[photopress:int_auction.jpg,thumb,alignright]I was reading Greg’s newest article on Buyer Agent Commissions and thought it might add more information to both his readers and ours, to run a “Point Counter Point” kind of discussion. So I have his article up side by side and will touch on some of the points where I either disagree with Greg, or have something to add.
Greg: “Want to foment a revolution in residential real estate?…(buyers just say) these five simple words: ‘How much do you charge?’…Historically, buyers have not understood that they, too, pay for representation”.
Greg, while the concept is indeed “revolutionary” in one sense, I find that most consumers would like we in the industry, to lead the revolution and win that battle for them, rather than being involved in the process of that change in the industry. Of course here in the Seattle area we have Redfin leading the charge, by revealing that there is a Buyer Agent Fee.
Sometimes Greg and I shake our heads at the shenanigans of the industry that pretend there really is no Buyer Agent Fee. Buy how can Greg expect the buyer consumers to lead this needed change in the industry, when most buyers NEVER even see the fee? Does anyone know a public search site that shows the Buyer Agent fee to the consumer? Does anyone’s mls system print the Buyer Agent Fee on the client version of the property printout? Has anyone seen the Buyer Agent fee show on the Buyer’s Closing Statement when the transaction closes?
How is a buyer supposed to even verify that the agreed upon amount, is what the buyer agent in the end collected? The commission paid to both the Seller’s Agent AND the Buyer’s Agent, only shows on the seller’s closing statement and NOT on the buyer’s closing statement. “Oh, yeah…I charged you ten bucks . You want to SEE it? Oh, sorry, that’s a seller privacy issue. You can’t see the actual fee charged. Just trust me on that ”
I’m not going to go into the “chicken or the egg” debate agents like to play with regard to who “actually” pays the commission, because it truely is purely subtrefuge. I often wonder how they’ve gotten away with it for all of these years, but then we really do know how they’ve gotten away with it for all of these years, don’t we? Because buyers really like the idea that it’s free and don’t want to sign an agreement to the lower amount, because they really don’t want to sign an agreement with an agent at all…even if it does save them money. They want the lower amount with no strings attached. Not saying they are wrong, and I actually honor that. But let’s not pretend this isn’t a two way street.
I don’t like Greg’s answer either, because he makes it looks like the buyer pays the seller’s agent fee too, and that’s just a pendulum swing to the subtrefuge, which doesn’t work either. Seller pays his agent and buyer pays his agent, is the only rational answer, regardless, so each knows the cost for their side and negotiates their side and sees their side at the end.
Greg says: “We baby buyers, (by) telling them tender, loving lies: ‘Buyer representations is free.’ ‘I’m paid by the seller.’ ‘My services cost you nothing.'” Truth is, buyers really do like these lies up to a point. They really do like to believe that is is free and the seller is paying it. Buyers like to “receive money from the agent” like the Redfin cashback. It’s a whole lot more fun to believe that they are “getting back” $20,000 than to understand that they are paying $10,000. They are not really getting back anything, they are financing their cash credit, if they take it in cash or cash credits. To truly save something, they have to negotiate a sale price with the seller and AFTER the fact, reduce the purchase price by the negotiated buyer agent fee difference. Otherwise they are including the full fee and they are paying it with interest for 30 years! They are borrowing it from the lender, not “saving” it.
Greg says: “If you’re buying a new build, the builder may be paying “your” agent a huge commission. You should negotiate to make sure that you receive any funds over a reasonable rate”.
Well, of course, it does NOT only apply to new build. Here’s my comment on new build though. I just got an email while I was writing this that said “$5,000 bonus on last 5 units!” I deleted the email after mentally translating it to say, “We’ll pay you an extra $5,000 if you will help us get rid of the five last dogs that no one seems to want.”
And last but not least, Greg says: “…you will not get to a more reasonable buyer’s agent commission without mastring those five little words: “How much do you charge?” (That question seller’s have known to ask forever because sellers understand that they are hiring a Realtor and it isn’t free – paraphrased).
But Greg does not give any advice regarding what to respond when the agent replies: “What do I charge? Why nothing! It’s Free! The Seller pays it! Greg, if you want them to ask the question, you have have to give them a little more advice than simply asking the question that will initiate the response of free, that we both know many will get. Let’s have a follow up piece titled, “What do you say to a buyer agent who tells you his services are FREE?”
