The 6% Real Estate Commission is Doomed

[gmi3804]

This is the part that is problematic - mainly for the seller (as the lawsuits prove.)

I am aware, though I assume most buyers are not, that they are ultimately responsible for direct payment of a commission. I would agree that standard forms properly disclose this.

Why is that problematic? I don't work for free, and deserve to be compensated. Who the compensation comes from does not change my fiduciary obligations to my buyer client, which is the first duty of any agent. I don't work for the seller when I act as my buyer's agent.

 

[barkley]

the last time we sold i interviewed realtors before selecting one. i wanted to be able to negotiate the commission (which i did) and include an agreement for the inclusion of what was an unheard of marketing idea for the region. the agent i selected listened to my reasoning and did'nt immediatly pooh-pooh it like some of the others. he did'nt see the value in it but agreed to the condition and enacted it (and expressed great surprise when it directly resulted in the sale).

 

[GAN]

I wonder about a 30k commission on a house that sold quick vs a 30k commission on a house that took 6 months to sell. The quick sale likely required little work but do you reward them for a quick sale that required little effort? What about the tough sale that the guy really hard to work for should he get the same even though it took longer? Less? more?

That’s part of what I was thinking. I’d be more likely to say, you get me full price in 1-2 months you get 6%, 3-4 months 4% …something along those lines. I’d rather get a full price offer and move on then sit on a property …to me that is “value”. But you make a point -wouldn’t that be less “work”? Certainly, a nice home in a great location makes for a fairly easy commission vs. a home that needs work in an “up and coming” neighborhood.

 

[gmi3804]

That’s part of what I was thinking. I’d be more likely to say, you get me full price in 1-2 months you get 6%, 3-4 months 4% …something along those lines. I’d rather get a full price offer and move on then sit on a property …to me that is “value”. But you make a point -wouldn’t that be less “work”? Certainly, a nice home in a great location makes for a fairly easy commission vs. a home that needs work in an “up and coming” neighborhood.

Would you also list at the current market rather than what you think you should get? As an agent I have the choice to accept your business or not. I've said "no thanks" to potential clients many many times, when they want me to do something I can't.

 

[GAN]

Would you also list at the current market rather than what you think you should get? As an agent I have the choice to accept your business or not. I've said "no thanks" to potential clients many many times, when they want me to do something I can't.

I say this seriously, I have a condo in a tight knit community …I feel I can easily find a buyer through word of mouth. Sell me on your service…. what can you bring to the table that would warrant a 6% commission on a $400k property?

 

[robinb]

I say this seriously, I have a condo in a tight knit community …I feel I can easily find a buyer through word of mouth. Sell me on your service…. what can you bring to the table that would warrant a 6% commission on a $400k property?

I bought my house FSBO. I paid a few hundred dollars to a real estate attorney to draw up my offer and do the paperwork.

 

[tvguy]

Would you also list at the current market rather than what you think you should get? As an agent I have the choice to accept your business or not. I've said "no thanks" to potential clients many many times, when they want me to do something I can't.

When I sold my mom's house I interviewed six Realtors to list it and all six were very up front on our first meeting and gave me a disclosure sheet about what they would, and would not do. All six said the commission rate is NOT negotiable. I appreciated how up front they were about that. I had the option of looking to other agents who would accept a lower commission.
I also appreciated their experience in the area the house was in. Comps weren't really comparable. It was an development of custom homes built from 1935 to brand new homes, 1,700 square feet to 15,000 square feet, 1/2 acre to 3 acre lots. So a lot of "estimating" had to be done, and still I got "comps" ranging from $495,000 to $695,000 that each agent did a good job defending.

 

[gmi3804]

I say this seriously, I have a condo in a tight knit community …I feel I can easily find a buyer through word of mouth. Sell me on your service…. what can you bring to the table that would warrant a 6% commission on a $400k property?

If you could find a buyer at the price you want, I'd tell you to absolutely go ahead and do just that. I recently had a seller who hadn't signed a listing agreement with me yet and found out someone wanted her place. She did just that, with my blessings and my continued help even though I wasn't making anything on it and she technically wasn't my client. I did make a commission when she bought her new place.

