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Should Agents Disclose their Commission % Percentage % ?

By Kaushik Sirkar

Real Estate Agent with Call Realty, Inc.

January 09, 2007 06:57 AM

Not every real estate transaction involves the same commission. Why is this? Well, first and foremost, commissions are fully negotiable (I do fall into the category of many full service agents who will not lower my commission barring special circumstances - my levels of service and market knowledge more than justify my compensation). But beyond this, a HUGE RANGE of co-brokes are offered. Within the Phoenix Metropolitan market, I recall seing co-brokes on the order of 1.5 - 2.0% (rare today) for listings during the boom (~ 9/04-8/05) to as much as 10% or more offered by select builders on spec homes (typically on the outskirts of town).

Now the first question some agents might ask - why should I disclose my commission? I am showing the clients all the properties that meet their requirements and they are free to choose from them. I think the answer to this is relatively self-explanatory. Let's use a simple example where my clients are down to choosing between two homes. Both are $300,000. One is offering an 8% co-broke (say its a builder spec) and another is offering a 3% co-broke (common with residential resale). Otherwise, the homes appear IDENTICAL to you, the agent. I can't help but think that for some reason, subconsciously, the agent may still 'push' for the 8% home instead of the 3% home. I mean, we are talking $24,000 VS $9,000. It may just be human nature. Why risk it? Why have your clients potentially purchase the WRONG HOUSE (for them) based upon something you may have subconsciously or gently hinted at?

Instead - disclose the $$ you will receive under both scenarios. Don't let the % commission become something that leads to you favoring yourself over your client to whom you are likely to have a fiduciary duty to (see my earlier blog post)

http://activerain.com/blogsview/32384/Fiduciary-the-most-important

I believe your client will still choose the house that is right for them. And what is right for them should be right for you. Be it 3% or 8% :)

Thoughts? Am I off base? How many agents disclose their percentage commission - why or why not?? Thanks!

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Chris Tesch

RE/MAX Bryan-College Station - College Station, TX

College Station, Texas Real Estate

I ALWAYS tell the client if I am making more on one home due to a bonus, than another. I think it is extremely important to be upfront about it and I don't want it to influence their choice at all. What we typically see in our market is that the ones offering bonuses have something that isn't quite right about them too, so I'm especially diligent. Haven't actually ever collected a bonus for a sale yet.... I'm happy making my 3% and representing the buyer as best I can.

Jan 09, 2007 07:10 AM

MaryAnn Morrar ~ La Jolla

Coldwell Banker - La Jolla, CA

I use a Buyer Broker Agreement and the buyers agree to pay me. I don't think about the commission being offered on a property

Jan 09, 2007 07:16 AM

David Spencer

Keller Williams Northland - Kansas City, MO

Show Me real estate in Kansas City

Illinois real estate law states that the agents compensation must be disclosed in writing to a customer.

Jan 09, 2007 07:34 AM

Brian Brady

Matthews Capital Markets - Tampa, FL

858-699-4590

I think that MaryAnn's approach makes the most sense.

Jan 09, 2007 08:29 AM

Lenn Harley

Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA

Real Estate Broker - Virginia & Maryland

I tell my buyers what the co-op or builder's broker fee is.

If faced with similar homes and one is offering 3% and one is offering 8%, I'd tell my buyer, "Mmm, buy this one and I'll make a lot of money. WOW."

In fact, I'd offer to split the amount over 3% with the buyer. In fact, I do that regularly. Or, in some cases, I give the buyer everything over 3%.

If the homes are that similar, what difference does it make?

Lenn

Jan 09, 2007 09:17 AM

Bryant Tutas

Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL

Selling Florida one home at a time

I think the buyer should know and also think you should work under a BBA at an agreed upon commission prior to showing any properties. If it's more than the agreed upon amount then rebate it to the buyer. If it's less then you have the option of "holding" the buyer to the agreement and having them make up the difference. By doing it this way, you are taking the commission out of the equation from the get go.

