Be gentle. It’s my first time.
While I am waiting for an agent to get back from the Seahawks’ game to look at the offer I just presented, I’ll try giving this a whirl.
I stole the Title line from Steve Miller “Take the Money and Run” to explain something you may (or may not) find to be of interest. That is, how can you get the Real Estate Commission into your pocket. Whether or not you should or should not get it, is not going to be discussed here. Let’s just assume you want it, and that is reason enough for me to describe how you may or may not be able to get it.
Let’s assume that if a real estate commission is involved, that you are either a buyer or a seller of real estate. If you are a seller, well that’s easy. You simply negotiate the fee and you get to keep the money. Trick is to get the best agent for the least money. Most think that they need to take the worst agent to pay the least money by signing up with some cheap service. NOT TRUE! All real estate commissions are negotiable with the seller, always.
I think it’s a crime and a shame that most sellers think they can’t get a top agent, without paying top dollar. I think it’s a crime and a shame that sellers think they have to go to those who advertise low fees, to get low fees. I think it’s a crime and a shame that sellers think they can’t get a really good agent, if they want to save money. Do you really think builders pay top dollar? Do you really think builders get less than superlative agents? They can do it; so can you. There is no set fee. All commissions are negotiable.
That’s the easy part. Now for the hard part.
How does the buyer get to “Take the Money and Run!”. Not quite as simple. Especially if you want the cash in your pocket, rather than an adjustment in the price of the home.
First, the basics. The contract that determines the Buyer Agent’s fee is already signed by the seller before the house ever gets in the mls. The Buyer Agent represents you and doesn’t even know the seller (usually), but the seller is the one who put the Buyer Agent’s fee into the asking price. Technically the Buyer Agent is not paid by the seller or the buyer. The Buyer Agent is paid by the Listing Company, and if the buyer takes the money from the seller, the Listing Company may still have to pay the Buyer Agent, even if that money went directly from the seller to the buyer. The Listing Company may have to pay, what they promised to pay in the mls, simply because they promised to do so. Now if that makes no sense to you whatsoever, I’m not surprised. But it’s the truth and one of the reasons why it is hard for a buyer to go around an agent they have “used” to see property.
That being said, let’s get back to the subject at hand “Take the Money and Run!” Understand that the amount of money you can receive is limited by your lender, not by the real estate agents or the seller. If you get any money, it has to be shown on the closing sheet and your lender can and does “disallow” it at the last second. So just when you thought you were going to put the money in your pocket, the lender says “No you can’t”. Getting money “off the sheet” is illegal. It’s called lender fraud. The person committing the fraud would be you the buyer, not anyone else, so be careful.
Jeez, they don’t make it easy for buyers to negotiate their agent’s fee do they? Well it can be done, and I have done it successfully and legally, but not easily.
But the Seahawks just WON!! and I have to go finish negotiating that offer. I’ll take this up again later.
Thank you for your time…and remember…be gentle…you’re my first.
That’s a really interesting post… I’m sure a bunch of people will be interested in learning more about how they can save money with a buyer’s agent!
Well I would recognize Ardell anywhere…. mabye even if not for the picture.. just her “voice.”
Interesting post.
Hello Maureen! Nice to “see” you again, and thanks for stopping in.
Ardell
A “crime and a shame” that sellers think that they will have to pay top dollar to have a first rate agent?
The best agents won’t cut their commissions and they shouldn’t. They have expertise–marketing, negotiation, law, market analysis, trend knowledge, area idiosyncracies, etc. Some people might be able to represent themselves, but most aren’t. Hiring a pro agent pays for itself.
It’s true there are a glut of agents who will be happy to reduce their commishes. (I “heard” recently that 80% of agents are new in the last 5 years.) So your reasoning that sellers will always be able to find someone is true. But where does this reasoning end? What’s the fair price? If you will always cut your commish a seller asks, what do you say to a seller that asks what your agency is worth? If you answer 3% (on your half) doesn’t that mean you’re overcharging them?
Does $.03 on the dollar seem excessive? Would you bat an eye on $30 over a $1,000 transaction. The commish rate is justified BECAUSE it is tied to the size of the asset. The larger the asset, the MORE valuable a pro realtor is.
Now, you’re larger point is that you can get a pro on the cheap. By asking them to work for less. This possiblity exists in every industry of course. You COULD negotiate with any small business owner. You could get a better deal on: a latte, carpet installation, legal defense, elective surgery, jewelry, etc. However, some business people are professionals who’s skill and artistry are worth the cost. You feel good about paying them because they are inspiring.
There’s an older wisdom at work: you get what you pay for. And plus, if your agent can’t justify their commision, aren’t they going to be weak when negotiating on your behalf? Will they be able to justify the sales price? Or will they “earn” their cut commision by leaving money/value on the table?