> What do you say to a buyer agent who tells you his services are FREE?
Excellent! Let’s sign an agreement right now that any pesky sales commission the seller or listing agent might try to pay you, in ignorance of your vow of poverty, is to be conceded in total to me.
I’m in and out. I’ll take a longer look at this later.
Here is a redacted version of title instructions I wrote yesterday:
This is reflected in the Buyer-Broker Agreement also. As with the Listing Agreement, title does as directed.
Greg, If a buyer needs to sign a contract to talk about commissions, the pupose becomes for the agent to get a contract, and not for the buyer to…anything.
I know you were on the run when you wrote that, but it became all about you getting a contract and your paying the buyer 1% to get a contract.
Is that really what you are about? You are willing to pay for their loyalty? Somehow that doesn’t translate into negotiating the fee nor does it empower the buyer. It looks like a gimmick to get what YOU want from them…a contract.
I’ve yet had a seller reach into his wallet and dig for my listing fees. When a selling client asks me how much my fees will cost him, my reply is along the lines of 6% of the final sales price which would mean $12,000 of your proceeds from the sale of the property. (think $200,000 sale price)
In actuality, it’s not costing the seller anything. Why?? Because without a buyer that is ready willing and able to pay the purchase price, my service fees cost the seller nothing. If the seller doens’t sell his property he/she does not really have access to what would equal the fees anyway.
Without a buyer and a seller in agreement on terms, there is no money being spent by the seller. And when the money is spent, it is spent by the buyer.
Honestly Greg has enlightened me on this subject somewhat. It has become a reason that I’ve come to not really like fees based on percentages.
I’d rather tell a selling client that I’d like to be reimbursed at closing of my marketing costs (signage, ads, etc.), and that my fee to negotiate and handle the transaction is $_________ (fill in the blank). Oh, and if you want to place the listing in the MLS we will negotitate an additional fee of $________ for that option. Those fees will be paid with the funds the buyer provides and your proceeds will equal less this amount.
I realize that there will be selling clients that may perhaps have to reach into their wallet to settle up on the closing, and my fees may be a reason for that, or at least an additional reason. In that case the term negotitation comes into play and I always say that anything and everything is negotiable.
Ardell, I think you’re splitting hairs here – maybe you should just print his piece with your edits? It sounds like you disagree with his points, but I can’t see how.
Everything and anything may be negotiable, but if my buyer or seller is not satisfied with the result of the negotiations I wouldn’t expect them to enter into any agreement.
Likewise, if I’m not happy with the results of negotiations, I wouldn’t expect myself to enter into any agreement.
Personally, I think there are better ways of building a business than constantly telling people that every other agent is hiding things from them. (Sorry, Ardell … don’t necessarily mean you and I’m now in the process of hojacking the post.) Tell me what you do, not what the others are not telling you they’re doing.
Unless, of course, the goal is to win the services of the bubble crowd where paranoia is regarded as wisdom.
I have NEVER had a client tell me I made too much money in a transaction. And the buyers know that I’m not working pro bono.
On the HUD, the commission necessarily is a line item deducted from the sellers’ proceeds because the commission is paid as a result of an agreement between the seller and the listing agent. Unless written otherwise in the listing agreement, that fee is the same regardless of whether there’s a second agent in the fray. Perhaps you don’t agree with that method of business, and that’s fine.
Scratch out your boilerplate and add your own language. I’ve done it. Others have as well. We just don’t take the time to point fingers at the industry as a whole and say bad, bad agent.
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Galen,
I think Greg understands that he and I and Redfin, as far as I know, are the only ones talking about this issue. Most agents do the “buyer agent is a free service” line.
So the primary issue is to get agents talking to each other, maybe split a few hairs, so that people like Todd up there who was somewhat “converted” by Gregtalk, get a chance to see an exchange of ideas.
There are very few people that will talk about this subject. In fact when KOMO news called me and wanted to talk about something hard hitting, I suggest buyer agent fee issues. And she said, oh no, not THAT controversial!