When I sold my mom's house I interviewed six Realtors to list it and all six were very up front on our first meeting and gave me a disclosure sheet about what they would, and would not do. All six said the commission rate is NOT negotiable. I appreciated how up front they were about that. I had the option of looking to other agents who would accept a lower commission.
I also appreciated their experience in the area the house was in. Comps weren't really comparable. It was an development of custom homes built from 1935 to brand new homes, 1,700 square feet to 15,000 square feet, 1/2 acre to 3 acre lots. So a lot of "estimating" had to be done, and still I got "comps" ranging from $495,000 to $695,000 that each agent did a good job defending.

The thing is, commissions ARE negotiable, but this particular agent would not take anyone's business for anything less. I'm the same way. I lose some listings because of it, and I'm fine with that.

 

[tvguy]

The thing is, commissions ARE negotiable, but this particular agent would not take anyone's business for anything less. I'm the same way. I lose some listings because of it, and I'm fine with that.

Well, you do have options. For Sale By Owner and pay no sales commission. Or use a Concierge Realtor who may charge a lot more than 6%. but they hire any contractors needed to do necessary repairs required by the sales contract or state and local codes.

 

[kdonnel]

5. It is in the NAR's code of ethics that a buyer's agent shall not consider the amount of commission when determining which properties to show or not show a buyer.

Being in the code of ethics and what is actually done is two different things.

 

[china mom]

On the issue of a buyers agent having a personal interest in the house closing for a higher price, therefore netting a larger commission, I call horsehockey.

If a house were listed at $550,000, the buyers agent would net a $16,500 commission. If the buyer offered and the deal closed at $500,000 the buyers agent would take home $15,000. So, a huge price difference of $50K would net him/her $1500 more. So, maybe a shortsighted realtor would go for the extra commission but at what cost. Violating his code of ethics, possible loss of license but most relevant, loss of reputation.

And let's be honest, the price difference is rarely $50k

I know my realtor is always trying to get me the best price when acting as a buyers agent because he knows that he will make a lot more money on my future transactions and referrals.

During one home purchase, the transaction came down to the difference of a missing washing machine. I was the buyer. My realtor said "I got this" and paid for a new washer out of his own commission just to make the deal go through. He pays the long game. He has been my realtor for decades now.

 

[tvguy]

And let's be honest, the price difference is rarely $50k

Depends where you live. Agents juggling multiple offers, all at least $100,000 over asking price have been the norm here for a while. And often the highest offer isn't the one the buyer selects for all kinds of reasons.
And while not $100,000 over asking price, a house on my street closed two weeks ago today for above asking price.

 

[china mom]

Depends where you live. Agents juggling multiple offers, all at least $100,000 over asking price have been the norm here for a while. And often the highest offer isn't the one the buyer selects for all kinds of reasons.
And while not $100,000 over asking price, a house on my street closed two weeks ago today for above asking price.

That's not exactly where I was heading. Multiple offers over asking means that this is the market price. I am referring to a buyers agent not honestly and fairly trying to negotiate for the buyer in order to get the extra $1500 difference in commision. In other words, having the buyer pay more than market rate when there is not a multiple offer situation.

 

[barkley]

Or use a Concierge Realtor who may charge a lot more than 6%. but they hire any contractors needed to do necessary repairs required by the sales contract or state and local codes.

i could see the advantage to hiring someone who has established relationships with licensed contractors in the area where a home is being sold given the difficulty in recent times finding them to do so much as minor repairs. it's one thing when a buyer brings up something discovered in the inspection they've had done-a renegotiation on price is an option with the buyer (if their lender is ok with it) and they can deal with it after closing. where it gets NASTY BAD in your neck of the woods is with at least one city that requires a city inspection of any proposed resale of a property-and they dig DEEP, look into the history of the home-if permits were pulled for anything that differs from the original construction, if changes have occured that lost the home it's grandfathered rights to older code standards...and the sale can't go through until AFTER whatever they've flagged has been repaired/redone to their satisfaction via additional inspection and the city's sign-off. between delays with the city and trying to find contractors it can kill a prospective sale.