Excellent agents deserve top dollar. The best agents pay for themselves (esp. as the market slows). Sellers that want to earn top dollar should think twice about soliciting cut rate agents.
Ardell, I would urge you to consider taking the opposite approach and instead of cutting your commision, justify yourself as the most bad ass agent in Kirkland. This is a common marketing story. Now that you’re blogging you might want to check out a couple great feeds. Gaping Void has a recent reference. Seth Godin is one of daddies.
Thanks for writing.
Joe
Hi Joe,
We had a client last year who bought 5 properties from us in one year. Do you really think the price to buy seven houses is 7 X going rate? Of course not. We are not talking about “cutting” commissions, we are talking about options that you and I both know exist, except for those who are told they do not exist.
I have been in this business a very long time and I have even had people come to pay me more than the commission. I didn’t cash the check, but I framed it! But if you think that someone should pay the same price if they want to look at houses for a year as the buyer who walks in and says I want to buy that house right there…you are singing a same old tune that consumers are getting too smart to listen to.
There is no commission to “cut” because there is no standard fee. The fee is what is fair and makes sense to me and my client on any given day. What are you cutting down from, Joe? Is there price fixing in real estate. Say it ain’t so, Joe! LOL
Ardell
One more thing, Joe. Why do the same agents who think the consumer should pay more and more, pay their brokers less and less? Why do agents who want to cap out and receive 100% of their commissions, not have a cap point for the consumer? What’s good for the goose is good for the gander. When you pay the Broker the same amount no matter what…we’ll talk.
You can’t keep all the chips over on your side of the table. It just isn’t fair and they are “Mad As Hell and Not Gonna Take It Anymore!” LOL I loved that movie.
Ardell
Mmmm…good points.
Seven houses. That sounds like a slightly different biz model than I was imagining. I’m guessing those investors already know about “asking realtors about options.” Good on ya though if you’ve got a few of those clients in your rolodex.
Lots of people buy stuff that is more expensive. People think that if it costs more it is better. I bought a shinny Powerbook recently–it cost more. Is it better? I was happy to pay even though I could have gotten a cheaper laptop.
I can’t deny that paying less has a certain allure:). Wal-Mart’s business success is undeniable and fully built on delivering price value to consumers. Except, that the logic of constantly providing cheaper services creates momentum towards cutting corners and external costs. There is more to value than price.
I guess the agents (attorneys, carpenters, baristas, web designers, etc.) I have worked with in the vast majority of cases don’t inflate their prices. They are experts that earn their dough. I would feel weird asking them, as a rule, to do the same amount of work for less money.
Tying the commission to the sales price (not price fixing yo!:) seems like an equitable way to identify a fair pricing point. And $.03 on the dollar doesn’t seem excessive.
Yeah, the commish causes alot of people think “I oughta be a pro real estate agent.” The same lure drives alot of kids to think “I oughta be a pro football player.” GO HAWKS! But only some people have the skills…and if they do they should be paid. Expertise pays for itself, imo. In cases where sellers want the best representation, they should be willing (and happy) to pay for the best.
So, I agree with you Ardell that there are definitely circumstances where negotiating down the commish is reasonable. Maybe selling a house aint so hard? And also, the freeing of market information reduces the marginal value of some agents (shout out to the listings/mapping software crew). However, the basic notion that “commisions are too high” ignores the killer value that the best agents provide.
And yeah, if brokers provide kick ass support, insightful training, quality office space, color-laser printing resources, a fast internet connection, yummy coffee, stimulating meetings etc. agents should be happy to pay as well. People will pay for amazing stuff.
Joe
Btw, apologies for dropping Apple and Walmart in the same post;)
One of the problems in our business is that everyone expects to make the same amount on a sale, whether it is their first sale or 1000th sale. New lawyers may get $100 an hour and a top notch lawyer may get $500 an hour. The real estate industry doesn’t make the distinction between “wet behind the ears” and a pro when it comes to what does someone pay for our services.
As to your comment that a savvy investor of multiple properties knows to ask about options, that is my point. They shouldn’t have to ask that question. The options should be offered, not asked for. That gives the “sqeaky wheel the grease” and the poor nice guy the bum’s rush. It is hard to train agents to be fair. At the end of a transaction, if I feel the fee is higher than it should be, I cut it right there at the table, even though I don’t have to and no one asked me to cut it.
That is not determined by the size of the fee. I do a mental calculation of my time invested and whether or not the client did their part in the process to make things less difficult. A myriad of factors determine what is fair and what is not fair. Sometimes I buy them a washer and dryer. Sometimes I pay a handyman to go over and do some things I heard them want to do as we discussed the property during escrow. There are many ways to provide fairness and even the score at the end of the game.