Getting it out in the open is good for everyone, as the idea will grow from there. And talking to buyers about commissions doesn’t mean you have to GIVE them any of the commission. It just means we shouldn’t pretend there isn’t one by saying its FREE, which all agents have done until recently, and most still do.
Johnathon,
Regarding your private email, you never have to apologize to me for speaking your mind…never.
Why do you think the buyer does not get to see the commission paid to HIS agent? You know that is not true everywhere, by the way. Mostly on the West Coast and in places where the fees are higher.
As to your comments, 98% of the industry does not discuss commissions with the buyer. This is about the fact that the industry needs to change and stop hiding fees from buyers.
This is not about what I personally do or what Greg does or Redfin. If we all do things very quietly, we do not help to change things for the better as a whole. Look up there. Todd changed because he heard Greg talking about it.
People confuse disclosure with discounting. Todd knows that we are not allowed to talk actual percentages and fees, really. That is why it looks like we are beating around the bush a lot. There are laws against all agreeing to the same fee, even if that fee is lower than somewhat might expect. We can’t fix an industry price (even though that’s what NOT talking about it does, in the long run), so we have to tackle the topic, and not the fee amount.
The more people talk about it the more the buyers will force agents to reveal it. The fee is HIDDEN from the buyer and said to be paid by the seller. Greg and I and Redfin and a few others know otherwise, and talking about it will spread the number of agents who talk about it until all buyers CAN talk about it with their agents.
It’s a major industry change that is long overdo.
> It’s a major industry change that is long overdo.
Amen! The rest is details, and the truth will out.
Greg,
After reading your last article, I see that in AZ the buyer DOES at least see the Buyer Agent Fee on the closing statement.
Here in the Seattle area (and in most of CA), buyers do not get to see both sides of the HUD 1, and so never see the buyer agent fee.
Tim? Lynlee? Why is that? Why do many parts of the Country show the fee charged to both parties, but not so here? Why can’t the buyer see the commissions?
> Here in the Seattle area (and in most of CA), buyers do not get to see both sides of the HUD 1, and so never see the buyer agent fee.
Weird. But, if there is a Buyer Broker Agreement, full disclosure can be one of the terms. Even if there is some privacy restraint on the listing agent’s commission, the buyer’s agent surely can disclose his or her own compensation.
Well, not necessarily Greg. The “disclosure” issue is about the seller and the escrow company not showing the seller side the buyer side. An agreement between the buyer agent and the buyer client doesn’t help if it is the seller side they need to see. The buyer agent doesn’t control the seller side, and so can’t make that promise in the buyer agency agreement. I guess they could show them the check after the fact, but at the time of signing, they only see their side of the HUD 1 because ESCROW is doing it that way. If seller insists on THEIR escrow company, the buyer agent has fewer “friends at court” to modify common practice.
Why couldn’t the buyer’s agent disclose the buyer’s agent’s compensation by separate disclosure? Moreover, won’t the title company honor the terms of the Buyer Broker Agreement or a separate unilateral escrow instruction (like the one I put in comment #1 above)? I don’t understand how anything is being concealed from the buyer, anyway, since RESPA requires full disclosure of all funds in the transaction, but this is not an insuperable problem.
Greg,
I am not dropping this because it is very important here in the Seattle Area. The Seller’s side shows all commissions and the seller’s payoffs and the seller’s net proceeds. I agree that some things on the seller’s side are not any of the buyer’s business, like if there are penalties for being two month’s behind in their mortgage at time of sale.
Getting the seller’s agent’s commission showing on the seller side of the HUD 1 and the buyer’s agents commission on the buyer’s side would be a huge step ahead on all fronts. Agents could not say the seller was paying for the buyer, etc..
Why can’t that be done? Why can’t the fees show on the sides of their respective agents? How can the entire Country effect that change all at once? Who can we write to regarding the rule that says all commissions must show on the seller’s side of the HUD 1?
Ardell,
“Why can’t the fees show on the sides of their respective agents?” – They do.
The escrow software we use prints both the listing and selling commissions on both buyers and sellers settlement statements.
The commissions print on lines 701 & 702 of the HUD -1 Settlement Statement. I think this is standard regardless of the software used, but I don’t know for sure.
> The commissions print on lines 701 & 702 of the HUD -1 Settlement Statement. I think this is standard regardless of the software used, but I don’t know for sure.
