Why do home sellers offer 3.0% commission to buyer agents? You don’t have to.

The six percent real estate commission has shown a remarkable immunity to technology. I believe that immunity is the result of the home selling consumer having too few choices for complete real estate representation from firms with alternative pricing structures. To be a part of the solution, we opened Essential Real Estate. We sell homes for a price of $499 at signing, and 1.0% of the purchase price at closing. The contract you sign with us will offer an amount of your choice to the cooperating (or buyer) broker. And that fee does not have to be what you might have been told it should be.

The Myth of 3.0% Buyer Agent Fee

The story goes like this. A home owner lists their property with a real estate broker who belongs to the local MLS. Among other things the listing agreement states the obligation of the firm and the seller and the commission or success fee owed to the broker by the seller at closing. To participate in the MLS, firms agree to extend cooperation and compensation to other member firms who procure a buyer for the property they have listed. This is important: THERE IS NO SET AMOUNT WHICH MUST BE OFFERED BY THE LISTING FIRM TO A COOPERATING BROKER OR BUYER AGENT. Mandating any specific fee is an anti trust violation.

A random search to look at fees offered to buyer agents on sold properties I see the fee is not just usually, or typically 3.0%. It is almost always 3.0% as in maybe one out of 25 are anything less than 3.0%. The reason the buyer agent offering is as it is is because their is a myth perpetuated that says brokers might not show homes where the commission offered is less than 3.0%. The myth is unsupported by evidence and logic. No agent can hide properties from buyers as long as the internet is free.

Long ago when Realtors held the information and listings were only published in bi weekly books an agent who chose to violate ethics and law might have been able to hide listings from clients. Today buyers find out about listings before the agent knows about them and has access to scheduling an appointment directly with the listing agent.

Millions of Dollars in Savings to be Had

The amount of money offered to a buyer agent to bring a buyer is not an incentive. With so few homes on the market in any price range every home that is not under contract in some price ranges is going to draw a crowd. People will come whether or not a Realtor wants to participate on their behalf. By committing yourself to paying 3.0% of the purchase price to a buyer agent before a buyer evens sees the house is starting at a disadvantage. Remember, as a homes seller you are interested in your Net equity after fees. When we focus on the price and fail to tally the expenses and subtract them from the purchase price we deplete our home equity unnecessarily.

Consider This

If you agree it’s a good idea to put your home on the market one day and begin showings a few days later you then believe it’s a good idea because demand will build up and demand will translate into more offers. Homes priced under $300,000 in many neighborhoods draw a crowd on day one. In this case the home seller may want to offer less than 3 and see what happens. Agents who have broker permission to accept any fee might be pleased to concede some commission in order to help their client get their offer accepted.

What would I do? Offer two.

A home seller could offer zero dollars to a buyer agent and still draw a crowd. The fee will be negotiated in the Offer. If my house was one that is sure to draw multiple offers (and we can tell which ones are) I’d offer 2.0% and be willing to pay the amount necessary to secure the best price and terms. But I would not commit myself to 3.0% at the get go.

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. What you see REALTORS do to brand themselves and their firms, promote their service, advertise, and process paper do not require a license. I believe negotiations to create and honor a real estate purchase agreement is where the agent has the greatest value in a transaction. Paying professional fee rates for the administrative services is a choice consumers deserve. Old business model driven commission rates are taxing the home equity of American home sellers. Essential Real Estate was created to put more money in the hands of the consumer by eliminating expenses for the firm and charging a fair price for the real real estate service.

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