Cooperative Commissions for Realtors

Recently I eavesdropped on a discussion about cooperative commissions for Realtors. I wasn’t about to get involved, since it was a pretty heated discussion, but chose it would make for a very fascinating blog post to say the least!

Cooperative commissions for Realtors are what are the “standard” in most areas for real estate agent compensation – the Seller/Listing Broker generally pay the Buyer’s agent commission.

In some regard it makes sense – it’s an incentive to attract Buyer’s agents to show and sell a property. Many sellers have been convinced to pay a 7%-8% commission to attract buyers agents – but this has always been controversial as well. If you are the Buyer’s agent, it is your duty to represent your client. This would mean if its in their best interest to see and possibly buy a house with only 2.5% commission going your way, you shouldn’t be trying to persuade them to buy a house with a 3.5% commission. Sellers but desperate to sell their homes will naturally try anything if an extra percent isn’t going to do any harm. An unlikely example would be two identical townhomes side by side for sale – one has a 2.5% commission, another a 3.5% commission. Do you reckon it would affect the choice on which one the buyer buys?

There have also been issues on buyer’s agent bonuses – sometimes an agent and seller will offer up an additional $1000 or $2000 buyer’s agent bonus if they bring a buyer and get the house under contract with x amount of days. There’s been a few lawsuits in my area that have resulted from this, though unfortunately I never did follow up on them to see what the results were. Again, it’s a question if when the seller is paying the Buyer’s agent commission, is the Buyer really truly representing them?

And yet, there doesn’t seem to really be a viable alternative to cooperative commissions for Realtors. It is unlikely a buyer would be jumping at the chance to pay an agent for anything – even gas money for driving them around all day – let alone agreeing to tack the commission amount onto the price of the house. Really, one of the reasons to support cooperative commissions is because it allows buyers to do low-no money down loans, since the commission is technically included in the price of the house. So many people struggle just to come up with hand money and a down payment that bringing an extra $10,000 to the closing table might not be possible.

It’s an fascinating discussion and I’d like to hear your opinions on the subject. Until there is a viable alternative, I don’t anticipate a change anytime soon. What do you reckon about cooperative commissions for Realtors?