Our Clients Wait to See the Offer Before Committing 3.0% to Buyer Brokers.

In this extraordinary seller’s market, some homeowners discovered the advantage of waiting to see the terms of offers before committing to pay 3.0% commission to the agent working with the buyer. In most instances this year, our clients have succeeded in paying 2.0% commissions by offering two percent from the start and retaining their right to pay more depending on the options available to them. If the sale price is $350,000, the difference is a $3,500 savings for our client.  

The money saved by our clients is money not paid to real estate brokers. I’m not surprised that none of the cooperating brokers objected to being paid 2.0% compensation from the seller instead of the 3.0% most often offered through the MLS. There is a high level of professionalism in the members of the RASCWMLS.   

And then there are the others. Over the year, agents (who were not involved in the transaction) have contacted us to object or have told our clients that offering less than 3.0% commission would be detrimental to their ability to sell. The accusation these agents make is that a fee less than the “standard” amount is a disincentive to the cooperating brokers and the agents will not show the house or will take action or inaction to prevent their client from buying the home. Unfounded accusations of licenses violating agency agreements, and acting contrary to the REALTOR code of ethics, is in itself, a violation of the Code of Ethics.  I cringe when I listen to agents or read their emails as they attempt to state their case. They carry a certain confidence in their conviction suggesting they have some evidence, but I think they don’t.

No Evidence exists to make such an accusation. There is hard evidence that sellers pay 3.0% commission to buyer agents way, way more often than any percentage less. From my experience with agents who claim other agents (but not themselves) actively engage in this illegal and unethical practice, have no proof. There may be a fear about buyer agent commissions in the real estate community.  A class-action lawsuit regarding broker commissions and their impact on consumers is one to watch. 

Essential Real Estate, LLC may be the only broker encouraging sellers to wait until they see offers to decide if they should pay 3.0% commissions. We have the evidence to prove you can spend less of your home equity on real estate commissions. Reserving your right to decide after seeing the offer is just one way our clients save thousands of dollars selling with us as their agent. What would you do with a few thousand extra bucks?

False beliefs about agency fees cost home sellers thousands

Would you promise to pay a “going rate” for something you haven’t seen? Of course not. But, homeowners selling their houses do just that with buyer agent commissions. And, the cost to the owners is staggering. 

Properties offered for sale on the REALTORS multiple listing service may include an offer of compensation to a broker who procures a buyer. More than 2,413 single-family homes in the City of Madison sold this year in the RASCW MLS. Only 174 of those sales included a cooperating broker fee offer, paid by the seller, at anything less than three percent of the purchase price. Once published, the owner is locked into paying that amount, regardless of the terms of the offers. In seventy-two percent of the sales, the owners committed to pay a 3.0% commission from the start…without seeing an Offer. Please, somebody, tell me why.  

The Cost of the 3.0% Buyer Broker Fee Myth

Owners need to know a costly myth about cooperating agents has always been out there, and it survives today. The legend says agents working with buyers won’t show your property unless their compensation is 3.0% or greater. Illogical concepts should die quickly, and yet this one doesn’t. If there was ever a time when a real estate agent could hide listed properties from buyers, those days are long gone. Zillow and similar consumer-friendly sites display homes for sale regardless of the commission the seller offers to pay. The person who offers ZERO percent before seeing an offer will have their house seen on the internet by the same people who see the neighbor’s 3.0% compensation promised place. Does anyone want to challenge that?

Too Few Homes. Many Buyers. 

Markets like this will end one day. When the market turns to favor the buyer, home sellers won’t be able to control negotiations like they can today. Clients of Essential Real Estate learn the facts as we expose the myths. More of our clients offer less than 3.0% commission to the buyer agent and wait until they see an offer to negotiate on the commission. A typical seller offers 2.0%, and because they receive competing offers, they usually pay only 2.0%. Competition and short supply have a way of making anything look better than nothing. 

Discuss this topic with agents

Questions often asked by home sellers have little to do with developing a strategy for increasing the Net proceeds for the seller. That’s too bad; the reason a home is for sale is all about the net proceeds. Increasing your net can be accomplished by increasing the price (provided someone will pay that price) or decreasing expenses. In this market, it’s possible to get higher prices and cut costs. 

If you promise to pay any amount before you see what you’re getting, there is a good chance you’re going to pay more than something is worth. Doesn’t it make sense that an offer of $2,000 below your bottom line on your $400,000 house is a lot more attractive if the fee is 1.0% less? We can do that math without a calculator. 

Will Your Home Equity Buy a Tesla For a REALTOR and a Fiat For Their Kids?

Home equity is the buried treasure of most homeowners. Other than borrowing, we uncover the gold coins by selling the home it’s buried beneath. Regardless of what we will do after we exchange the deed for cash, you and I, and all of our friends, sell for the same reason- free the equity to do the next thing.    Other people get their hands on our home equity treasure by selling our houses.

At the time of sale, our opportunities to increase our equity are over. What’s there is there, and the money owed reduces the balance we have to do whatever we have planned for our investment. The way to increase our net equity is to decrease our costs to sell. Your most expensive selling cost might be the real estate broker fee. Like a regressive sales tax, a broker fee (commission) based on a percentage of the sale price consumes an unfair share of home equity for people who can least afford it. 

