Commission Differences - Land vs. Residential Listings (contingent, 4%, agent)
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I am in the process of getting ready to sell several large tracts of undeveloped land that I own in a rural county in the Blue Ridge foothills of NC. I was unpleasantly surprised to get a listing agreement from my realtor that asks for a 10% commission; I expected the usual 6%. When asked for a rationale, my realtor claimed that her office "always gets 10%" for land listings because they are "more work" than residential ones. This seems counter-intuitive to me for several reasons.
I could probably understand having enough minimum commission to make it worth driving-by potential buyers if I had a $30,000 1/4 acre lot, but my property is large and worth 10X that much. I hope I am wrong, but this situation at least hints at some local price-fixing arrangement. Is a 4% differential between land and residential listings usual, customary or reasonable?
Generally customary. Raw land is harder to sell in most cases. Unless a developer sees a potential to build on it, nearby areas are transitioning from open fields to subdivisions as an example, or you have done the groundwork getting it ready to develop with site plan approval and preliminary site work such as perc tests.
So what is the "extra work" that drives up the commission on undeveloped land? The agent doesn't do any of the prep work for site plans or environmental assessments.
It's harder to sell. Fewer potential buyers. Raw land, unless it's in an area that's growing, can sit on the market for years waiting for a buyer.
There's a farm on the Eastern Shore of Maryland I've been watching (until I win the Lottery) that's been for sale for ten years. It's in Ag Preservation, a lot of it's in the Critical Areas, so it can only be farmed due to the first and is excluded from other development because of the second (well, it can be built on with minimum lot sizes of 20 acres if you get rid of the Ag designation).
It has several hundred feet of waterfront with a protected cove, so if you'd get rid of the Ag impediment, and do hundreds of thousands of dollars in mitigation for Critical Areas, you could build some really high dollar houses on it.
I am in the process of getting ready to sell several large tracts of undeveloped land that I own in a rural county in the Blue Ridge foothills of NC. I was unpleasantly surprised to get a listing agreement from my realtor that asks for a 10% commission; I expected the usual 6%. When asked for a rationale, my realtor claimed that her office "always gets 10%" for land listings because they are "more work" than residential ones. This seems counter-intuitive to me for several reasons.
I could probably understand having enough minimum commission to make it worth driving-by potential buyers if I had a $30,000 1/4 acre lot, but my property is large and worth 10X that much. I hope I am wrong, but this situation at least hints at some local price-fixing arrangement. Is a 4% differential between land and residential listings usual, customary or reasonable?
Nah, it's not a local situation. It seems that commissions on land are higher in a number of areas--they often are here. Typically, land does take longer to sell than a house--since there are generally fewer people looking to buy land--so that is used as the excuse. There seems to be a built-in expectation that land commissions are higher. However, I would hesitate to call it price fixing (although there may be an historic bent towards that). If people keep listing their land at a high commission rate, they'll keep the commissions high. It's basically as simple as that--provided agents can make money at a lower rate.
Most of the commissions I see on land are in the range of 4 - 8%, largely depending on the value of the property. I've seen a few 10% commission rates on higher priced properties and, frankly, I thought the brokers were taking advantage of the Sellers.
Shop around and remember that commissions are negotiable. You don't need to agree to their "standard" commission. If you're wiling and able, try selling it FSBO. Just make sure that you have a good idea of what your properties are worth.
Nah, it's not a local situation. It seems that commissions on land are higher in a number of areas--they often are here. Typically, land does take longer to sell than a house--since there are generally fewer people looking to buy land--so that is used as the excuse. There seems to be a built-in expectation that land commissions are higher. However, I would hesitate to call it price fixing (although there may be an historic bent towards that). If people keep listing their land at a high commission rate, they'll keep the commissions high. It's basically as simple as that--provided agents can make money at a lower rate.
Most of the commissions I see on land are in the range of 4 - 8%, largely depending on the value of the property. I've seen a few 10% commission rates on higher priced properties and, frankly, I thought the brokers were taking advantage of the Sellers.
Shop around and remember that commissions are negotiable. You don't need to agree to their "standard" commission. If you're wiling and able, try selling it FSBO. Just make sure that you have a good idea of what your properties are worth.
Good post.
Really, houses and other improvements tend to push the price of the transaction up to the point that a lower percentage fee than on raw land may be worthwhile.
I'm not judging the OP's case, just conversing....
Put a $400,000 house on a $100,000 lot, and when the builder has done the plat work, and defined the parameters of the property in terms of covenants, HOA, zoning, etc, it is an easier transaction, sans the emotion of "perfect houses."
At 2.4%, i.e., $12,000, any decent agent can make a good living off one side of the transaction.
Sell an unimproved $100,000 parcel that is not platted, no environmental work done, zoning in question for the desired purposes, and a 6% commission doesn't go near as far.
The "Extra work" includes answering a lot more questions and walking land with unqualified buyers, and their unqualified agents, or buyers and agents who take up a lot of time before determining that it is just not a good fit.
At 6%, 3%/3%, $3,000 doesn't go far for either agent.
Beware the agent who thinks raw "land is easy because there is no house." Quite the opposite.
A reason raw land is sometimes harder to sell is because it nearly always is harder to get a loan for raw land VS a house.
This. Most lenders require it be at a certain price range. They also require more down. They know if it defaults it will be harder to sell then a house.
So many reasons commission is higher. I've seen the same parcel of land sold over and over to different people over a period of two years and still not make it to the closing table. Almost all land contracts will call for a 30 day to 6 month feasibility study to make certain what the buyer wants to build there can be done. The greater the sales price, the longer the study (my observation/opinion). It's more work than just slapping up a piece of land on the MLS. If the OP has various reports ready and they are updated, it could go quicker (and at a lower commission).
So many reasons commission is higher. I've seen the same parcel of land sold over and over to different people over a period of two years and still not make it to the closing table. Almost all land contracts will call for a 30 day to 6 month feasibility study to make certain what the buyer wants to build there can be done. The greater the sales price, the longer the study (my observation/opinion). It's more work than just slapping up a piece of land on the MLS. If the OP has various reports ready and they are updated, it could go quicker (and at a lower commission).
This is an older thread which I happened to revisit. Bump. Bump.
As another example of the time it can take to sell land, I just helped a purchaser get a purchase agreement on a large tract of land. The purchaser had first acquired an Option-to-Buy six months ago to lock in the price and to provide some time for necessary due diligence. They exercised the Option and now a closing will be scheduled...but it's still contingent on further government approvals and some final environmental investigations which will probably require another 2 - 3 months. Selling--and buying--land can take a significant amount of time.
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It seems that commissions on land are higher in a number of areas--they often are here. Typically, land does take longer to sell than a house--since there are generally fewer people looking to buy land--so that is used as the excuse. There seems to be a built-in expectation that land commissions are higher. However, I would hesitate to call it price fixing (although there may be an historic bent towards that). If people keep listing their land at a high commission rate, they'll keep the commissions high. It's basically as simple as that--provided agents can make money at a lower rate.
