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Conversations On Real Estate Commissions Part 1

Transparency in Commissions

Fact: Real estate brokers’ commission rates are not regulated in any state and are ALWAYS 100% negotiable.

When you decide to sell your house, if you are like most people, you will want to hire — or at least consider hiring — a real estate agent to handle the process.

Surprisingly, many people think that real estate brokerage commission rates are “set” in their area and they have to pay a specific percentage of the sales price to the agent in order to get their services. This is absolutely not the case.  In fact, you can pay whatever you and the agent have agreed upon.

What is a “Fair” amount to pay for real estate commission?

Many people hear the word “discount” company instead of a “traditional” company but (actually, since commissions are not regulated, there really is no such thing as a discount company).

“Fair” is whatever you and the agent decide is fair, and just as you are not under any obligation to pay more than you want to, the agent is not under any obligation to do business with you if they are not going to earn what they expect.

Public Display of Agent Commissions Begins October 1st

In an attempt to get ahead of looming outside forces, broker-owned multiple listing service Northwest MLS is changing its rules to allow the public display of buyer broker commissions, starting October 1.

The rule changes will allow the NWMLS’s 30,000 agent and broker members to publish the amount of commission the seller is offering a buyer’s broker on the subscribers’ websites along with other listing details.

“Making this information readily available to consumers will allow for complete transparency with regard to buyers’ broker’s compensation and provide consumers with additional information at the outset of the transaction,”

“Consumers want greater transparency and flexibility in the home buying and selling process,” said NWMLS CEO Tom Hurdelbrink in a statement.

“We believe these changes encourage member real estate firms to continue to innovate and evolve their business models to better serve consumers.”

NWMLS has also removed a requirement that a seller offer a buyer broker commission when listing a property for sale.

“Letting brokerage websites publish the commission that a homeowner is offering the buyer’s agent will show everyone all the incentives at work in a home sale and make it easy for agents to explain the costs of our services,” Redfin CEO Glenn Kelman said in a statement.

“And being explicit that a listing can offer buyers’ agents any commission or now even no commission will assure consumers and agents alike that Seattle’s real estate market is wide open for competition.”

This represents a sharp break from current practices among the 600 or so MLSs nationwide, some of whom have threatened to cut off brokerages who have attempted to publicly display commissions.

Most MLSs, unlike NWMLS, are owned by Realtor associations and National Association of Realtors’ policy allows, but does not require, association-owned MLSs to prohibit display of compensation offered to buyer brokers. Most, if not all, do.

Other MLSs could follow NWMLS’s lead. Real estate commissions have been under increasing scrutiny in the past year. First, they attracted an unexpected amount of attention at a real estate competition workshop held in June 2018 by the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ).

Then earlier this year multiple class-action lawsuits accused NAR and several real estate franchisors of antitrust over the sharing of real estate commissions between listing brokers and buyer brokers.

And the DOJ has launched an investigation into real estate commissions, prompting a demand that MLS system vendor CoreLogic turn over a bevy of information on MLS data, including all documents relating to any MLS members’ ability to search based on the amount or type of compensation offered by listing brokers to buyer brokers.

NWMLS, which uses CoreLogic’s Matrix system, told Inman it allows its subscribers to create and filter searches by any field in the MLS, including commissions, and this includes searches made on behalf of buyers in which they send search results to buyers or set up listing alerts for them.

Questions To Ask Real Estate Brokers

Your Home is your greatest investment! Know these questions and answers before you interview! The difference can cost you thousands!

 

2 Responses to "Conversations On Real Estate Commissions Part 1"

B Day wrote: Why would a salesman list or try and sell a house with no commission? If a person can sell it by their selve I say let them but to not have a set commission accross the board seems pretty self defeating .
Cary W Porter wrote: Thanks for the question…. It really gets to the heart of why the change was made and the surrounding confusion on real estate commissions.

You’re right! A salesman would never list a home for free or sell one for free. The way things will work is that a Real Estate Agent will agree to terms with a Seller on what they will charge to Sell their home; Be that 1, 2 or 3%... That’s called the Listing Fee. Additionally a Selling Office Commission was also added to that and offered out which was typically around the same amount as the Listing Fee.

Where a lot of confusion came in was the fee paid to the Buyer’s agent. That money was traditionally always offered as a promised split of the overall commission to the Buyer’s agent. So technically the Seller was paying for the Buyer’s agent, and that Buyer’s agent then proceeded to represent the buyer and negotiate “AGAINST” the Seller for a lower price, or on inspection items, ETC… So the Seller was paying for someone to literally work on the other side of a transaction and often against them.

And honestly many Buyers and Sellers didn’t understand how that worked.

Now the Selling Office Commission offered or (SOC) will be publicly displayed and can be negotiated.

What will most likely happen is Buyer’s agents will have what’s called a Buyer’s Agency Agreement with their clients. This agreement will guarantee them a certain commission.

For example let’s use a Buyer’s Agency Agreement with a 2% commission guarantee:

The Buyer’s agent shows 10 -20 homes, helps the Buyers find what they are looking for, connects them with a lender, Etc.
They offer full price on a home and the Buyer’s agent ask for a 3% commission as part of the contract.
The Seller accepts that price but counters back at a 1% SOC
The Buyers could counter again asking for a 2% SOC for their agent to cover the agent’s fee OR the Buyer’s themselves could make up the 1% difference.

So now it becomes clear that the Buyer’s Agent commission is part of the negotiated purchase price and it’s clear who is paying them, who they represent and what % amount of purchase price that represents.

Hope that helps some… It’s all about better Transparency in the process. Agents will still be properly compensated, just everyone will be more clear on who represents who and it conforms with the law that states “ALL” Real Estate Commissions are negotiable.

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