Commissions Part 2 - Sellers

Part 2: Sellers

Since the Sitzer case focused on Sellers let’s look at the implications for Sellers. A good thing this case does is remove the facade of 6% real estate commissions and increase industry transparency. This commission assumption was promoted nationwide and encouraged by the larger firms. I’ve even been “chewed out” by older agents, all of whom worked for one of the national brands because I didn’t offer 3% compensation to a buyer’s agent. This attitude is certainly not beneficial for the housing market. 

Seller Compensation

The fact that the Seller compensates a listing agent wasn’t questioned in the Sitzer case. Understandably, a service provider will be paid for services rendered. The amount is and always was NEGOTIABLE! Not all agents are the same and their services do vary. This is true among doctors, financial advisors, attorneys, insurance brokers… Evaluate what an agent provides, evaluate their character, and determine if their service and operating style meet your expectations. Then negotiate a fair compensation and move forward with selling your home. 

Concerning what you offer a Buyer Agent that decision is yours. Here are reasons why we believe offering them a commission is advantageous: 

1. Professional Representation, 88% of all real estate sales have historically been conducted with agents involved. You want their clients to see your listing and have them involved in the process. Perhaps more so than ever before, these are going to be the more serious Buyers and ones that are willing to pay to get results. 
2. Increased Visibility to your home. All MLS listings go out to the big real estate websites, so anyone searching for a home could see them. However, there is a big advantage in having an ‘objective’ set of eyes helping them look for a home.  As a Buyer’s Agent, numerous times my clients have overlooked a home that I have been able to encourage them to visit and then eventually see them purchase. 
3. Competitive Advantage. In a competitive market, providing a buyer’s agent commission could give you the edge over one not doing so. It could save the buyer money as it is not difficult to add 2 to 3 percent on a 30-year loan as opposed to paying an additional $10,000 to $20,000 out of pocket. 
4. Faster Sales Process. This keeps the process flowing as the buyer agent helps to keep their end streamlined and directed with their buyers. They understand the cadence and how the dates and negotiations are intended to work. 
5. The commission compensation is already included in the appraised value. It isn’t any additional cost to you. When commissions are less, the buyer and their agent will ask for less on the contractual offer. Without any compensation, the appraised values will go down and the net difference to the seller will probably be that 2% to 3% that would’ve been included in the appraisal is now not included in the sale.
6. Buyers will be requesting Sellers to pay commissions. We have had ‘discount brokerages’ around for a long time. They instructed us on how to ask for additional commissions in their listing when writing the contract so we received our contracted Buyer’s compensation. In the same vein, the Buyer will have an agreement with their agent that says, “If Seller will not pay, Buyer will pay…” then the Buyer Agent, will be in a fiduciary position with their client. They must ask so that the loan picks up this payment and the buyer does not have to spend, “out of pocket” more at closing to purchase your home.  This would be possibly a barrier that would be impossible for some buyers to overcome unless it was included in their loan. So, not offering compensation for the Buyer Agent, may be a hindrance that you cannot overcome for many buyers. 

How much to offer? This is up to you. In Colorado, a total amount of 5% to 5.5% is plenty for total commissions. Sometimes a home needs to be listed for 3% to the listing agent because of the complexity and the needed attention to detail. But I’m hard-pressed to value the buy side beyond 2.5%; we still see 2.8% regularly, but at our price point, that seems to be an amount on the high end. It is rare to offer the buyer agent 3%. Buyer agents do a lot of work and their assistance facilitates a quicker sale, a smoother sale, and a more predictable sales process from contract to close. 

Not all Buyer Agents are the same. Many agree that those working for the discount brokerages do not provide as much insight and assistance. So, If the Buyer Agent works for a discount brokerage, offering less would make sense. They place a greater burden on the listing agent. For them, this sale is just a ‘transaction’ and probably one of many. However many agents are not at discount brokerage firms and they will work with only a few buyers and sellers at a time and are more than willing to step up when needed to ensure the transaction goes as smoothly as possible. 

What do we communicate? We have the option to promote a specific amount or keep it generalized by letting them know that we still offer compensation without specificity. This would be us “holding our cards close to our chest”. I have seen that appraisers, as well as agents, don’t balk at small percentage changes. So, maybe we could put a couple of thousand dollars in your pocket. 

We believe the wisest option is to promote the fact that you do offer compensation. There are different reasons to specify an amount and times when to keep it vague. Probably wisest to not promote the exact amount, but let them know that compensation is offered.  Ultimately the market conditions will instruct us on promoting what you offer a buyer’s agent or keeping it quiet. Seller’s markets do not need such promotion, but a buyer’s one needs incentives. Discuss this with your agent. 

We, at Due South Realty, do believe that no longer having the Seller pay 5% to 6% to the listing brokerage is a good idea. Pay to the brokerage what you agree to pay the listing agent and then when the contract to buy and sell is presented to you from the buyer agent, at that point you can respond to their request to include the compensation of their agent into the total price of the sale of your home. Due South Realty will NOT be the recipient of the total commission value and will let you, the Seller receive any net differences between what you are willing to compensate and what you end up agreeing to compensate the buyers and their agent.  

How do we promote your commissions when promoting your home? The tools at our disposal are no longer the MLS. We cannot in any way, shape, or form promote it on the MLS! We can’t even hint that we offer compensation. We can add a rider to your sign and let them know that “Broker Compensation is Offered”. We can place that in the paper flyer and the electronic flyer as well; it can be on the website promoting your home. It can also be in our ‘follow-up ‘ emails to ensure that we remove any possible barriers from them them presenting an offer for your home. 

To summarize this connection I think a volleyball analogy could help. We could say that the listing agent does the bump and the set but it is the buyer’s agent who does the spike! As the listing agent guides you, the Seller, through the process of bringing your home to market, they then market it to agents and individuals, but they can’t force a buyer into the home. They can cast a wide net, but we need the agents to bring them in and help them understand how this home meets their goals. We work best when working together!