Divorcing Real Estate Commissions: Has Anyone Asked the Buyers?
Posted on November 2nd, 2007 by Jonathan Dalton
Last night I was putting together an offer on a short sale, currently the bane of the MLS for a number of reasons (which I’ll get to either this afternoon or tomorrow), when a client and I had a conversation over the commission.
In short, the listing agent had indicated that the co-broke listed in the MLS was subject to bank approval counter to MLS rules. And since I’m a businessman requiring a degree of certainty in compensation (if I wanted to put in a considerable amount of time working for no financial reward I’d take a listing), part of the offer package I’d e-mailed to this client included a Buyer Broker Agreement with a set commission rate.
He balked but it was his argument that struck me: “In my opinion it is the seller who hires and agent to make the sale and they should pay any commissions.”
We can argue that the argument is based in the days of sub-agency when only the seller was represented in a transaction and that it has no place in todays’ world of buyer agency. Except this was coming from a client who understood quite well who I was representing in the transaction and still felt it was up to the seller to offer the commission to make the sale.
Oh … and was the second client in a week to tell me the same thing.
(Before you go there, my explanation of agency is pretty good. At least as good as anyone can make a rather tedious subject.)
The above attitude could be a by-product of years of training the consumer to believe it’s the seller in a real estate transaction responsible for the commission. But this wouldn’t be the first thing to fall into such a category. Buyers ask us how long homes have been on the market, an arbitrary figure, because they’ve been taught over time to ask. Buyers make their purchasing decisions based on days on market, a thoroughly arbitrary number that’s indicative of next to nothing.
But maybe … just maybe … not everyone’s interested in being educated in what’s supposed to be important to them. Maybe they believe what they believe for a reason, and there’s validity to that belief.
Just something to think about.
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Jonathan — >But maybe … just maybe … not everyone’s interested in being educated in what’s supposed to be important to them. Maybe they believe what they believe for a reason, and there’s validity to that belief.
Or maybe it’s the biggest waste of keyboard time since the birth of blogging.
If you dance long enough, it will rain, Jonathan, but that not a causal relationship. Fifty million Frenchmen can be as wrong as one.
Don’t ya just love the way that boy talks!?
Was my post the biggest waste of keyboard time or the divorced commission debate?
And is there a low-pressure system over Paris right now? I’m very, very confused.
I’m sure American Gangster starting in 20 minutes will help clarify things though.
I didn’t make myself clear.
The subject itself is as you look at it. The buyers couldn’t care less if they tried. You and I are in total agreement here.
Debating this subject is like debating whether fuel injection is superior to carburators. (sp)
The buyer hears and understands what is advantageous to them and dismisses the rest as trivial.
Trapped by the unconditional offer of cooperation!
I am so glad NAR and their lazy subsets have responded so proactively to address the millions of sellers that will need a Realtor to assist them in avoiding foreclosure via a short sale. The listing agent cannot offer full cooperation (compensation in non-realtorspeak) when he doesn’t know what real estate fees the lender will approve.
As an example if I take a 7% listing agreed to by the seller and I offer 4% co-broke compensation in the MLS, that offer is unconditional. If the lender only approves 3%, I have obligated my broker to an uncompensated fee and I will be broke-er.
What I have done for my short sale listings is offer a very low co-op and reminded the buyer agents to write their compensation into the offer. That is the solution I have come up with so we don’t have to pay to sell a listing. Results so far: terrible. Lots of showings/no offers.
Short sales get very interesting when
there are lenders as there are with an
80/20 loan. The 2nd lien holders haven’t figured out that any payment is more than they will get in foreclosure.
So it goes…
Everyone thinks differently. It’s certainly an interesting debate to say the least!
And where do you weigh in, James? Not cricket to just leave a link and run.
Thomas - glad to see it’s not just here. That rant is upcoming. If the buyers are willing to pay their own freight then it is a little less of an issue but not really. The whole point of the MLS is to offer compensation to cooperating agents - firm, unconditional compensation. If you can’t do that what’s the point? Same goes for the bogus list prices that are littering the MLS these days.
Jeff - thanks for the clarification.
Howard - Exactly right. Sure you’re going to help me get a house for 15% under the going market value but why would I want to pay you for that?
We are not seeing the quantity of short sales in our market like many other places, but when we do it typically says the commission will be split between LA & SA. You still don’t know what that will be, so a buyer broker agreement is needed. If a buyer doesn’t want to sign that, I wouldn’t work with them. We are business people and we should be paid for the work we do.
I’m not a big fan of the split, Ginger, as I believe it violates the MLS rules. At least here locally. I’ve promised that post for a few days and hopefully will finally get to it by mid-week.
I’ll be looking for the post Jonathan!