Sellers Pay the Cost of the 3% Myth… by the millions of dollars.

“…So if you offer 2%, this agent may not encourage their buyer like they would if it was a 3%…” From a Wisconsin Real Estate licensee. July, 2020.

Myths can not always be proven, but they can be busted.   The myth perpetuated in the residential real estate sales business most costly to the public, and rewarding to the brokers, is the myth of the 3.0% commission. There is no proof that real estate agents choose to show homes where the commission offered to them is 3.0% over homes where the commission is 2.0%. There are people who believe they have evidence that 2.0% is a disincentive, and all they really have is an opinion. Why doesn’t the real estate community want to bust this myth?

A recent search of the RASCW MLS showed of 3,277 residential sales priced from $274,000 to $600,000 only 749 sales closed with the buyer agent paid less than 3.0% of the purchase price.* 

Millions of Dollars Skimmed from Home Equity.

If the average sale price of these 3,277 properties is $370,640. Owners who committed themselves to pay a buyer broker 3.0% of the purchase price, paid $11,192.00 just to the broker on the buyer’s side of the transaction. (That eleven thousand dollars that ended up with the broker came out of the owner’s home equity. We’re talking about real money.)

If my math is right, only 208 transactions closed with the seller paying 2.0% commission to the broker on the buyer’s side. At an average of $370,640 per sale, the commission paid on each of these sales is $7,413.00. Before you give $3,740 of your savings to a real estate broker, let’s be sure the money is better off in their hands than in yours. Maybe a conversation with an agent in an interview would be to get their opinion of why your money should become their money. (When 2,528 home sellers pay $28,293,376.00 in 3.0% buyer-side commission instead of 2.0%, they might be giving away nearly ten million dollars without realizing they had a choice. )

What’s That Offer Worth?

Until an owner sees an Offer they are wise to promise to pay nothing, or at least hold something back. You can offer to pay 2.0% and always move up if the terms of the Offer are attractive enough, and you have not better options. In a seller’s market you’re likely to have options. Sellers who offer less than 3.0% commission to buyer side brokers have a good chance of saving a few thousand dollars of their home equity for themselves. If you have a better use for $3,000-$5,000 of your money don’t give it away until you know what you’re getting for your money. 

*Statistics obtained from the RASCWMLS 7/14/2020

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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.