[photopress:50_50_1.jpg,thumb,alignright]For the purposes of this discussion, let’s assume that in normal market conditions, the division of the total commission agreed to by the seller in the listing contract is divided evenly between the agent for the seller and the agent for the buyer. In the diagram, the blue portion represents the listing agent’s compensation and only the yellow portion will be the subject of this discussion.
When a seller or seller’s agent is having difficulty “moving the product”, that being the house, sometimes they will raise the “offering” to the Buyer Agent as an incentive. For instance, if the price of the house is $350,000, each percent of price equals $3,500. So the seller could offer the Buyer Agent a bonus of 1% or 2% above the area norm, and spend less than a price reduction. Let’s say that it would take a price reduction from $350,000 down to $325,000 to get the property sold. That would “cost” the seller $25,000. Instead, the seller might increase the “offering” to the buyer agent in the mls by 2%, which would only cost him $7,000 in this $350,000 example. Even if the seller doubled the “offered fee”, it would cost him less than the price reduction, as doubling the compensation to the buyer agent might cost him $10,500, and dropping the price to the point where it would sell would cost him $25,000. So increasing the offering makes total sense from the seller’s side of the fence.
OK, now for the tricky part. Click here and read this before considering the rest of this post.
[photopress:33_66_1.jpg,thumb,alignright] The seller is increasing the fee to persuade “YOUR” agent to “SELL you” his house. By doing so, “your” agent can double his money. The idea that increasing the buyer agent fee will be effective in selling the house, is a holdover from the days before buyer agency existed. As the agent for the seller, I would still use this strategy when advising the seller, as it is a more cost effective method of selling a home that isn’t “moving”. However, as a buyer agent, the concept that I might be motivated by a higher fee to me, is insulting. While I generally do not believe in buyers signing buyer agency agreements, this scenario points out one of the advantages to the buyer for doing so. Even if the buyer cannot negotiate the buyer agent fee below the area norm, the buyer can stipulate that any Buyer Agent Bonuses would go to the buyer, and not to the agent. However, a more appropriate strategy might be to ignore them entirely, and simply focus on the attributes and value of the house, without regard to these incentives.
The yellow portion of the fee is the amount that the seller offers “to the person who brings buyers to his home”. It is also, and simultaneously, the amount that the buyer perceives that he is paying to the agent for representing him, the buyer, in the transaction. Until we all agree that it is the latter and not the former, buyers will never truly have equal representation in the real estate marketplace.
This duality of purpose for the same monies, continues to be a problem in the industry. One that should be talked about a whole lot more than it is. So let’s talk. What do you think? While you can comment anonymously, please note if you are responding from the point of view of a seller, a buyer, an agent, or a giraffe.
This odd duplicity of purpose regarding the yellow portion of the fee (the mls offering/buyer agent fee) has been going on for about 15 years. It’s time we began the process of coming to terms with it, by discussing it openly. There are NO easy answers to this one, but engaging in a dialogue might help move the topic out of it’s current “holding pattern”. Until and unless agents all agree that they are in the business of representing people and not in the business of SELLING anything, we can’t get to the appropriate answer. And then the consumers would have to likewise view what is happening accordingly, and not hire an agent “to sell” their house, but to “represent them in the sale of the house”.
But we can, at least, open up Pandora’s Box in the hope that the discussions will begin moving things in the right direction.