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Variable Rate Commission - Is it a Good Thing?

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Services for Real Estate Pros with AZ Veteran Notary Services CA BRE 01444168

Variable Rate Commission - Is it a Good Thing?
by John Occhi, Hemet REALTOR

Often times a listing prospective client will ask the agent in front of them, "If you sell the home yourself, will you take less of a commission?"

On the surface, that is a very legitimate question and one that you would think that the agent would jump on, to get the listing.  But, let me tell you, that this is a question you should never ask, nor do you want your agent put in that position.

Why, you ask?  Because, you (the home seller) are doing yourself a disservice.

Let me explain.  Let's assume you agreed to list your home at 6% commission with half going to your agent and half to the buyers agents.  (If we could use words like ‘standard' commission, it would describe this situation.  But because of allegations of price fixing, the Justice Department has determined that there cannot be a ‘standard' commission.)

Once the home is listed in the MLS, there is a simple yes or no question that must be answered, although some agents like to complicate it by adding a comment to call the office.  The question asks if the seller will honor a dual variable rate commission.  If the agent says yes, then they have agreed to accept less commission than any other agent, who may sell your home.

The reason this puts you at a disadvantage is because now I don't want to show your listing.  I explain to my buyer clients about the commission structure and how it puts them at a disadvantage - even in today's buyers market.

If we were to write up and present a full price offer that would include 3% commission for my office, the sellers agent could turn around and present a offer for less but would net the seller more money, because they have reduced their commission.

Let me illustrate this for you.  Your home is listed at $400,000 with a 6% commission - $24,000 will be paid in commission to both sides of the transaction.  Unless, there is a dual variable rate and the sellers' agent will take 4% for doing both sides - now the seller only has to pay$16,000 in commission when the deal is done - a $8,000 window to manipulate the deal to their favor.  So they could make an offer of $395,000 and against my $400,000 the seller will still net $3,000 more with the lower offer.

Perhaps now you can see how you disrupt a level playing field by asking an agent to accept less money for doing their job.  Yes, you may save some if your agent does sell the home, but think of all of the other agents who will not show your home unless it is an absolute must see for their buyer clients.

I hope this helps shed some light on the subject and until next time have a Blessed Day,

John Occhi, Hemet REALTOR®
http://www.johnocchi.com/

 

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Until Next Time, Have a Blessed Day,

John Occhi, ePRO, REALTOR®
DRE Lic No: 01444168


ePro,John Occhi,www.johnocchi.com,realtor      Certified Probate Real Estate Specialist Logo Awarded to John OcchiFive Star Logo,Certification,REO,Five Star Institute     

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This blog and the contents written here is the intellectual property of John Occhi, Temecula - Murrieta, CA REALTOR® in the South West Riverside County region of the Inland Empire of Southern California.  The views and opinions expressed are just that - views and opinions of John Occhi and those who comment.  Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance. 


I am proud to be a full time REALTOR® who is proud to be a contributing member of the ActiveRain community.

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Comments (6)

Don Fabrizio-Garcia
Fab Real Estate - Danbury, CT
Owner/Broker/Trainer - Fab Real Estate

Hi John,  I was surprised to learn that not all MLS systems have the requirement to enter whether or not it is a Variable Rate commission.  But, you're right - it could put the sellers at a disadvantage.

Jan 02, 2007 03:39 AM
Lenny Gurvich
Keller Williams Realty Tampa, Florida - Tampa, FL

John,

Your point is well presented. However, I think many agents will tell their seller clients that they will reduce the commission if no other agent is involved. It may not be in writing, and if not, "variable commission" is probably not noted on the MLS. I assume all listings are variable commissions.

I let my buyer clients know that it may cost the seller more if I'm involved in the transaction. I also let them know that even though the seller is most often paying my fees, those fees are still built into the price of the property. They have chosen to use my services and understand that there is a cost to them. That said, I never shy away from showing "variable commission" listings. 

If all buyer agents had this understanding with their clients, maybe listings would be shown no matter the listing type or special terms involved. I cringe whenever I read "Our Services Are Free To You". Even if a seller agrees to pay a set commission no matter how many agents are involved, the agents' fees are still built into the price. Both buyer and seller are agreeing to pay those fees in the agreed upon price and terms of the deal. The seller nets less and the buyer pays more.

 

 

 

Jan 02, 2007 04:30 AM
Anonymous
wes

In response to the "built into the price" comment. I tend to disagree with this way of thinking entirely. After 20 plus years in the business, I have rarely seen a seller willing to reduce the actual market value of their home by 6% just because an agent was not involved. Maybe they feel or have more flexible to sell a little lower but the tax records do not support commissions being "built into the price" type of thinking. It is more often the case that a seller has chose to be a do it your self seller and SAVED THEMSELVES MONEY FOR DOING A JOB THAT OTHERS CHOSE TO HIRE SOMEONE TO DO! Trust me it is a job and when done right, a very difficult one at that. In many cases, the For Sale by owners sell higher than listed homes because the purchasers are not informed and percieve "a deal" because no agents were involved and had no one to educate them.

If I belived this that the price is built into the price then we should reduce our price for every dollar we have every saved on services related to our home? Over the years, I have saved a lot of money myself by being a "do it yourself" type on my personal home and rentals. I have saved thousands in doing services that I could have paid others to do: painters, plumbers, electricians, tile layers etc etc etc, Not for one minute would I think of selling my house any cheaper than what a buyer will pay and the market will bear, just because I saved money by not paying others to a job that I chose to do myself. 

Aug 19, 2008 12:46 PM
#3
Anonymous
Elisabeth

What's a Variable Rate Commission?


Most REALTORS® are familiar with a box on their MLS listing form" that has "V" in it. This box prompts them to check a yes or no box if the commission on the listing is a "variable" commission or not. Many REALTORS® have a misunderstanding about what to do with this question and actually aren't sure what a variable rate commission is or is not. This column will attempt to give REALTORS® guidance about this issue.

What is a variable rate commission?
Sometimes referred to as a "dual commission arrangement" or a "special agreement" with the seller, the most common variable rate commission is where one amount of commission is payable if the listing broker's firm is the procuring cause of the sale and a different amount of commission is payable if the sale results through the efforts of the seller or a cooperating broker.

What isn't a variable rate commission?
There is a misconception that any compensation offered to MLS participants that's different than a fifty-fifty split is a variable rate commission. This is absolutely not true! Listing brokers may offer whatever compensation they wish to in the MLS, as long as it's stated in a percentage or a dollar amount. There is no rule nor can there be such a rule that compensation offered in the MLS is based on any particular split or any particular percentage. (See Antitrust Law 101)
Another misconception is that a variable commission is when the listing agent wants to "reserve the right" to negotiate the total commission with the seller at the time of an offer. This is not a variable rate commission agreement, because there isn't an existing agreement at the time an offer is produced. A listing agent always has the right to negotiate the commission with the seller, as long as it doesn't affect the compensation offered to other MLS participants. Many listing agents do negotiate their fee at the time of an offer - whether it's from a buyer they have or from a buyer working with a cooperating broker. On the other hand, a variable rate commission agreement is typically negotiated with the seller when a listing is taken. If there is not one that is specific and has been agreed upon by the seller and the listing agent/broker, there is nothing to disclose. NAR Case Interpretation 1-30, effective in 2002, clearly makes this point.

Sep 09, 2009 09:13 AM
#5
Karen Salmon
Royal LePage Benchmark - Okotoks, AB
Okotoks Real Estate Agent
In Calgary the only time we disclose a "variable rate" is when there are multiple offers on a property.
Oct 26, 2011 01:53 AM