Agent’s Commission – How Much Should A Seller Pay?

When selling a house – is it practical for you to have it done through a real estate agent? If you want it sold fast, then the most logical thing to do is have it listed through an agent. These professional experts have experiences that can expedite the sale. But some are wary about employing an agent because of the commission outlay, an amount which could be quite material.

How much commission does a house seller have to pay to his agent? This has been a perennial question asked by a seller? Maybe there had been no straightforward answer given to this. All that has been divulged is that the agent’s commission is a percentage of the total contract price of the property sold. And that the commission is paid upon culmination of the transaction.

The truth about commission- there is no standard and legal commission rate. In reality, the setting of a fixed commission by real estate agencies is prohibited. This could be the reason why the amount of commission is not clear. Each agency has its own rate.

Real estate agencies can actually charge any commission they would want. It all depends on the people, the seller for that matter – how much this seller is willing to share to his or her agent from the proceeds of the sale. The commission can be very high as there is no ceiling. What keeps it down and reasonable is competition. Even in this setting of commission – the economic law of supply and demand seems to penetrate. The presence of many agents keeps the price down.

The commission is internal arrangement between the agency and the agents. The company can set a maximum and minimum rate for the agents and the latter are allowed to negotiate the commission with the clients. If the agent is under a broker, the commission has to be shared between them. Upon listing of the property, the agent already has stipulated the percentage of commission to be set upon sale. If this agent wants to lower this percentage, he has first to seek approval from his supervising broker. This can be done as there really is no fixed commission rate and the arrangement of rate is just internal.

But then there is one restriction – the agent can never divulge to other real estate agents the amount of commission to be put on top of the selling price. And in the same manner, real estate companies are not supposed to expose to any agent outside of the company their implemented rate. The commission earned on the sale is a split between the listing company or broker and the agent. The sharing between them is again a matter of agreement in-between.

Whatever is the amount of commission, a seller should know that he or she can haggle with it. The rate of commission, in this stiff competition, is negotiable. The seller can always search for better deal which will mean less expense for him or her.

Short Sales: Can A Bank Make A Realtor Cut His Commission?

Can a bank force a real estate agent to reduce his commission on a short sale? When you talk to a bank negotiator reviewing a short sale package, one of the first things you’re likely to hear is “you’re going to have to cut your commission or closing fee”. This is to be expected from professional negotiators trained to use scare tactics in an attempt to minimize a bank’s losses. As of March 1, 2009, Fannie Mae loan servicers cannot require real estate brokers to reduce commissions below 6 percent as a condition for a short sale approval. Even without this recent rule change (which banks often ignore anyway), banks have no authority to alter the terms of a listing agreement, which is a binding legal contract.

Nobody can force an agent to lower his commission, but a bank rep can try to bully an agent or broker into lowering it voluntarily. Here are some of the phony reasons and intimidation tactics bank reps often cite or use to get an agent to lower his commission:

1. “The investor guidelines don’t allow us to pay more than X% for a commission.” Investor guidelines have no bearing on the legal contract a broker signs with a seller. The bank can’t cut your commission, but they have a huge incentive to try to scare you into doing it yourself.

2. “We’re not or our investor is not going to pay for that.” The reality is that in a short sale, the seller’s lender is not paying for anything. The seller’s lender actually receives a check at closing-the buyer or the buyer’s lender actually pays for everything.

3. “If you won’t lower your commission, then the seller will need to get another agent.” It’s up to the seller not the bank to choose an agent to represent them. If someone says this to you, turn the conversation around and ask the bank rep “Are you suggesting that the seller break the legally binding listing contract they signed?” They usually back off real fast.

Real estate is a people business and Realtors are accustomed to trying to make everyone happy. For this reason, agents frequently give in too quickly to unreasonable demands and banks know and exploit this tendency. When you stand up to the bank and calmly explain that under no circumstances are you going to lower your commission, the bank will normally give in. If the bank does not give in, tell them that they can continue paying the taxes and insurance on the property for a few more months or they can get this bad mortgage loan off their books by honoring the terms of your listing agreement.

Why should you accept a lower commission for doing more work? As soon as you start reducing the commission you are contractually owed, the bank is likely to ask you for a bigger concession later on. If the bank believes that they can take advantage of you, they will! Take your stand at the beginning of the negotiation. Banks usually back down-sometimes immediately, in other cases it may take some time. Regardless, as long as you have a good working relationship with your client, you can wait for the bank to come to its senses. Miraculously, banks tend to be much more cooperative and less likely to try to cut commissions the closer a property gets to a foreclosure sale, so stand your ground and get paid the amount that you have earned and are entitled to receive.

How to Save Real Estate Commission

Are you tired of paying outrageous real estate commissions?

It’s a FSBO myth that you can’t sell real estate without a broker. Let me show you Six ways you can save thousands of dollars.