Jan 09, 2007 09:32 AM

Kaushik Sirkar

Call Realty, Inc. - Chandler, AZ

Thanks for your comments. Sounds like the consensus here is likely to use a BBA. I wonder just how many agents will not share their commission % with their clients? I know they are out there...guess they don't want to post :)

Jan 09, 2007 10:02 AM

Steve Dalton

219-465-8352 - Valparaiso, IN

Northwest Indiana Home Builder

As a home builder, in one of the groups you posted to, I would suggest that buyers should be told what the home builder is paying. They might be surprised to learn though that for introducing them to the builder the agent is getting 2.5% (in our market at least)

We price on a one price policy, so the buyer can't dodge the co-op or try and get a lower price. But, it would be nice if the buyer knew about the commission. I had one closing where the buyer got so upset at the closing about a $15,000 commission that they left. They didn't feel the agent did $15,000 worth of anything. I knew it didn't matter, but the buyer shouldn't have learned that late.

Jan 09, 2007 10:56 AM

Kaushik Sirkar

Call Realty, Inc. - Chandler, AZ

Steve,

I'm glad that you wree able to share your thoughts. I posted to that group in the hope of soliciting feedback from builders (as they are ones that typically offer the higher co-brokes).

What percent of the builders, in your estimation, are on a one price policy? Thanks,

Jan 09, 2007 03:55 PM

Steve Dalton

219-465-8352 - Valparaiso, IN

Northwest Indiana Home Builder

Good question:

Small builders, building 1-5 homes a year, I would suggest this group is about 25% one price

Mid-Size, building 6-50 homes a year, I would suggest this group is about 75% one price

Large, building more than 51 a year, I would suggest is 100% one price

Now I understand that regional differences may exist, but I've done a fair bit of travel and find these to be pretty true wherever I've been.

Jan 10, 2007 07:28 AM

Kaushik Sirkar

Call Realty, Inc. - Chandler, AZ

Steve - I'm sure many of the professionals know the answer to this question. But would you like to clarify for the consumers that may be reading - if they choose not to have representation when purchasing a new home, and the builder is of the one price policy - where exactly does the commission the buyer's agent would have received go?

Jan 10, 2007 03:04 PM

Alex Thiel

San Tan Valley, AZ

I have only been asked a couple of times what my commission will be on a certain deal. I like to be honest and always tell the client the percentage when asked. I think that honesty is always the best policy. Just my 2 cents..

Alex

Jan 15, 2007 05:22 AM

Kaushik Sirkar

Call Realty, Inc. - Chandler, AZ

Alex - 100% agreed. One can never go wrong with the honest approach, especially in the long run! Thanks for your comment.

Jan 15, 2007 06:16 AM

Patrick Harfst

Realty Executives - Phoenix AZ - Gilbert, AZ

The buyers will see it all on the HUD-1... Might as well be right up front about it... In fact, it is best to use the BBA... and if you are truly "helping" the buyers, offer a portion of any amount over 3% back to them... say split the overage 50:50... above all, make sure they are the ones making the decision!

Feb 14, 2007 01:39 PM

Kaushik Sirkar

Call Realty, Inc. - Chandler, AZ

Patrick - couldn't agree more with your last point. Too often i get asked 'What do you think?'. I will rehash only the FACTS of the multiple properties we have seen and then point out that it is they who will be living there and it is they who will have to choose!

Feb 21, 2007 05:30 PM

Charles Parrish

Auction Brokers & Investors United - Baltimore, MD

Good post, Iagree with you.

charles parrish

Apr 08, 2007 06:23 AM

Kaushik Sirkar

Call Realty, Inc. - Chandler, AZ

Charles - Thanks for your comment!

Apr 08, 2007 06:50 PM

Tony and Suzanne Marriott, Associate Brokers

Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ

Haven Express @ Keller Williams Arizona Realty

No requirement that the total commission be a 50/50 split with the Buyer Agent. If they are concerned about their compensation they should use a Buyer Broker Agreement.

Aug 21, 2010 07:07 AM