On another note, we’re hiring an agent today. She told us what she wanted as a split and we knew that was less than what we had planned to offer her. We gave her what we had planned to offer her and she almost fell on the floor when we offered to pay her more than she wanted. You do what is fair, not what you can get away with.
Nice chatting with you. If I knew your last name I’d stop by and say hi when I’m “in the neighborhood”. Visit my blog and let’s chat some more. Just click the big button on my site SearchingSeattle.com.
Ardell
Interesting conversation…thanks for the thoughtful responses Ardell.
Obviously these questions aren’t going away soon.
One of these days I’ll get my blog going again…until then my name is Joe Sullivan and I live on Delridge’s eastern slope in West Seattle…though I don’t have any office space for you to “drop by.” If you need to contact me for some reason, it’s cool with me if Dustin gives you my email address.
My main point is that there is a market for full commission agents.
Respect,
Joe
And my point is that ALLagents should be all things from full commission agents to flat fee agents, because that’s the law and that’s what is fair and honest.
Ardell
As someone who has a house that I’m thinking seriously of selling, I’m very interested in what it will cost me… If my home were to sell for $300K, and I had agreed to a 6% commission, that is $18K “off the top”. If I were to sell it myself (just kidding) and use an attorney to keep the paperwork legal, it might cost me $3K. I’m sure the difference of $15K would be worth it in some circumstances. But in a market where houses in my price bracket are selling quickly, it seems like a lot of money. (Like 7 or 8 years of very nice week long vacations for my spouse and I.) I don’t know what flat fee might be “fair”, but from the agents point of view, what makes a lower commission a win-win? What can I as a seller do/offer to make a discount attractive to the listing company? Thoughts?
Hi Alphie,
First, most times a For Sale By Owner is sold by an agent who comes to you with a buyer. So you end up paying for that agent who does not work for you, even if you are a For Sale By Owner. You don’t know until someone calls and comes a knocking just how much you may or may not “save”.
The big advantage of listing the property in the mls is to get the word out to a lot of buyers, not just those in your neighborhood or who happen to see your ad. A lot of agents won’t pursue a For Sale By Owner unless there’s no way around it because the buyer called the agent and wants to see it. Most times the agent will try very hard to find them something “better” that is listed for sale in the mls. So you might be working against yourself, in that regard.
So generally speaking you will have to pay the other agent who brings the buyer and the attorney, so you might be losing more than you are saving by limiting your pool of buyers to those who happen upon you.
I can’t tell if you are in the Seattle Area. But this is what I would do if you came to me with that scenario. You think you can get $300,000 and save $15,000. Let’s say you are right. I say I can list it at $319,999, stage it for you and set it up so you can get the $15,000 extra you need to get full and good representation. If you get the extra amount and everything goes well, you are happy. If I can’t get that much (and some times I know that when I see the house) you can discount the fee down to compensate.
But thinking a For Sale By Owner doesn’t pay any agents is not very realistic. Most For Sale By Owners are sold by agents who have buyers. Just because you don’t need or want to be represented does not necessarily mean the buyer will give up their buyer’s agent who helps them with the loan and escrow process.
If you can get your house up on the market, now, during the “off” season, when there is very little competition, you can likely get that extra amount you need to pay the commissions. If you spend all of your time getting your house ready, with the agent’s assistance, so it will sell higher instead of worrying about the commission, you will likely net more money in the end.
Buyers will pay more for a house that is showing in it’s best possible condition with all the little staging tricks. So focus on getting top dollar, more than you expect, than saving money.
I say this because of your price range. If you said your property was a lot more money and the commission was a lot more money, my advice might be different. I don’t give the same advice to all people, but this is what my gut is telling me you should do. Of course, I’d have to know more about the house to really answer the question accurately.
Best of luck!
Feel free to email me at Ardell@SoundRealty.Biz if you want to talk about this further.
Ardell
Remember Alphie, two agents get paid with that money, not one. Most times the agent you hire gets half and the agent who brings and represents the buyer (who is not your agent) gets the other half. You can easily work a discount with your agent if the buyer comes to him/her directly and you can insist they do things to help make that happen. Make sure your house is really ready for people to see it, before you list it, and have an Open House right away. That’s a good formula for a fast high sale in your price range.
Ardell
Alphie,
The other bit of advice I would add is that just as you should always get multiple mortgage quotes, you should interview multiple agents (and be open about it!). Good real estate agent are a competitive breed and will definitely put 110% into getting each and every listing. For the very good reasons that Ardel mentions above, you might not go with the “cheapest” agent that you interview, but more importantly, you should go with the agent that you feel is most likely to execute a plan to get you the most money for your home! Best of luck!
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