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Sellers Penalized for Negotiating

It's very common in the Twin Cities market for first time home buyers to ask sellers to pay for some of the buyer's closing costs. Today's buyers may have "A" credit, have a good job, and a good lender, but they have trouble coming up with enough money to pay all of the closing fees to get into the house.

Sellers who are wanting to negotiate in good faith with a potential buyer often raise the sale price of the home to compensate for contributing to the buyer's closing costs.

When the sale price of the home goes up, so does the commission. As a result, we are seeing these kinds of comments in the MLS more often:

"Commission not paid on seller concessions", or
"Commission based on net."

This statement was just released by our regional MLS:

There is nothing to prevent these kinds of changes to the compensation being negotiated between the parties before a deal is concluded. However, the listing broker may not require (through statement on the MLS) the cooperating broker to accept a commission based on the net sales price (or other deviations from the rule). Compensation offered strictly according to the rule of flat dollar amount or percent of gross selling price is essential to preserve the contractual relationship between brokers that is created by participation in the MLS.

Why should a seller have to pay a real estate agent's commission on a sale price that's been adjusted to include buyer's closing costs? It doesn't seem fair that a seller would be penalized and charged more commission simply because they are trying to negotiate a sale with a buyer.

Posted by Lisa Dunn www.TwinCitySeller.com on 05/23/2007 04:21 PM

Comments (34)

sell a home, minneapolis real estate, real estate market

34 Comments on Sellers Penalized for Negotiating

MAY

2007

Hi Lisa !

Sounds like something very interesting. I never thought about it

Nalliah Thayabharan

Commercial and Residential Building Inspector

Expert Building Inspections Ltd

I had one recently. I notified escrow that my commission was based on the listing price, the buyer's commission was based on actual sales prices (higher). my seller thanked me.

I'm not surprised the MLS stepped in and made a rule on this. It has always been my experience that the MLS is notorious about trying to tell us how to conduct our business.

My listing agreement does state that the seller pays my commission based a full gross purchase price. However, depending on the situation I have no problem backing the closing costs contribution out of the commission. But like Don, I will usually pay the BA full commission.

Bryant,

I have NEVER had a buyer's agent volunteer to forgo that little but of commission. (3% of 3% is .0009; on $200,000 thats $180.

This is a very common practice here in our area, primarily with VA loan purchases. And it is not uncommon for Listing Agents to request that the commission be paid out based on the pre-inflated sales price. It helps to offset the additional excise tax that is paid out by the Seller as well.

It is also very common in Kansas City that commission is paid based on sales price MINUS seller consessions. It is a very grey area though & usually left up to the listing agent as to what is finally paid out.

It has been my experience in Florida to have the commission based on the "before" concession price. Its such a little bit to give for a sale.

hmmm....I never thought about that. That is a good question. I don't think they should be penalized. I think they need some clear cut rules on that.

I see amendments all of the time or comments on the contract noting that commission to be paid at lower price.

Sounds like some CYA by MLS

In our area it is common practice to base the commission on the 'net' sales price, but it is always done between the brokers and not directly stated in the MLS. It sounds like your MLS will allow the same thing, it just won't allow you to stipulate it in the listing. I actually think your MLS is correct in their rule. Imagine what would happen if each agent were able to stipulate the rules of the commission for each different listing - you could have some crazy things going on and lots of arbitration and mediation between agents over misunderstood commission rules. I do completely agree with your view that the sellers should not be penalized for covering a buyers closing costs. Great Post!

In California our commission is based on the final purchase price of the house and the seller pays for the commissions. Closing cost and some title fees depend on the price agreed between buyer and seller. So once the price is negotiated there is no going back on the commissions.

Lisa-I had one about 6 months ago. Purchase price was 10k more than asking price to pay for closing costs. Appraisal was 40k more than asking price so we had plenty of room. However, the sellers agent asked if I would accept commission based on the original purchase price so they wouldnt have to pay more commission based on my buyers inflated price. We were already 3 weeks into the contract at that point but I told them ABSOLUTELY. I completely agreed that it wasnt right for me to collect more because of my buyers. We closed happily without a hitch.

Lisa,

It's a tough call. The seller makes a concession and then has to pay extra sounds unfair. But I can see why the final sales price is the determinant.