I just looked at two from Phoenix, Fidelity and First American: Lines 701, 702 and totaled on line 703, top of page 2.
Even though our Listing Agreemment details the commission split, I always have to fill out a separate form for title repeating that information. When I represent the Buyer, I send in separate unilateral instructions repeating the details from the Buyer Broker Agreement. Seems redundant to me, but title companies are addicted to paper.
I should have known Lynlee would have it right! But I’ll have to wait until the third time around, 1st time I used Legacy I had the seller side and this time there is NO buyer agent fee. So we’ll have to do another together for me to see that.
Greg,
Do you have escrow in Phoenix? Here we as the agents get a copy of the full HUD 1 after closing, but the parties, buyer and seller, have the other sides column blank. Do the buyers see the seller’s payoff info and net proceeds there?
Everything. All one form. The parties sign separately, so they usually see a pre-audit version when they sign, but the final version is included in their settlement packages.
Who pays the commission is all semantics, really. The buyer will not pay LESS for the house if there’s no buyers agent involved, and if the buyer’s agent is offered less than the usual 3% commission, sellers will try to pocket it themselves by having the house listed at the same price as other homes that offer full commission.
And a good buyer’s agent will show their buyer why they think the house price is a fair one, or why they need to offer less, thus saving them a lot of money, potentially. I don’t see the point for all the discussion here.
> Who pays the commission is all semantics, really.
I would disagree with that. Buyers have been persistently misled about who pays the commissions, which skews their behavior.
> The buyer will not pay LESS for the house if there’s no buyers agent involved
Let’s put the buyer’s agent’s compensation under the buyer’s control and see what happens. A buyer who hires me to help execute a transaction he or she has already decided to undertake should pay less for my representation than a buyer commencing a completely unfocused home search. Do you disagree?
Ours is the only sort of business where compensation is completely uncoupled from effort and costs. That’s absurd, particularly as home prices surge upward. Doubly absurd when you consider that there is a glacial glut of real estate licensees.
> I don’t see the point for all the discussion here.
How about because the things most worth talking about are the ones no one ever wants to talk about? 😉
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Ron,
In my vast experience on speaking with agents on this topic around the Country, the same agents who think the seller pays the fee, are the same agents who think the buyer should “put up and shut up”. Who say “the buyer is getting a free ride and beggars can’t be choosers”.
The reason I harp on getting more and more agents to recognize that the buyer IS IN FACT paying for the buyer agent’s fee, is to sway more agents from “seller oriented thinking” across the board.
You are absolutely correct that it is semantics and a good buyer’s agent will give good advices. But again, in my experience, those agents recognize that the buyer “pays”. The ones who do not give good advices think the seller pays. And right now, the majority of agents think the seller pays, and they offer services to the buyer based on it being a “free” service not worthy of their best efforts.
The vast majority of agents in this country think they get paid to bring a buyer TO the seller, and are paid by the seller to do that. Semantics…yes. Insignificant issue…no.
Ron, you seem to “get it”, so tell me. Do you think the seller pays you to bring them the buyer? Or do you think the seller provides for the amount in the sale price, and the buyer pays his agent within that sale price? My guess from your comment is that you recognize the latter and act accordingly.
Now when you meet an agent who treats buyers like “SOBs who won’t buy something yet!” ask them who they think is paying them…odds are they will answer that the seller is paying them.
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If you give home buyers disclosure of the real estate commission they will do the same as home sellers. They will attempt to negotiate the fee’s and the alternative models will pick up market share much like discount and flat fee models have.
Jessie,
You can’t keep something secret because the client may have a question or want to negotiate. I haven’t had any trouble with it. How can agents say sellers have to disclose EVERYTHING and then not disclose the basic of issues, the commission, to the buyer.
Sometimes I say the seller will likely be offering 3% and in your price range, I’m not likely to negotiate that. Sometimes I tell them up front that I am going to refund 1% based on their price range. Sometimes I don’t charge anything if it is my listing. I haven’t found anyone to be unreasonable at the time we discuss the commission.
This fear of telling people what they are going to pay you is strange to me. I find the fear to be unfounded, and if you can’t communicate with your client, you likely shouldn’t be working with them. Best to find that out up front.
