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Conversations On Real Estate Commissions Part 2 (Who Pays For Commissions?)

After last week’s post we had several great comments. I’ll address one from “B” here, which really went to the heart of why this change is being made…. That being that the public in general really doesn’t understand who pay’s buyer’s agents’ commissions and how they affect the over-all purchase price of a home.

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 selves, I say let them but to not have a set commission across the board seems pretty self-defeating.

SEE: Conversations On Real Estate Commissions Part 1

  • 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.

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

Currently under MLS guidelines in Western Washington once a commission is offers (Let’s say 3%) by the seller they are not allowed to adjust that down if they get a lower than expected offer price.

So, if you have a $500,000 home, but because of market conditions or other factors you are only able to get a 475,000 price you would still be obligated to pay the buyers agent the 3% you originally offered at the $500,000 price…. With the new changes, the seller who is getting less than expected for their home could counter back accepting the $475,000 purchase price BUT only offer a 1% Selling Office Commission thereby saving some of the impact on the lower price. For the agent representing the Buyer in this case it will be imperative for them to have a Buyers Agency Agreement with the Buyers guarantees them (X%) of commission, so if the commission the seller counters back with is lower, the buyers will be responsible for making up the difference OR negotiating that amount back into the purchase price.

Hopefully this helps. We’ll have more coming next week on the topic and would LOVE to here any comment in the meantime!

Transparency in Commissions

 

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

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?

“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.

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!

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