Six for sale by owner options:

1. Sell by owner – pay no co-op to buyer agents.
2. Sell by owner – hire a licensed broker or an attorney to write your contract.
3. Sell by owner – offer buyer agents a co-op fee.
4. List as a FSBO on MLS for a Flat Fee – pay buyer agents a co-op fee.
5. List full service MLS – pay a discounted commission.
6. Sell on eBay – pay their fees.
7. Pay an outrageous 6-7% commission.

You can mix and match to come up with several ways to save commission. Based on twenty plus years of working with For Sale by Owners, I’ll give you pros and cons and make Recommendations.

1. Sell by owner – pay no co-op to buyer agents:

You sell to a buyer who is not represented by a broker. You’re not represented by a broker so there is no commission.

Pros:

o You save commission.
o You maintain complete control.
o You don’t list with a broker.

Cons:

o There could be contract errors.
o You may not have access to State approved forms.
o You are open to legal recourse.
o The contract may not be defensible in a court of law.
o Inspections and deadlines may not be addressed.
o It’s difficult to build trust with the buyer.

Recommendation:

Use plan two.

Hire an attorney or a licensed broker to write your contract. This builds trust between you and your buyer.

2. Sell by owner – hire a licensed broker or an attorney to write the contract:

This is a smart economical choice.

Pros:

o The contract will be on the correct forms.
o Required inspections and deadlines will be addressed.
o Terms are usually defensible.
o Less chance of legal repercussions.
o Less chance of contract failure.
o You can split the cost with the buyer.
o Builds trust between you and the buyer.

Cons:

o It costs more money but it’s worth it.
o You have to find a broker or an attorney who will write the contract for a reasonable fee.

Recommendations:

Do It!

3. Sell by owner – offer buyer agents a co-op fee:

This is a good option; however, agents who have buyers may not know you have a house for sale. Pros:

o You open the market to more qualified buyers.
o A licensed agent will write the contract.
o You may sell quicker.
o It costs less than a law suit.
o You don’t have to list with a broker.
o You save money.
o You maintain control.

Cons:

o It costs more money.
o The buyer is represented by an agent. You are not.

Recommendations:

Use plan two. Hire an attorney or a licensed broker to review the contract. And, if needed, write a counter offer. Now you have someone looking out for your interest.

4. List on MLS for a flat fee – offer buyer agents a co-op:

This is the best of both worlds. You remain a for sale by owner. You remain in control. And you save half of the commission.

Pros:

o Increased buyer exposure.
o 90% of the buyers buy with a broker.
o You pay half the commission you’d pay for full service and you get full MLS exposure.
o You maintain the right to sell by owner.
o Buyer agent contracts will be on the correct forms.
o If you pay for contract assistance, all forms will be correct.
o Agents call you to set showings and to present offers.
o You maintain control.
o You increase the chances of selling.
o You will get a higher price.

Cons:

o It costs you more money
o The buyer is represented by an agent – You are not

Recommendations:

Incorporate with plan two.

Hire an attorney or a licensed broker to review your buyer agent contact and, if needed, write a counter offer. Now you have someone looking out for you. It costs far less than a law suit. You save money and maintain control.

5. Do a full service MLS listing – pay a discounted commission:

This is the great choice. You get representation. Most brokers will negotiate commission. If they won’t… Find one who will.

Pros:

o You have someone to review your offers, write counter offers and monitor the closing.
o You save money, though not as much as with a flat fee FSBO listing.
o Your contracts will be on correct forms.
o Inspections and contract dates will be monitored.
o You’re less likely to have legal repercussions.

Cons:

o It costs you more money.
o You lose some control.

6. Sell on eBay:

I know nothing about selling real estate on eBay; however, I know it is popular. I’ll make some logical assumptions:

Pros: You save commission.

Cons:

o There could be contract errors.
o You may not have access to state approved forms.
o You could be at risk for legal action.

Recommendation:

At this time, I’m not comfortable recommending eBay.

There is one more option; you could:

7. Pay an outrageous 6-7% full service commission:

Pros:

o The broker takes over the sale.
o You get a sign, MLS and various goodies.
o The broker presents offers to you.

Cons:

o You pay too much to sell your home.
o You lose control.
o I could go on and on but I won’t.

Recommendation:

Sell by owner and save thousands of dollars.
Copyright (c) 2007 Wee Dilts
Recommendation:

At this time, I’m not comfortable recommending ebay.

There is one more option; you could:

7. Pay an outrageous 6-7% full service commission:

Pros:

o The broker takes over the sale.
o You get a sign, MLS and various goodies.
o The broker presents offers to you.

Cons:

o You pay too much to sell your home.
o You lose control.
o I could go on and on but I won’t.

Recommendation:

Sell by owner and save thousands of dollars.
Copyright (c) 2007 Wee Dilts