Anytime a client and I have decided not to work together, it has not been based on commissions.
What !!! Is the issue dead, or is that all you guys are tired of running in circles. Well, here we go. Lets do CPR to the age old question, since I am new in the game, and you guys have confused me more every time. Here’s my take on this. Yes! The buyer is paying the money. But none of that money, or any portion of it, is categorized as Buyer’s Representative’s commission. When the money comes to the table, the buyer is not allowed to deduct any portion from the chunk, saying that my agent says, I don’t have to pay him. That chunk is not his to reduce by that amount. It’s like in any office situation, where, what an employee is getting for a bi-weekly paycheck is not another employee’s business, unless the employer discloses it. However, on the other hand, Mr. Seller has all the control by the power of negotiation, on how much the buyer’s agent gets for his/her compensation. As far as Mr. Buyer is concerned, his agent might not get a dime, because he did not negotiate with seller’s agent correctly, regardless of what the agent put down in the Buyer’s contract. So, I think, who ever has control on the boot, is understood to be paying. Am I correct? Close? Way off?
I am going to negotiate for my first contract soon. So, please help. But, PLEASE do not confuse me more.
The only confusion Neil, lies in the question of whether or not what IS is what SHOULD BE, and whether or not you are interested in being part of that change.
If you only wish to know the current and historical reality, then go to your broker. On a blog we are discussing change and doing our best to instigate and invoke that change. This is not an agent tutorial unless the agent wants to strive for a better reality for buyer consumers.
When you say “first contract” are you talking about writing an offer for your buyer client to purchase a home? Or are you talking your first contract with a buyer client with regard to representing that client? Or your first listing agreement signed between you and your seller client?
If you will give me the basic info regarding what kind of contract, what State you are in and whether you represent the buyer or the seller, I will do my best to answer your question without confusing you more.
Well, I am from East Coast (The Far Side). The laws may be a bit different, the issue is the same nonethe less. As I said in my comment, when the money comes to the table, who controls it and what part of it, decides who is paying what to who. The lender doesn’t categorize any portion of it as brokerage or agents’ fee, or any other category. So, as far as buyer is concerned he is paying for the house that he agreed to buy. All concerned parties negotiate their cut with the seller or his agent. So, I guess as it stands for now, seller is paying to both sides. And that’s just my understanding. If I am wrong, I am open to correction. As far as “Change” is concerned, change is good, it always is. May be the change will clear the mist, so I am all for it. I have a long (20+ years of IT background in Manufacturing. I have seen manufacturing changing from very unstructured (just like real estate) to very structured model, although not perfect. So, I guess Real Estate does need to evolve also, and it will in time, I hope.
But thanks for your response,
Neil
Hi Neil,
I worked in PA, NJ and FL. Most of the East Coast is not where change is coming from with regard to buyer agency in the last few years, so unless you are in Boston, you don’t have to worry much about our discussions.
I think you said this is your first contract, so better to consult with your broker than internet discussions thousands of miles away.
Good luck!
Hello Ardell,
I guess you covered the entire East Coast. No, I am not from Boston.
And no, I had no intentions of stepping on toes. I have always been told, you learn from anywhere you can. You can’t set boundaries or limitations. I came half the globe around (well amost exactly), so whats a few thousands of miles.
Anyway, I will take your advice, and keep out of your business. Sorry, if you felt offended. That wasn’t my intention.
Neil
Neil,
I’m just saying you might not be ready to fight the battles of buyers having more of a say in commission issues. I’m not the least bit offended, but don’t ask us not to confuse you on this issue.
Many have to be confused before the issue is resolved.
When you start to see the unfairness of this statement “All concerned parties negotiate their cut with the seller or his agent” and why the buyer’s agent shouldn’t be negotiating their “cut” with the seller, stop on back.
