is what really ranges from one agent to another behind the scenes.
Is there anything more important to you than the highest or best possible price?
If you’ve been thinking about selling your San Francisco home, your first and perhaps most important step is to find the right agent to list it on the market. But which agent should you choose, and how much should you pay them?
Across the country, the standard commission rate that a seller pays their listing broker for helping to sell their home tends to hover between 5 and 6%. According to data from the National Association of Realtors®, the average commission in 2019 was roughly 5.7%.
Since real estate commissions are not officially regulated, they are negotiable. It’s up to the seller and their listing agent to settle on a fair fee. That makes it important for sellers to know what they’re getting in return for the agent’s commission. So what does your commission get you, and where does it go?
Let's first take a look at how commission works behind the scenes. Say you agree to pay your listing agent 6% of the selling price. That 6% does not go straight into your listing agent’s pocket.
Realistically, she or he will likely only receive a portion of that amount, maybe 25 to 40%. That’s because, as the seller, you are actually paying both the listing agent and the buyer’s agent, and the listing agent pays for the marketing, advertising, management and overhead.
Here's how a standard real estate commission breaks down.
When you start working with a San Francisco Realtor to sell your home, you will sign a "listing agreement" which outlines all the contractual stuff: the date and length of the listing period, the advisory nature and structure of the agreement, and the commission that will be paid to the listing agent's brokerage via escrow when the deal is done.
Your listing agreement indicates what amount of that 6% commission (or whatever the total commission percentage is) that the listing brokerage will pay to the buyer’s agent via the MLS for making the deal happen. In the San Francisco real estate market, 2.5% is standard for the buying side, or about half the total commission.
Keep in mind, the buyer has their own closing costs to worry about, from appraisals and lender fees, to inspections, title insurance and more. But they don’t directly pay their agent to help find them a home. Instead, the buyer's agent gets their fee from the listing agent at the close of escrow as payment for "bringing the buyer." (This may change in the future. For now, the seller pays the total commission. Stay tuned.)
On both sides of the transaction, agents pay a substantial portion of their earnings to their parent brokerage. Depending on the level of experience, up to ~ half of the commission may go to the brokerage company. Agents also pay for their own, well... everything: staff and administration, marketing, advertising, website and online marketing, physical resources like computers, phone, car, health insurance, business insurance, etc etc etc.
So, instead of 6%, or even 2.5-3.5%, the agents' net profits may be more like 1-1.5% apiece from the total sale price.
Ultimately, whether it's 5%, 5.5%, 6%, the commission is not a meager sum. A lot of money is on the line. For example, take a $2m sales price. That 1% is $20,000. Not exactly chump change. But 5% is already $100,000! It looks appealing to save money upfront by hiring the agent with the lower commission.
A "discount" agent may work for the same well-known brokerage, and they may provide, more or less, a similar marketing plan as the agent charging 6%. If you can get the same results, why pay more?
You may not believe this, and it's hard to prove because you cannot sell the same home twice at the same time with different agents. The sales price will vary up to 10% depending on the agent you hire. What is the bigger potential loss?
If you receive poor, inattentive service from your agent—if you don't believe you got the highest possible price for your home—then any commission amount will feel like too much.
So, what should your San Francisco listing agent do to earn their pay? And what expenses does a listing agent accrue in the process of selling your home?
In addition to paying for your agent's time and guidance, most marketing practices involved in listing a San Francisco home for sale also involve costs out of the listing agent’s pocket.
Successfully selling San Francisco real estate in this digital age requires a keen eye for web-based marketing. By 2017, up to 95% of buyers were using online search to find a home, and it’s only increasing.
That means that professional media including photos, videos, 3D walkthrough tours (Matterport), social media, digital marketing/advertising, and email marketing now play a critical role in improving your home’s visibility to the prospective buyers. Your listing agent should provide marketing multimedia which portrays your home in its best light, and your commission helps to pay for those professional services.
That said, the “new school” of marketing hasn’t replaced the “old school.” Your San Francisco real estate agent should include print and mail marketing in their plan, sent to your neighbors in nearby San Francisco communities. Postcards, flyers and brochures all remain relevant marketing tactics to let the neighborhood know that your home is for sale. And each of those methods costs money for printing, postage, design, and so on.
Most of all, your San Francisco listing agent’s commission pays for their time, expertise and trusted advice. Managing marketing campaigns, hosting open houses and scheduling private showings, coordinating vendors like staging and inspections—if done right, each of these aspects of selling a home takes considerable time and effort. And if done wrong will cost money to your bottom line.
Would it surprise you to know that there are quite a few moments along the way where you can lose money, if the wrong decisions are made or mistakes are incurred?
A good San Francisco real estate agent's role is to consult, negotiate and oversee the transaction. They take the time to field your questions, devise a specific strategy for success, utilize a team of specialists to implement this strategy, and then negotiate the heck out of the deal! A good agent will ensure that you are comfortable and informed at every step.
As with any profession, there are good and bad apples among San Francisco Realtors. Just because John Q. Agent charges 6% doesn’t necessarily mean he’ll do a good job of selling your San Francisco home.
However, from a purely mathematical perspective, an agent who provides a “discount” service (anything less than 6%) is simply unable to provide the time, the ability, the personal care, or the professional marketing required to make your sale a resounding success.
Choosing your San Francisco listing agent based on a low fee, or choosing to sell on your own (known as FSBO, or “For Sale By Owner”), is much more likely to backfire than it is to save you any money. In 2017, FSBO sales accounted for 7% of homes sold nationwide. The average FSBO sale price was $200,000, compared to $265,500 for homes listed with an agent.
While it’s not a perfect apples-to-apples comparison, the difference is stark at over 32%. It's much greater than a potential savings of 6%. Not to mention that doing it yourself means, well, doing it yourself.
Selling a home can be very stressful, and working with an experienced team of San Francisco Realtors will benefit your sanity as well as your bottom line.
As for those agents who charge less than 6%, did you ask for a discount or did they just give their money away without you even having to ask?
Maybe they care about market dominance and keeping a high sales volume (think of that "local neighborhood specialist"). Your listing may be one of many they are trying to sell in your neighborhood at any given time.
Maybe they cut corners with their marketing since they'll have less money to spend. Maybe they won't be as motivated to perform because they were devalued. Maybe they just don't know how to advocate for themselves and lack the specialized training in making deals.
Whatever the reason, does it make sense that the agent who gives their money away to win business is going to be the one who can get you the highest possible price? We don't leave any money on the table, not ours and more importantly, not yours.
In short, here’s the big takeaway: when you’re thinking about selling your San Francisco home, there’s a number of criteria you should look for. After ~ 20 years in the business spent caring deeply about my clients' success, I can honestly say from the bottom of my heart that a “lower commission,” frankly, shouldn’t be that high on your list.
You should choose your agent based on their competence and experience. Their honesty and reliability. Their track record. Their communication and straightforwardness. By how your gut feels about who you want in your corner negotiating the deal on game day.
A great San Francisco real estate agent is worth every penny of the commission. Lucky for you, we happen to know some of the best. 🙂
At Danielle Lazier Real Estate, we have hundreds of happy client reviews, decades of experience in San Francisco, a focus on negotiation, and a veteran team of dedicated admin and marketing specialists at Vivre Real Estate — a boutique brand dedicated to enhancing home life for San Francisco Bay Area real estate buyers and sellers.
If you’re thinking about selling or buying a home in San Francisco, or if you just want to discuss the current San Francisco real estate market, get in touch to start a no-pressure conversation.
Let us know more about your situation by filling out our BUYER WORKSHEET or our SELLER WORKSHEET.
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