Real Estate Blog - HOW DO BUYERS AGENTS AND SELLING BROKERS ESTABLISH THEIR FEES? DO YOU SET YOUR FEES?

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HOW DO BUYERS AGENTS AND SELLING BROKERS ESTABLISH THEIR FEES? DO YOU SET YOUR FEES?

TAKE CONTROL OF YOUR BUSINESS. AGENTS AND SELLING BROKERS SHOULD CHARGE FOR WHAT THEY KNOW, NOT FOR WHAT THEY DO.

* * * * HARD CORE REAL ESTATE OPINION * * * *

How much a Buyer's Agent/Broker charges is not necessarily a matter of accepting the co-op offered in the MLS. If agents and brokers are comfortable letting listing agent / seller set their fee, fine. I believe that there is much more to our fees than what the co-op offers.

Some factors contributing to setting our fees:

1. Type of property involved in the transaction.

If the prospective home buyers are looking for an average home in a price range that is reasonable for the area of their search and the buyers are available to tour homes at reasonable times, are credit worthy and ready to buy, accepting the co-op, if it is within your fee range, is reasonable.

However, if the property involved is "out of the mainstream", a buyer's agent should consider a higher fee to compensate for managing a transaction on properties:

a. that are in various stages of final U&O.
b. that are offered by sellers in financial difficulty.
c. that are "out of market" for the area making appraisal difficult.

2. Credit worthiness of the buyer.

        Our fees are based on a normal transaction with a buyer who is fully credit worthy.
        Any time a buyer has low credit scores or where loan approval may rely on certain
        performance on the part of the buyer, last minute reviews of credit, loan fees, interest
        rates or appraisals could cause underwriter or investor review and rejection of a loan.

3. Complexity of the transaction from showing to settlement.

        Transactions that require more experience on the part of the agent/broker will require the
        agent / broker to take valuable time in research, contract preparation, negotiation,
        financing, title services and other duties than would be required for a simple residential
        home purchase transaction and far more than a new home sale.

Most agents and selling brokers know the duties required for the average home purchase transaction and can compute an hourly fee for average transactions. Once a transactions is "out of the mainstream" to a degree where the time to get to settlement is increased OR the degree of difficulty is higher than the average transactions, we need to charge a higher than average fee to reflect the value of experience.

Buyers should be willing to pay for experienced representation.
Buyers who are unwilling to pay for the expertise and experience required to get the difficult transactions to settlement should not expect agents and selling brokers to donate extra time and energy and expertise to manage a complicated transaction. Buyers who are unwilling to pay for experience are looking for agents and selling brokers to subsidize their purchase with the agent's time. Once a Buyer's Agency Agreement is signed, the agent and broker has tremendous responsibility to perform duties to get that buyer to settlement. If an agent or selling broker knows up front that the transaction is going to be far more complicated than a normal transaction, the buyer is offered a choice: accept the broker fee offered for managing a complicated transaction OR, use the services of another buyer's agent. OR, the buyer can be a customer of the listing agent.

Inexperienced agents should not represent buyers in transactions beyond their ability.
When inexperienced agents agree to represent buyers in complicated transactions without the experience to Real estate agent know how to analyze contracting or financing needs, what to do and whom to contact for special services, they are putting themselves and their brokers at considerable risk for complaints with the real estate commissions and/or the local REALTOR associations. Most offices do not have a fee model that rewards for experience. Agents can charge the same fee whether they have one year experience or twenty years experience. However, agents and selling brokers with 10-20-30 years experience should be willing to charge more for complicated services than agents who have had 1-3 transactions. New agents may not even understand that a transaction is complicated until problems arise. But, if a contract management becomes complicated, the agent isn't usually going to go back to the buyer and adjust their fee because the fee is coming from the co-op. If you have the experience to manage complicated transactions, agents and brokers should be charging higher fees right up front.

Complicated transactions demand higher broker fees.
A higher fee will be included in the Buyer's Agency/Broker Representation Agreement and offset by the co-op. In most cases, the buyer can pay the additional fee at settlement from buyer incentive included in the Contract of Sale. Sometimes, simply knowing the right mortgage resources is worth money to a buyer. Buyer's should be willing to pay for agents with valuable resources. Many buyers do not hesitate to ask for rebates from our fees. Agents should not hesitate to charge more for complicated transactions.

Complicated transactions require experience and experience isn't cheap. We invest in our business daily for years to gain experience. Agents and selling brokers should charge for the value of their experience. If presented with a complicated transaction, give the buyer your fee to represent them in that transaction. If they do not accept your fee or you cannot negotiate an acceptable fee, the buyer can select another agent. The experienced agent or broker can. . . . . .

JUST GO TO THE NEXT TRANSACTION.

Posted by Lenn Harley, Real Estate Broker, Maryland & Virginia on 07/01/2007 09:04 AM

Comments (19)

buyers agents maryland, buyers agents virginia

19 Comments on HOW DO BUYERS AGENTS AND SELLING BROKERS ESTABLISH THEIR FEES? DO YOU SET YOUR FEES?

JUL

2007

Lenn, I love your posts because they make me think outside the box. This was very interesting and some of it I had never thought about before. With 4 years in the business I think some of it will apply further down the road for me. But it's bookmarked. :)

Stephanie. Thanks for commenting. You are fast. Sure, we buyers agents need to think more about how we charge. As you gain more experience, you'll be worth more to the consumer.

great information... this is a good way to present why you deserve your commission...

