Selling your house but choosing not to give the buyer’s agent a commission? Good luck trying to sell your house.
Do I Have to Pay the Buyer’s Agent’s Commission?
Real estate transactions typically have two agents or brokers involved, the listing agent, and the buyers agent. The listing agent takes the contract from the homeowner or seller and agrees to sell the property for a certain percentage called a commission. Typically, that commission is split in two between the listing agent and whoever brings the buyer, also called the buyer’s agent. The listing agent can be the buyer’s agent as well but it causes some issues because of the confidentiality, partiality, and of course, the listing agent is working for the seller first, not to the interest of the buyer necessarily.
Well now, a seller on the East Coast has decided that he doesn’t want to pay for the buyer’s agent commission so he has opened a class-action lawsuit against the real estate industry. Because of it, the buyer’s agent commission must be publicly declared, and because sellers can pay whatever they want, some sellers are opting not to pay a buyers agent anything.
Let’s break this down. The typical commission for a real estate transaction is 6%. This can get divided in half between the buyer’s agent and the listing agent, which means that both agents will receive 3% of the sale price of the home, not the list price. For higher-end or luxury homes this could be divided down even further meaning the listing agent will get 3% for the first $500,000 and then 1.5% thereafter or really whatever the listing agent and the seller negotiate. Once it’s written in the contract, that is the commission that must be paid out unless the contract is voided, canceled, or terminated. This is just the norm, but it really can be translated or negotiated any way the listing agent and the seller seem to fit. But it also means that sellers can choose to pay the buyers agent nothing. This might not be a big deal when the listing agent also brings the buyer since the listing agent is getting part of the commission anyway. But if there is another agent present and they realize they’re getting nothing for the job, how often do you think that sellers home is going to be viewed?
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But, then again, this comes into an ethical standpoint. Is a buyers agent really doing all they can for the buyer if they choose not to show them certain homes even if they fit their search criteria just because they’re not going to get paid? Of course, this is controversial but think of it this way, would you go to work and put in hundreds of hours if you know you’re not going to get a paycheck? So, from a seller standpoint, it is highly risky to offer nothing or less to nothing for a buyers agent to bring the buyer.
There are other ways this can go, however. On the flip side, a seller could offer more than the listing agent in hopes to get more buyers through the door. The 6% could be split in a 3.5% / 2.5% – 3.5% going toward the buyers agent. If a buyers agent has a chance of likely getting more on a commission, that home is likely to get shown a lot more. Again, yes, it does come down to ethics and it can be frustrating as a buyer not to be shown everything that might fit your search criteria, but would you want to work for nothing?
This is why it is extremely important for listing agents to be honest with sellers and homeowners about all the ramifications and repercussions that can come from offering a lower commission percentage to a buyers agent. The numbers really need to be laid out so that the seller feels comfortable offering a commission to ever sells the property, yet feel that they have gotten enough profit from the sale to benefit them going forward.
The other end of the spectrum is buyers assigning a buyers agreement with their own agent. However, many first-time buyers barely have enough to pull together for the down payment much less a 2% to 3% commission on the sale price to pay their agent. It can get built into the cost of the home as long as the property appraises for the inflated amount. So there are a lot of ways around this. But again, the bottom line is if you are a seller, how often do you think an agent is going to sell your home if you’re not offering a commission?
Let’s talk! Whether you are a buyer or a seller we can discuss commissions, what they mean, and what your bottom line is when it comes to buying or selling a property.
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