Straight Talk About Commissions
New laws and policies have simplified a subject that used to be obscure. You can rest easy that the government protects consumers (you) by regulating how Realtors are able to discuss and negotiate commission. Here are some facts:
• The law - It is against the law for agents to even discuss commission with each other; this law protects consumers from price fixing.
• Company policy - Each company has its own commission policies and many agents are limited on how much they can negotiate. This adds transparency that benefits consumers.
• Commission splits - The commission charged for listing a home is paid to the listing agency but split between the seller’s agent and buyer’s agent. This is not always an equal split, so check the small print when signing a listing contract to ensure that you know how much your agent is getting paid and how much is being offered to the other agent. Commissions are always set in advance so whether a commission is split will depend on the listing agreement. Remember that this agreement is with the agency and not the agent, so how much commission you pay is not necessarily what your agent earns from the sale.
• Commission rates vary - Commission rates vary, both by region and according to service provided. In most areas the commission is calculated as a percentage of the sales price, but can be a flat fee.
• Lower commissions = reduced attention and service – Lower commissions usually indicate lower levels of service. Most agents willing to list your home for a bargain commission rate may not market or advertise your home to encourage showings.
• Full-service agents = faster sales, better prices - It is more likely that a full-service, full rate agent will spend more time and money marketing your home – particularly to other agents in the area. If you ask for a lowered commission, you may see your agent paying more attention to full commission clients.
• Higher sales price - Some studies show that sellers who have full-service agents get 25% more for their home than they were willing to sell it for by owner.
• Deciding not to sell - In general, a broker is considered to have held up his end of the deal when he brings you a “ready, willing and able” buyer. If the broker finds such a buyer, and you change your mind and back out of the sale at the last minute, the agent's agency might expect you to pay the commission anyway.
• A Dual-Agent - ??? - Some buyers mistakenly forgo having their own agent because they expect the seller will reduce the cost of the home if they only have to pay the listing agent half the commission. Remember the commission rates are set in advance with the seller and the agent's agency, and most agencies expect to receive the full commission whether or not another agent is involved. Today, very few agents offer a variable commission which reduces the commission if the listing agent sells the property, so this strategy of not having full representation ends up hurting the buyer. When looking at your agent's listing, ask if a variable commission is in place before seeing the property.