Hi Lisa--Thanks for pointing this out...I had started to add this to my agent remarks as most agents are accepting of this and understand the situation for the sellers. As it is only a few hundred dollars to an individual agent, it can be much more out-of-pocket for the seller.

A disappointing regulation as it will now have to be addressed at the time of the purchase agreement.

Lisa,

Whenever seller concessions are involved in a sale of mine, I always include an addendum to the purchase agreement stating

"The real estate commission shall be based on the sales price of $Xaaaa MINUS the seller's concession to purchaser's pre-paids and closing costs of $Xbbbb.... $Xaaaa-$Xbbbb = $Xcccc"

I fully agree that the sellers should not have to pay a commission on seller concessions to the purchaser.

Our MLS added similar language not too long ago to say that no commissions should be based on net prices. Their theory is that it's unfair to the agents not to know what they're getting paid (but let's be realistic, no matter their math skills-ALL agents can figure commission), and that the negotiation could get skewed and buyers could wind up paying too much if their agents are encouraging higher prices to offset that difference. Don's right-it's not much money but buyer agents don't want to lose a dime.

Mmm. Let's see, sales are few, inventory is the highest in 17 years, homes are sitting on the market for 6 months with 1-2 showings, everything is overpriced in a falling market, and agents are trying to nickel and dime the commission????

We have met the enemy and it are us.

Hey Lisa... curious that the MLS would step in and do this, however it is common practice in the Miami market for the commission to be paid on the net. In fact, I have even seen language that says that the buyer will pay the extra doc stamps on the increased price...by the way - nice to see another Home Services blogger.

Our board contract in Las Vegas simply says "Seller agrees to pay Broker as compensation for services ___% of selling price." There is no distinction made between gross and net. This raises a great issue for our Friday team meeting.

It is nickle and dime stuff but it's something to always remember when deciding at the last minute to raise the price and have the seller pay closing costs. Many times an agent will say that the seller will net out the same but they won't if the commission isn't adjusted accordingly. It's not much but a couple of hundred dollars can buy a really nice dinner after the sale.

In the Hilton Head real estate market, we would typically figure the commission on the net amount. Even though the difference is small, it doesn't seem right for the seller to pay on a gross amount.

I've done that to satisfy seller before

I Lisa....Here in Idaho it is very common place for us Realtors to charge the seller a commission on the "Net Price" after paying buyers closing costs. There is now way I would feel right about charging the seller a commission on buyer paid closing costs. Good post and good luck to you.

I just think the MLS is trying to keep this simple comment out of agent remarks. It is not that hard to draw up an addendum to the contract and state the obvious. As soon as you have contact that an offer is coming in, just explain to the buyer's agent about commission on concessions. Every agent I have come into contact understands as they do the same thing when it is their listing. And if that agent is greedy and wants the couple extra hundred dollars, give it to them, and don't take it for yourself. In the long run, you will sleep better knowing you did what is right.

Esko and Terri both make great points...i will keep an eye on this post, thanks for this.

I'm not sure, but I attended a Fraud class last year and an issue that was brought up was that by increasing the sales price to cover buyer closing costs it was artificially inflating the value of the home. That price then became the amount that was recorded and becomes a new comparable sale for similar houses. If that happened often enough then home prices are no longer truly reflective of the market.

i.e If a seller wants $200,000 for a home, but a lender will allow 6% seller concessions then the new sales price is $212,000. If a similar home is on the market in another month or so, they feel that their home is worth $212,000. If they find a buyer who needs seller concessions, then the adjusted price would be $225,000. In the course of a few months the sales price could increase by $25,000 solely because of seller concessions.

The MLS might be trying to at least take the financial incentive away from the Realtors and cover their rears...

What to do? Increase the asking price by 5% from the start and be willing to give seller concessions or reduce the price without them. It's all in how you write your listings and offers.

MAY

2007

I is such a minute point in the greater scheme of things. It is always best not to charge commission on closing costs.

Wow, a star and a whole lotta comments to respond to ...here we go!

Nalliah - We think about it alot in MN

Don - Interesting. I've never thought of splitting it like that (seems obvious not that you say it!)

