How Lower Fees/Commissions Can Motivate More Investors to Sell

The rise of online brokerages and increased competition drove down trading commissions for stocks and securities, unleashing more trading activity from individual investors. The real estate investment world, however, has not seen the same reduction in transaction costs. Selling an investment property still typically involves paying 5-6% in total commissions to realtors.

Some argue that these high fees are dampening liquidity and preventing more real estate investors from selling properties they may want to unload. Just as lower stock trading fees enabled more activity, might reducing realtor commissions motivate investors to sell more investment homes? On a $1.5 million investment property sale, the commission difference between 5-6% and a potentially disruptive 2-3% fee structure is substantial – it could mean $30,000-$60,000 in savings. This savings is even more significant for investors who do not have large gains. For example an investor who has a gain of say $200,000 on their 1.5M property is paying 35%-40% ($75,000-90,000) of their gain in commissions with the current structure. This discourages investors with smaller gains to sell.

“The huge realtor fees make me hesitant to sell unless I absolutely have to,” said real estate investor Jane Henderson.

Proponents say increased liquidity from lower commissions could benefit the whole investment real estate market, generating more realtor income through higher transaction volumes. Critics warn it could lower service quality if fees drop too much.

Ultimately, market forces will likely decide if investment property commissions follow the same disruptive path as securities trading commissions. If investor demand rises for lower-cost property transactions, new business models may emerge to undercut traditional realtor fees.

“I wouldn’t be surprised if we see technology-enabled disruption gradually change the landscape over the next decade,” said analyst Michael Thompson.

In today’s uncertain economic environment, reducing hefty transaction costs like commissions could motivate more investors to reallocate capital by selling properties.

Scott F
SIFF – Strategic Wealth Advisors Specializing in Real Estate Investments.

About SIFF

For over 20 years SIFF Investment Services has provided unbiased, fee-based real estate consulting to disrupt outdated real estate models. We are not realtors or agents. Our role is to educate and empower clients by objectively outlining all options. Our fee-only structure allows us to put client interests first. By taking an unbiased, consultative approach, SIFF aims to help clients prosper through wise real estate investments.

Call: 1 (415) 601-1051 |