If I buy a house from the listing agent, without involving another agent, should I expect to save 3% of the purchase price (approximately 1/2 of the commission total) because there is only one agent to pay? No. There is no half of a commission. Sorry real estate bloggers. You’re explanation to the public is wrong, and some of those people are paying a high price to find out commission does not work like you think it works.
To understand the commission distribution method in a real estate transaction, you have to recognize that there are multiple contracts involved in the transaction. Each of the contracts is an agreement to cooperated, and compensate based on criteria the buyer has no part in deciding.
MLS Contract: Each Firm and their agents belong to the RASCW-MLS. To be a member you agree (by contract) to cooperate with all firms and compensate the firm who procures the buyer for your listing. Procures. Keep that in mind. It’s important.
Listing Contract: A seller of real estate contracts with a firm, agreeing to terms of service, obligations of the broker and seller, etc. One aspect of the agreement is compensation. If the listing broker charges a commission of 6% of the purchase price, the fee the owner is obligated to pay is 6%. There is the one commission.
Let’s say the sale price of a house is $300,000. I am the listing agent. You are the buyer. This imaginary person next to me is the seller. At closing the seller pays my firm $18,000. If there is a cooperating firm in the transaction my broker will deliver a check for 50% of the commission. It’s still one commission. That’s a cost of doing business in a cooperative MLS. My firm then splits the remainder of the one commission with me based on my commission split agreement. If there is no cooperating firm, there is no other firm to pay. That’s the agreement the broker has with the seller. One commission. Six percent.
There is no buy side and sell side commission. Real estate bloggers who talk about two commissions or buy side and sell side are confusing the public. Time and again buyers offer less than they have to thinking there is a commission to save, and they come in second or third or worse in competition. The listing firm is paid by the seller and the listing firm compensates cooperating brokers. It’s as simple as that. Or is it?
What about a buyer agent? When the buyer has a contract to compensate a buyer broker for real estate services there is an agreement/contract between the buyer and the broker for compensation. The buyer agrees to pay the broker a stated amount. Assume it’s 3%. The buyer is obligated to pay the firm 3% when they close on a house. The contract provides an opportunity for the buyer to have their 3% buyer broker fee reduced by the amount the broker is able to collect from the listing broker, and or the seller. Without getting to deep into the weeds, it is a rare transaction where the 3% the buyer is obligated to pay isn’t paid to the buyer broker by the seller or from the offer of compensation made by the listing firm to cooperating brokers.
As a buyer entering this Seller’s market, you may want to decide what is most important to accomplish. Getting an accepted offer on the house you want or learning that the 2 commission idea is a myth and settling for your second, third, or worse choice house. You can own the home you want. Be the buyer who everyone wants, and let the myth believers help make your offer look even more attractive.