Real Estate Commission Secret... Out, Again
Those of you who read our blog know that we have covered the topic regarding the buyers agent real estate commission a few times and how many people don't realize there is a cost of using an buyers agent even if they tell you it's free. Since this is a FSBO / pro-consumer blog not many real estate agents wanted to give their point of view but that may have finally changed.
An Arizona real estate agent and great blogger name Greg Swann posted an article regarding the little lie that most real estate agents tell their buyers on his blog and it was also published in the local news paper, Arizona Republic. Of course the reaction was immediate as he describes here but not really surprising.
Additionally, Ardell a Seattle real estate agent and avid blogger also posted a counter-point to the post regarding buyers real estate commissions.
You will see that Greg tells consumers to ask this simple question: Mr. Realtor, what do you charge? and Ardell questions this by stating what if they provide an answer "nothing". The immediate comebacks are "scripted" responses to help protect the real estate commission. This is very popular in the real estate business... have a "script" to help with negotiations.
Knowning that many agents have these "scripts" we thought it would be nice to provide consumers with a script of their own to help negotiate real estate commissions. A while back ago, we created this downloadable real estate agent interview form and a real estate agent hourly rate calculator. As a consumer, if you use both you will be provided a customized "script" to help you negotiate the real estate commission down... saving yourself thousands of dollars.
It will be interesting to watch both of these and see what kind of comments come out of it. Especially considering that companies like, Zip Realty, Redfin and Buy Side Realty are offering buyers commission rebates and they have lot's of money to advertise this option. It also helps that it's now a buyers market.
If you are a consumer who was thinking of buying a home, were you aware that it was costing you thousands to use your real estate agent?
posted by Jessie B at 3:20 PM
4 Comments:
There are a couple of major fallacies in this argument:
1) Most agents aren't afraid to answer the question of what they receive for representing a buyer.
2) Whether having representation costs the buyer anything can be debated endlessly. I believe it does, indirectly. But I also believe it's not a true cost as most sellers are not building in the cost of buyer represenation into their price. Put another way, will their sales price drop if there is no commission involved? Not if they priced their home off the neighborhood averages.
3) Asking buyers to pay their agent out-of-pocket versus as part of the transaction will take many buyers - those who already are sturggling to come up with the closing costs, down payment, etc. out of pocket - completely out of the market.
Jonathan,
1) Most agents ARE in fact afraid to discuss commissions with a buyer, and the buyer should not HAVE TO ASK to get that information.
2) There is no ambiguity with regard to who pays the buyer agent fee. Give it to the buyer one day and see if the seller screams. He won't; trust me. It's all between the buyer and the buyer's agent...if the agent would simply let it be so.
To suggest the monies that go into our pockets "is not a true cost" is insulting to the consumer. It's money...and lots of it...and it is a "true cost". If you really believe it is invisible, lets see what happens if we pay you with invisible dollars next closing.
3) Buyers pay their agents inside the transaction every day. They do not have to take it out of pocket anymore than they have to take financed closing costs out of their pocket.
No offense Jonathan, but you need to be de-programmed. You know I like you Jonathan, don't take it personal. It's hard to get the crap out of your head that has been shoved in there, I know. But it is crap. Once you realize that, you can see the money for what it really is. A buyer paying the buyer agent for their representation. The only other answer is a SELLER paying it to BRING a buyer to the slaughter...and that is simply not acceptable in this day and age.
Here is similar thread on the Inman blog also discussing buyers side real estate commissions.
All buyers and sellers have a choice to make about the value of using an agent or not. Too many lazy buyers and sellers just take whatever is handed them for gospel. Fact is, all real estate commissions are negotiable - for both sides of the transaction.
As a real estate agent I am always willing to divulge what I make on the buyers side. If the buyer wants a discounted purchase price I negotiate that, not my commission. I run a business that is based on costs and what I have to charge to make a profit - profit meaning what I take home to buy stuff for my family.
Commissions are not based on what is involved in one sale, they are based on what is involved in running a business. All costs of running a business are passed on to the consumer by every business owner since time began. My clients pay for the paper I use, the gas in my car, my internet service and so on and so on. Those costs get spread out over all the transactions I get involved in whether they are successful or not.
All businesses determine their costs, structure their product and/or service pricing based on that and hopefully find sufficient numbers of clients/customers to make a profit. The average real estate agent has to consider that he is not keeping 100% of his commission. The broker takes a slice, cost of business eats up some and then there is federal/state income tax and FICA ... the agent gets to keep the rest which often equals 25% of the original commission.
So, the 5% commission on a sale of 350,000 which is $17,500 split between buyer and seller agents equals $8,750 and taking aways all the built in costs the agent gets to take home maybe $2,187 ... figure in the hours of work done to effect the sale, attract clientele and such and the agent has to do a lot of business to make a substantial living.
If the agent does 1 transaction a month (way above the national average) he could net about $36,000 a year. Commission amounts only tell part of the picture of what is involved in "making money" on a real estate transaction.
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