 

[dvcgirl67]

In this day and age I’m not sure that a 6% real estate commission buys you much. Does it take much more work to sell a $1M home versus a $500K? Trying to justify in my mind the difference of $30,000 vs. $60,000 …seems like a lot of money. No doubt an experienced agent carries value, but we aren’t performing life-saving heart surgery here.

This has always been my issue with real estate commissions. It's just this artificial market that has been established and we all mostly follow along. The realtor that assisted us on a house we sold for 500K was far more helpful than the one who "helped" us sell our nearly million dollar home a few years before that. The check we cut to that first realtor was the most difficult ever to hand over.

It reminds me of the "assets under management" (AUM) model that most financial advisors use. The amount of time that a FA would put forth in Investing a one million dollar portfolio vs a five million dollar portfolio is literally nil. So why on earth should I pay someone $40,000 a year more than the one million dollar client does? For that matter, why on earth would I pay someone more than the roughly $2,500 that I pay Vanguard.....and just handle it myself? That's what we do anyway, and it's money well saved.

It's been 16 years since our last real estate transaction and the house we're in will be the last one we sell if we have our way. We'll definitely look for a way to save on commission.....buyers can easily find homes these days. We'd pay a percentage to an agent if they bring the buyer, but that's about it.

 

[china mom]

I consider myself pretty knowledgeable about real estate, having bought and sold numerous homes over the years (I have bought more than I have sold, much to DH's chagrin). I even took the state's real estate course just for the knowledge - with no intention of taking the licensing exam.

In my opinion, when you are paying an agent, you are not just paying for their time and materials but rather their skills and knowledge. My doctor spends 15 minutes with me and bills my insurance $500. but I appreciate that he knows a little about medicine.

One of the biggest contributions my realtor makes in my transactions (and this is regardless of which side of the transaction I am on) is figuring out the comps and helping me decide if the house is priced right. The second major contribution is making sure that the paperwork is correct and that deadlines are met.

Yes, he earns a large hourly rate if you just look at the actual time he spent meeting with me, running comps, arranging the photographer, listing in MLS, making fliers, following up on showings, negotiating the sale, arranging settlement and other tasks I am sure I have forgotten. But he erns nothing when deals fall through, or when sellers take their house off the market.

And when representing the buyers, he has it worse. How many hours conducting showing for clients who take forever to find their house or decide to give up and not buy at all.

At the end of all of this, I can see a fee structure change where the seller pays a commission (probably a percentage but possibly a flat fee) only to the selling agent and the buyers pay a flat fee to a buyers agent. And then I can see that evolving to selling agent offering incentives or bonuses to whomever brings them buyer, sort of like tipping out the bar back. And knowing that they will be tipping out part of their commission, they would set their own commission higher to reflect that and one day we will have a system where the seller pays a percentage, let's say 6% to the selling agent and the selling agent splits that with the buyers agent, maybe they will do a 3/3% split.

Oh, and BTW, as a buyer, if I plan on buying your $500,000 house and I know I have to pay my buyers agent 3% for his services, I will offer you $485,000 and (assuming you are paying your agent 3%) you will net the same $470k that you would net now, paying 6% commission.

 

[GAN]

I consider myself pretty knowledgeable about real estate, having bought and sold numerous homes over the years (I have bought more than I have sold, much to DH's chagrin). I even took the state's real estate course just for the knowledge - with no intention of taking the licensing exam.

In my opinion, when you are paying an agent, you are not just paying for their time and materials but rather their skills and knowledge. My doctor spends 15 minutes with me and bills my insurance $500. but I appreciate that he knows a little about medicine.

One of the biggest contributions my realtor makes in my transactions (and this is regardless of which side of the transaction I am on) is figuring out the comps and helping me decide if the house is priced right. The second major contribution is making sure that the paperwork is correct and that deadlines are met.

Yes, he earns a large hourly rate if you just look at the actual time he spent meeting with me, running comps, arranging the photographer, listing in MLS, making fliers, following up on showings, negotiating the sale, arranging settlement and other tasks I am sure I have forgotten. But he erns nothing when deals fall through, or when sellers take their house off the market.

