Realtors, Commission Splits, and Homes
It has been a long time since my last post - mostly because the house hunting process, buying (a new place) and selling (the old place) is a big time commitment. A lot of stress and hardwork go into both activities.
I want to address a separate topic that recently came to light regarding real estate agents and the buyer's agent commission split. In a normal real estate transaction, the seller of a house will contract with a listing agent so that the listing agent can assist the seller with selling their home. To compensate the listing agent for selling the home, the seller agrees to pay a selling commission of between 5-6% of the selling price of the home. Of this 5-6%, 1/2 of it goes to the listing agent and the other 1/2 of it goes to the real estate agent who represents the buyer. So in a normal real estate transaction, there are 4 parties:
1) Seller (person who owns the home)
2) Selling or Listing Agent (the licensed real estate agent who actually lists the home for sale on behalf of the seller - #1)
3) Buyer (person who buys the home)
4) Buyer's agent (the licensed real estate agent who represents the buyer in this transaction)
To clarify, in the above transaction, the buyer (#3), does not have to pay any commission at all - it is covered by the seller.
Typically when a home is listed for sale by the seller's agent on the MLS (Multiple Listing Service), the home also includes a commission % that will be paid to the Buyer's Agent (#4) upon the closing of a deal. Depending on the geographic area and the price range of the home, this % usually ranges between 2.5-3% (about 1/2 of the overall commission paid by the seller).
Here is what gets me about real estate agents. I have heard many agents say that they will sort available homes for sale based on the buyer's commission %. These very same agents admit that if a home is not offering a certain % commission, they won't even bother showing the home to their buyers since the home isn't worth the agent's time. If all homes were exactly the same and had the exact same features, I can *possibly* understand the reasoning for this thinking. However, we all know that houses are not commodities - every single home is different, even a condo in a 400 unit complex. From views to location, every home has its own unique features.
I fail to understand how agents can sleep at night with this type of attitude. For me personally, if I am looking to buy a home, I want to see everything in the area for sale. I could really give a f*ck if a home doesn't pay enough commission to the buyer's agent. If I had an agent working for me who selectively showed me homes based on the agent's interests, I would immediately find another agent. The fact that this type of practice is commonplace in the real estate industry sickens me in this day and age. Real estate agents talk about this all the time - it seems to be an accepted part of doing business.
posted by Blogger @ 10:28 AM
3 comments
3 Comments:
If you are a real estate agent, you have to ask yourself if you are doing any favors to your customer if you CHOOSE not to show your customer a home he/she might be interested in solely because the seller is not paying what you perceive to be a full commission split. As a home buying customer, I would want to see all homes that match my criteria, NOT just the ones that my agent can make the most money on. I would hope that my agent would share the same sentiment. I am certainly not advocating a real estate agent work for free, however, if there is 1 home (2.5% commission split) and 1 home (3.0% commission split), I, as a customer, want to see both of them. I would want may agent to show me both homes, regardless of the .5% difference in commission they could or could not make. It just seems to me that agents who don't show homes with lower commissions to them are putting their personal interests ahead of their customers' interests. That's my only point.
Just because sellers want the commission installed into the price makes no difference. A house is only worth what the market will pay for it. Choose another Realtor if they allow you to mark up your price that percentage, because all you are getting is someone desperate for a listing. Most agents don't even bother looking at the offered commission until it is time to write up an offer or a contract is signed. Everyone looks down on Realtors, but don't even understand anything about what we do. I wouldn't even bother showing a person a house without them already signing as agreement to ensure that I get paid my going rate. If you hate so much what your Realtor gets paid, then hire one that is worth the money, by saving you money on the negotiation side.
Let me clear up the myths being perpetrated. First, the buyer is the one who is paying the commission because it is included in his purchase price, a common misconception since the fee is negotiated bythe seler an listing agent. Second, if you sign a buyer broker ageement, it states in very clear terms (at least in AZ) that the buyer IS RESPONSIBLE for paying a commission. That being said, PICK A REALTOR WITH SOME SCRUPLES! Don't just go with a cousin or family friend hat doesn't even do real estate full time, pick a great one. Ask or references from previous clients. Call them. Tell the broker, they cant do a thing if they don't know about it. There are many great realtors out there, I am a Broker with a very reputable firm an if I ever caught an agent doing that in my shop, it would be immediate termination.
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