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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 decided it would make for a very interesting 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 purchase 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 however 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 think it would affect the decision on which one the buyer purchases?
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. Actually, 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 interesting discussion and I’d love to hear your opinions on the subject. Until there is a viable alternative, I don’t anticipate a change anytime soon. What do you think about cooperative commissions for Realtors?
7 Comments
Two things to note here..
1. If you have a buyer’s representation agreement that spells out the exact percentage you will make then it removes the incentive to steer cleints. For instance, if your buyer’s rep contract calls for 3% and the listing says it only pays 2%, then the buyers need to know that they will be paying a portion of your commission.
2. Most MLS Rules require compensation to be “unconditional except that entitlement to compensation is determined by the cooperating broker’s performance as the procuring cause of the sale.” When someone offers a bonus for a contract by a certain date or above a certain price, they have actually created a illegal “condition”.
I have often seen the bonus to buyers agent in the MLS, many times even $5,000 to get a full price offer by a given date. I always wonder how those turn out. As a buyers agent you can’t recommend offering the asking price so you can get the bonus. I would never counsel a seller to go down this path.
I have never seen the outcome of one of these and I wonder how many if any of these result in the buyers agent receiving the bonus.
I think in a market like we are currently in, sales price is the key regardless of any bonus to buyers agents.
I have seen those bonuses too for full price offers. Its seems a little wierd. Like is an agent really going to tell a buyer “you should really offer full price on this house” even though it doesnt have any other offers and has been on the market for 2 weeks.
The only change to commissions I would like is some amount of work on both agents parts. Some agents and agencies bring a buyer and then dissappear. I think in these cases the buyers agent should not get 3 percent since they force the listing agent to do twice the work.
Thanks for the comments – I wonder if the MLS has made that change recently or if its up to local boards?
I think the realty agents do enough work to justify the commission. Their knowledge alone is a great resource that most homeowners/buyers are lacking. I know I was.
Knowledge is power as they say, I think the commissions are deserved.
I also think that our commissions are real deserved. I will not force my buyers to buy a house that I could make an extra commission on. I always negotiate for my buyers and they hardly ever pay full price for a house.