Who decides who gets paid…the myth of the two commissions.

The listing contract is an agreement between a real estate firm and a seller of real estate. Among other terms, the compensation is stated in a listing contract; dollar amount or a percentage of the sale price are two options.

Whether or not the listing firm is obligated to compensate another REALTOR member of the MLS is determined by a separate contract which does not involve the seller. This other contract is between the participating firms. By this contract we members agree cooperation is required, and compensation is earned. There are standards to be met for a cooperating firm to earn the listing firms Offer of Compensation.

Real estate buyers who are aware of contractual obligations are not fooled into thinking they can get a 3.0% discount by excluding a REALTOR. We can’t blame the consumer for not knowing. We can blame the people who give the consumer poor direction and encouragement. Buyers who think they can dictate the commission the broker is paid put themselves at a serious disadvantage in negotiations in the price they offer and in the way they are perceived by the Seller.

Understand this and you’ll likely out negotiate at least one other buyer in your next attempt to buy a house. There is one commission in a real estate transaction. It’s the commission paid by the seller to the listing firm. Whether the firm owes any of that commission to another firm is decided by the terms of the contract between broker firms. A person is free to hold any belief that they prefer at their own peril.

Everyday somewhere a buyer is going alone or with an attorney to negotiate an offer through the listing firm expecting a discount of 50% of the commission is available for the taking. “My offer is 3.0% less than what it would be if I had an agent. You’re still getting the same amount.” When confronted with this buyer opinion, agents have no obligation to explain how contracts work. They are well within their right to take the Offer and present it to the Seller, showing the seller the price, concessions, costs, and net. The listing firm does not have to concede any percent of the commission regardless of what the buyer wrote in their Offer. The agreement between listing firm and seller determines the fees.

Engaging in a conversation with a customer regarding broker fees dictated by a contract the buyer is not part of is unnecessary and probably futile. Proceed knowing the contracts, not the buyer determine compensation and who earns what. Anything else is a myth.

Author: Tom Meyer, Owner-Broker, Essential Real Estate, LLC Madison, WI

The real estate transaction, disclosure, and confidentiality are the business of a Wisconsin licensee. It's in the transaction where the skill of the licensee, and their commitment to the law where the public is protected or placed at risk. Essential real estate services are specified in real estate license law. Those services are worth professional fees. Paying professional fee rates for administrative services is a choice when an alternative exists. We are that alternative. Old business model commission rates are taxing the home equity of American home sellers. Essential Real Estate LLC was created so our clients keep more of their home equity, spend less on broker fees, and receive skilled representation in negotiating purchase agreements.

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