Wow, did I just stumble upon my question on the future of realestate. I’ve been an agent for 20 years, and feel that it’s about time that the truth of commission distribution change. NAR has done wonders to put out the word about representation and who’s working for who? The next big step to be solved – is if we are defining relationships clearly to all parties, why isn’t it time that buyers pay for their services and sellers pay for theirs. I believe marketing agents should only charge the seller a listing fee and if a buyer comes in with a buyers agent, the buyer agent should have a buyer contract to protect their interest with their client. In the agmts there are spots to put their buyer agent fees to protect their commission. if the buyer doesn’t want to pay upfront, why can’t their closing cost of their agent fees be listed in the offer to purchase with cash back to the buyer and treated like buyer closing costs, or included on the HUD as buyer closing costs like the mortgage companies do (they collect for title fees, payoff fees, credit report fees, etc from outside vendors.) what’s the difference if they collect buyer agent fees? The HUD comments above are interesting and would lovee to hear more. The other question I have is that if you can list 0% commission to a buyers agent in MLS? You might say what agent would show my home if I offer them 0, but in turn if you are working as a true buyers agent, it’s your obligation to show them all property available (including FSBO’s if agreed to in your contract), regardless of your financial incentives. I’ll bet that true buyer agents will have contracts with ther clients and act as true buyer agents vs just checking off on the agency disclosure that you are just acting as a buyers agent. i believe it would make everyone do their jobs a little better. Looking forward to hearing your take on what I believe is the future trend of Realestate.
Debbie,
Where are you licensed? Is there any pressure to improve buyer representation or to include buyers in the discussion of commissions?
I think the first step is to agree that the seller’s agent shouldn’t get to keep the buyer agent fee when the buyer has no representation. Are you ready for that step?
Well that would be discussed in the agreement between the seller and the sellers agent and technically doesn’t have anything to do with buyer & BA. But, I would believe that the seller would be very upset to know that they paid the entire amount when usually the sellers agent convinced the seller that their 5/6% commission isn’t entirely there’s when in discussion of getting the the listing agmt signed in the 1st place. The Buyer agent could include a clause/addendum in the offer that states that they refuse their offering of commission, then it would be upto the seller & listing agent to discuss the outcome of this disclosure. In my thoughts with my idea of commission, I wouldn’t be working with a buyer without a buyers contract in the 1st place and if a sellers agent offers compensation why not take it. But I’m talking about saving the seller the buyer agents fee. Why do you think so many sellers are going FSBO, their tired of paying the full commission.
Debbie,
If you have a buyer agency agreement with your buyer client for 3% and the seller is offering 5%, does the seller and his agent get to keep the 2% difference?
I know y’all have been discussing this from an Agent Point of View. Do you have any guidance for me, a Buyer, (the one spending hundreds of thousands) and what options i have to negotiate with the Buyer’s Agent commission on a transaction?
Right now, I’m in Austin Texas. I myself found a house i would like to buy and was given a tour by the listing agent. I want to buy it, but i want the discount of not needing all of a buyer’s agent services. The listing agent says the seller already agreed to the higher percentage to cover seller and buyer agents.
Gabriel,
Texas is one of the States I am not familiar with. Generally the best way to have some say in the matter of commissions is to work that out with an agent prior to seeing the house. I would expect Texas to be one of the States where you can’t be forced into Dual Agency without the written consent of both the buyer and the seller. So you should have some say in the selection of agent services.
It would appear from what you have said that the listing agent is not amenable to anything short of keeping both commissions. It also sounds like you didn’t just happen into the house at an Open House. when you say “given a tour by the listing agent”, it sounds like you called the listing agent to see the property. So you have already set a chain of events into motion that will result in the sale, and it may be too late for an agent of your choice to step in at this point.
You best bet is likely to make an offer at the price you feel is appropriate, less 3%. If there are no other buyers and a motivated agent and seller, you may be successful, with the agent and seller working through any appropriate changes in the commission to make your offer work for all parties.
Gabriel,
I did a little checking, and Austin is one of the mls’s that was sued by the FTC back in 2006 for hindering limited service companies.
http://realtytimes.com/rtpages/20060714_ftcbattle.htm
Consequently I would expect the “procuring cause”, that being the lisitng agent having shown you the property, to be a significant hindrance to your attempting to change the flow of events from this point. Seattle is one of the leading areas for progressive change. I don’t believe that Austin is…but I could be wrong. Let us know how it turns out. We’d appreciate it.
On line 703 of the HUD-1, a buyer will find the commission paid to the buyer’s agent; this commission is generally 50% of the total commission paid by the seller. If there is no buyer’s agent, then line 702 will reflect the entire commission going to the seller’s agent [listing agent].