And when representing the buyers, he has it worse. How many hours conducting showing for clients who take forever to find their house or decide to give up and not buy at all.

At the end of all of this, I can see a fee structure change where the seller pays a commission (probably a percentage but possibly a flat fee) only to the selling agent and the buyers pay a flat fee to a buyers agent. And then I can see that evolving to selling agent offering incentives or bonuses to whomever brings them buyer, sort of like tipping out the bar back. And knowing that they will be tipping out part of their commission, they would set their own commission higher to reflect that and one day we will have a system where the seller pays a percentage, let's say 6% to the selling agent and the selling agent splits that with the buyers agent, maybe they will do a 3/3% split.

Oh, and BTW, as a buyer, if I plan on buying your $500,000 house and I know I have to pay my buyers agent 3% for his services, I will offer you $485,000 and (assuming you are paying your agent 3%) you will net the same $470k that you would net now, paying 6% commission.

Heck ...if I figure my place is worth $450k and a realtor comes along and promises me he'll get me $500k, I'll gladly pay the 6%! They get $30k and I get an "extra" $20k

 

[gmi3804]

Heck ...if I figure my place is worth $450k and a realtor comes along and promises me he'll get me $500k, I'll gladly pay the 6%! They get $30k and I get an "extra" $20k

If a broker promises you anything about what "you'll get," run for the hills. They're blowing smoke up you a** and trying to buy your listing.

 

[tvguy]

i could see the advantage to hiring someone who has established relationships with licensed contractors in the area where a home is being sold given the difficulty in recent times finding them to do so much as minor repairs. it's one thing when a buyer brings up something discovered in the inspection they've had done-a renegotiation on price is an option with the buyer (if their lender is ok with it) and they can deal with it after closing. where it gets NASTY BAD in your neck of the woods is with at least one city that requires a city inspection of any proposed resale of a property-and they dig DEEP, look into the history of the home-if permits were pulled for anything that differs from the original construction, if changes have occured that lost the home it's grandfathered rights to older code standards...and the sale can't go through until AFTER whatever they've flagged has been repaired/redone to their satisfaction via additional inspection and the city's sign-off. between delays with the city and trying to find contractors it can kill a prospective sale.

We ran into an issue selling my Mother In Laws house 24 years ago. The back half of the garage had been opened up into the house and turned into a bar. The buyer questioned whether permits were pulled and if the sheet rock was thick enough to meet fire code and wanted us to have it inspected. Fortunately, it was a Probate sale, my wife was not subject to disclosures. She hadn't lived in the house in 20 years. We replied that we weren't going to do that because it was not legally required nor was my wife even an adult when the work was done. We did not reveal that my wife remembers that the person who did the work advised her step-father and mom not to pull permits, and to use the thinner, cheaper sheet rock. Oh, and she recalled that the person who did the work, was the guy buying the house! So if any investigation into that unpermitted remodel was done, it could very well reveal he did unlicensed contracting and used materials that did not meet code. He wisely dropped the inspection request. He bought the house for his elderly father in law to live in . The house has been sold a couple of times since then, and looking at the pictures on Zillow, that bar and all associated sheet rock has been removed, the garage is now a whole garage again.

 

[Starport Seven-Five]

If a house were listed at $550,000, the buyers agent would net a $16,500 commission. If the buyer offered and the deal closed at $500,000 the buyers agent would take home $15,000. So, a huge price difference of $50K would net him/her $1500 more. So, maybe a shortsighted realtor would go for the extra commission but at what cost. Violating his code of ethics, possible loss of license but most relevant, loss of reputation.

And let's be honest, the price difference is rarely $50k

I know my realtor is always trying to get me the best price when acting as a buyers agent because he knows that he will make a lot more money on my future transactions and referrals.

It's the difference between $15,000 and $0 that matters though. I've always treated offer advice from my buying agent with skepticism as they are highly incentivized to have me offer enough to guarantee acceptance.

Most people aren't buying a house often enough to care about repeat business.