Lenn, I don't want to get off topic so you can delete this if you want to...but I would love to read a post about your thoughts on using a Marketing Company vs. Marketing yourself on your own.

Stephanie. Nothing is every off topic. What do you mean by "marketing company". If you mean the companies like Hobbs/Herder, I don't believe they are worth what they charge.

I'm the orginal "scratch cook" so I manage all of my marketing myself. However, if I were new to the business, it would depend on the resources available.

Again, I don't know what you mean by "Marketing Company".

I have the opportunity to work with a Local Marketing Firm for them to design a 5 year Marketing plan for me. The amount they would charge to do it in my mind is a no brainer. Hobbs/Herder prices are ridiculous. Then I would choose whether or not they did the marketing or I did it myself. It would be designed for niche marketing of myself in the Houston area. $500 and I would own the plan.

Lenn, I agree with all of what you said, but there are to many experenced agents who are exuasted with negotiating fees, or just want more business so the discount and take more volume, all very poor practive since in the cases I have seen said agents could capture 95% of the business they capture without discounting, and have greater GCI and not be putting downward pressure on commissions.

Lenn, Your years of experience shine through. You are very insightful. I charge base on the complexity of the product, but never thought through it like you have. Thank you.

Thanks Bob.

I appreciate the comment. So often I hear that we are paid whatever the co-op is. I say we charge for our services as the transaction requires.

Of course, the fee is always negotiable with our buyers. What I've found is that when you start discussing fees with a buyer, they are suddenly in a state of shock. What, you mean you charge for what you know??

Lenn, This is excellent information!! There is no comparison between an experienced broker who has done hundreds or even thousands of transactions and someone who does a few deals a year. Some one with less experience may be good at what they do but experience trumps all. As many deals as I have done I still learn new stuff all the time. As soon as we think we know it all BAM! a new problem and a new solution to find. The biggest difference is we have the experience to be able to find the solution. It doesn't throw us off track. We've been there many many times. Good stuff Lenn. Fiver and flagged!!! Hey I think I got that from you:)

I have a new tag line for you.

Lenn "Hard Core" Harley....Real Estate Stuff with no Fluff

Thanks Bryant. This may be a tad to "hard core" for featuring, but I'm going back to add the label.

Few consumers understand what it means to havea listing broker or selling broker who knows what to do, when to do it and, just as importantly, what NOT to do.

Getting the job done is what we get paid for and when a transaction is complicated and risky, we should have no hesitation charging accordingly.

I agree with the experience part. But sometimes the seller will not tell you everything and you do not until after you have agreed to the fees this one is harder that the fee charged. Sometimes you are blind sided even when you are listening to that little voice inside. But what a great post.

Susan. Thanks very much for commenting.

I agree completely. We don't always know what we're getting into when a buyer contact us. My post was specifically targeting buyers who contact an agent about a specific property. In that event, we have an opportunity to SEE the property before agreeing to represent a buyer.

I've been presented with many situations where a less experienced agent would have been thwarted by a situation whereas experienced agents will know the recources immediately or with a bit of reserch.

The main point of my post is that we, as a buyer's agent, need to set our own fees and not be limited to the co-op.

Listing agents have that opportunity in almost all cases. They can take or not take a listing or adjust their fee based on the degree of difficulty presented by the property, title and other factors. However, it is too often assumed that the buyer's agent, where the buyer relies on the co-op, will simply take what is offered. I'm saying, not always. Sometimes we're better off without a transaction than one where our fee will be far below the "degree of difficulty".

Works for me.

Lenn - Excellent advice! Experience is worth it's weight in GOLD!

Experience not only to solve issues, also, to know how much our time is worth. I spoke to an agent last week for feedback on a listing. He told me he had shown this client 40 homes. The price range was $100,000. I'm sure not too difficult yet, extremely time consuming.

Thanks for commenting Paula.

100 homes is rediculous. 6 homes, perhaps 10 in this glutted market and a buyer should select the BEST. Agents need to preview, select the best and show the buyers the best. If they don't buy all they're going to see is MORE OF THE SAME.

Total waste of time.

JUL

2007

Lenn

I'm awestruck by the depth of two statements in this post. Yes, a buyer, or seller, should be willing to pay more for experience. They should be thankful that experienced agents are available to assist them. Also, there's no question that a complicated transaction should demand higher professional fees. Very well said.

JUL

2007

When we go to the Dr. we pay more for a specialist.....problem I see is that too many people think they are specialists that aren't. Paying more for experience makes sense. This is one reason I like to read Lenn's posts-the experience is priceless.

Kathy.

Thanks very much. I appreciate the comments. I DO set my fees and buyers who are not willing to protect my fee will not have my services.

OCT

2008

Lenn - this approach is certainly one of a real professional, much like an accountant or attorney. The free marketplace allows you to structure your fees as you see fit; and if this works for you and the client, then your fee structure has been set by the marketplace.

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