Bryant- I don't want the MLS telling me how to do my business, but it seems we were entering into some dicey ground. We HAVE to pay out what it says in the MLS unless agreed upon otherwise in writing. It was becoming a norm that we were asking buyer agents to expect to be paid soemthing other than what was published. Broker reciprocity is a sacred thing!

Don - I bet your seller thanked you!

Rich - Minnesota mortgage tax is only .0034 of the sale price, so the difference in commission not paid is usually significanlty more.

Jackie - left to the listing agent on what is paid out. There-in lies the issue.

Gary - I agree.

Christy - thanks for stopping by.

Tom - In MN We don't agree on commissions between agents in purchase agreement amendments. It's a seperate written agreement.

Craig and Amber - Well Dunn. You've captured my thoughts succinctly. We have to honor what we say we are going to pay our buyers agents, unless mutually agreed upon in writing.

Mana - Interesting. So, in CA sellers always pay on those concessions? Or, do you ahve an opportunity to discuss this with buyer agents before the negotiations start? I do it exactly the opposite. Once we have a verbal agreement, before the PA is signed, I have a conversation with the buyer agent about commission.

David - the key there is "closed happily"

Esko - Sounds like every state does it differently.

Teri - I'm probably in the minority. I'm glad for the regulation, and if it needs to be address that it gets done. I had an agent pay out on the sellers net without ever discussing it with me, and it was never in writing. This practice is not okay.

Paul, I never make commission agreements as part of the purchase agreement (per my legal department). It's in writing on a seperate commisssion agreement.

Leigh - I'm glad they posted the announcement, we still have room to negotiate to put the buyers and sellers together.

Lenn - The smart agents have this figured out. Wouldn't it be something if the MLS would let us advertise "Buyer's agents, I'll pay your full commission!" Listing presentations should say: "Sellers, I won't charge you commissionon concessions! " Oh hey, that's a good idea!

Beth - Our Broker agreement says we will pay out what we advertise.

John - But what do your broker reciprocity rules with the MLS say? You have three agreements here. One is with the seller, the MLS and the buyer's agent.

Tim- no one wins when we nickel and dime our clients.

Diane - I agree

Michael - me too

George - Thanks for stopping by!

Tom - Great!

Larry - easy fix. Our regional MLS allows for us to enter post sale data about seller concessions. This data is then available to adjust the final sales price when pulling comps. Problem is, the information isn't mandatory and is incosistent.

Laurie - it should be, but broker reciprocity is something to be protected!

Lisa - If the appraiser has the ability to see the origional listing price he/she is still required to mention it. If the underwriter can still see it as well the issues are still there. Again, I don't know that thiws has anything to do with the MLS, but the Feds were interested in it...

Lisa--I don't believe you are in the minority.

I started noticing the comments in our agent remarks recently. After attending a MAR class, it was stated that you could not reduce to the net without discussion and it in writing. (Note: I too, have had my commission adjusted without discussion. I make certain that all parties are aware and in agreement at P/A....even if the other agent doesn't address.)

Putting this notice in the MLS made sense to a degree as all agents showing a property would be on notice, similar to a comment that a seller is willing to give a bonus by a certain date. If the price is too low, just because it is in the comments, it would not be an automatic bonus to the selling agent. Everything can get negotiated at the P/A level.

But as it is contradictory to the payout information, it does make sense that there is a directive from the MLS. I don't believe a note in the agent remarks is sufficient notice, as other agents probably have.

Once again, good of you to bring this to everyone's attention! :)

You stole my post for the weenie. By have to go write something about old people now. :)

Interesting and happening everyday...I notice some agents never give it a thought that the seller will pay more in commissions, and sometimes the seller does not realize either. I use an addendum along with the counter-offer to the buyers covering the commission for the buyers agent to sign. If no counter offer is required I just send the addendum that has to be signed by both the buyer and seller along with agents. This is a broker issue, I make it part of the contract. No one has refused at this point. This gives me the document for the commission adjustment. My sellers are always smiling and helping me get new clients. Treat them fair and you get referrals! Great post.

T- You're so ornery when you don't get your way :-) Let me know when you're done with your post, and I'll send you a link from www.RealSageAdvice.com :-)

Gary - some agents don't think....er.....I mean.....give it a thought.

Lisa:

I like the answer / suggestions you have received. We should all be looking to make the deal work with out gauging the seller.

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