 How 6.0% becomes 24.0%

You and I sell our homes for $400,000. We sell with the same real estate broker; she charges you 6.0% of the sale price, and she collects the same 6.0% from me. On our closing statements, you and I see the same real estate commission of $24,000.00. Everything is equal. Or is it? Probably not. You have a mortgage of ZERO. Your gross home equity is $400,000. I, on the other hand, have a mortgage with a balance due of $300,000. My home equity is $100,000. Your $24,000 broker fee is only 6.0% of your home equity. For me, I will need 24% of my capital to pay the broker.

You pay for lifestyles that are not your own.

BMW. Volvo. Audi. Range Rover. Tesla. You may not own one of these luxury automobiles, but if a REALTOR is driving one, someone’s paying for it. In a driveway sits a Suburban, a Jeep Wrangler, a Tesla, a Fiat. Upon parking the Fiat and exiting the car, the REALTOR-owner announced, “The last person out of the house in the morning gets stuck with the Fiat. It’s the kid’s car.” To people who want you to believe the car they drive are an indicator of their success, getting stuck with a $30,000 Fiat is as bad as it gets. I can point to a few incidents that opened my eyes to why the public needs alternative real estate solutions, and this was one. There is something wrong with taking large chunks of equity homeowners could use for the well being of their families and spending it on luxuries for our families. The real estate market runs at a pace where the least capable licensee can collect expensive cars to appear successful, and take 24% of your earned savings, doing nothing more than signing a listing contract. 

Know where your money goes

Cars, trips, real estate, luxury goods, self-promotion, lead generation, client appreciation parties, pre-game tailgates, fundraising for clean water for wealthy lake property owners become business expense write offs for some brokers. Your home equity is the revenue they use to pay the bills. Fortunately, as more brokers create alternative real estate business models, the homeowners and buyers will have a choice to keep more of their money for themselves and pay less for the lifestyles of other people. It’s essential to know the fee the broker charges and where he/she will spend your money. When your dollars are spent on luxury cars that you don’t drive and vacations you don’t take, you have the right to know where the money will go. 

Essential Real Estate’s $499 and 1.0% broker fee means more equity for you.

Buying things you don’t use is never a good idea. Buying those things for other people is charity you can choose to be part of of or not. Essential Real Estate was created to give home sellers a choice to keep more of their home equity and pay less in real estate broker fees. It’s not just the listing side of the commission where our clients save. We busted the myth of the 3.0% buyer broker commission. Our home selling clients are paying an average of 2.4% commission to buyer agents. For the person selling a $400,000 house, that little .6% is a big $2,400. Financial security is achieved by saving and paying fair prices for quality service. As long as real estate broker fees are negotiable, expect to negotiate. And if negotiating isn’t your thing, call us. We negotiated a lower broker fee and better selling terms for all of our clients. $499 plus 1.0% of the sales price is our fee. You decide how much you want to offer to a buyer broker. More of our clients offer no more than 2.0%.

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

Hold That Thought. Wait to commit to paying a set commission to a buyer agent until you see the terms of the Offer.

There is no requirement that a listing broker offers compensation of any amount to list a property on the Multiple Listing Service—the National Association of Realtors response to a claim in a new class-action suit.

However, once the broker publishes the amount of compensation in the MLS, the listing broker may not alter the percentage or dollar amount without the approval of the cooperating broker.  

A listing broker who publishes a promise to pay any money to a cooperating broker must have the seller bound (through the listing contract) to pay the same amount, or the broker will be liable to pay the compensation. A random search of homes sold since January 1, 2020, in seven Madison geographic areas gave me these results: 179/202 (88.6%) listings are published with 3.0% as the Offer of compensation to cooperating brokers (buyer agents and sub-agents). Fourteen sellers paid 2.5%. In two sales, the reward was 3.5%, and in 21 deals, the listing agent published compensation was less than 2.5%. 

There is Nothing Magical About 3.0%

I contend the reason there is nothing magical driving the 3.0% number. There is a flawed assumption driving the fact that nearly 90% of all home sellers commit to paying 3.0% commission, which may be more than necessary before they ever see an offer. The fact that 88.6% of sellers in this group promised to pay 3.0% commission does not prove that they could not have sold the property on the same terms and netted more had they promised to pay less than 3.0%. 

Keep your promise, but hold on to that commitment

Clients of Essential Real Estate, LLC are fully informed of their options and the reality of how the broker compensation and cooperation works. We prefer our clients to know that they are not obligated to promise to pay any amount before seeing the terms of an Offer. An informed home seller may be wise to wait until they see the terms of an Offer before committing themselves to pay a commission more costly than the Offer is worth. 

The Buyer Agent’s Commission is Seller Home Equity

Because real estate licensees are ethical and operate their business within the rules of license law, the commission offered by the seller or the listing agent has no consideration in their decision to present your home to their client. If there are facts to counter my assertion, please share them. American home sellers could save hundreds of millions of dollars in home equity every year by reserving their right to negotiate the commission after seeing the terms of an Offer. Clients of ours have the opportunity to keep more of their equity by knowing facts and not believing fiction.