Who pays the commission?

By
Real Estate Agent with Long & Foster Real Estate Inc 610-225-7400 PA License - AB067198

This is an excellent question and has been discussed many times in relation to selling a house. Don't get caught by a bait and switch operation and pay more than you should to sell your home.

Does the buyer pay the commission, because they fund the transaction, without a buyer there is no transaction? Or does the seller pay the commission as it states on the listing agreement and it affects the net amount they receive? It often depends on your perspective. 

This post is in response to a recent discussion with a friend who listed with what they described as a hybrid option of selling their home to save some money. There are several interesting facets to the discussion.

We had sold them the house years ago and towards the end of 2017 they asked what they needed to do to get their home ready for sale in 2018. We advised them on several things and kept in touch, I saw them regularly at our local gym. One morning the wife let me know they were going to list with someone else because they wanted to save on the commission. I asked what they were going to be paying and she told me 2%. 

My reply was, yes, that is the listing agent side of the commission, but what are you offering the buyers agent?

She told me then, no the whole commission we are paying is 2%. I mentioned that was a very low commission in our area and if in fact that was the total it was a good deal, but it may impact the sale as buyer agents often request a higher commission before showing the home or will build it in to the offer with a seller assist and it may impact how many showings they get.

So some weeks went by and there was no sign of the listing in our MLS. So I thought maybe it was a firm that would not list it in the MLS, using a proprietary website. Then I discovered they had listed with a firm that is almost 2 hours away from us in a different MLS. The MLS and ours are going to be combined in the near future, but currently we cannot see their listings. It appears on Zillow and Trulia showing as a foreclosure, which was not correct, and that the home is being auctioned. No date is set, but all offers must be submitted though the Xome website. On the Xome website it states the buyer is to pay a 5% buyer commission. The home is listed at $700,000 so in effect it has now become a $735,000 listing to the buyer.

On Xome it offers the buyers agent 2%. 

So who is paying the 7% commission, 2% from the seller and the 5% buyer commission; the buyer or the seller?

Because of the lack of information in our MLS, the seller had limited showings, 6, when homes in our area in this price range currently have 20-30 showings in the first 24-36 hours and receive multiple offers in days. They received 1 offer, which they negotiated and accepted and agreed to do some minor repairs which were asked for.

If you consider that a seller is interested only in the price and not all the other terms, then how much they receive net should be what is most important. Are they better off using this hybrid system?

Let's look at this example and consider they could have listed with a traditional broker in our area probably for 5% and consider they got a sales price of $700,000 which equates to $735,000 to make the math simple. If the home had been listed at $700,000 and a buyer offered $735,000 due to multiple offers how do the two systems equate. We will ignore bank payoffs as all those additional costs like transfer taxes etc. are stable.

Traditional broker at 5% of $735,000 nets the seller =$698,250

Hybrid system 2% + 5% = 7% of $735,000 nets the seller =$683,550

That is a difference of $14,700.

What looked like a system that will save the seller commission actually cost them significantly more than listing with a traditional broker. Maybe the auction site takes a part of the additional commission, let's say 1% but the listing agent ended up with 4%, 2% from the seller, plus additional fees for photography and 2% from the buyer. 

Don't be fooled by these smoke and mirror systems. They claim to save you money when in fact it impacts what you will receive net from the transaction in many ways.

Would they have received more offering a higher buyer commission, would more showings have netted them a higher price. These are all unknowns because they did not expose themselves to the whole market.

It is also an interesting concept to consider. Who pays the commission, if you use a system that utilizes an auction site and puts the buyer agent commission on the buyer? It allows you to market your listing commission rate as only x%. Ignore the fact that it also allows the listing agent to pump up their own commission which they might or might not disclose, in this case they obviously did not as the seller was adamant they were only paying the listing agent 2%. It might be a useful system for listing differentiation. But do you want to expose yourself to the accusation it is bait and switch as ultimately the seller pays the commission because it affects the net amount they receive when the final sales price plus buyer commission is used.

Being educated allows you to make wise decisions on how you list your home for sale so you recieve the maximum amount from selling your home. If you are interested in selling your Tredyffrin Easttown or Main Line home we are willing to help you understand all the nuances and maximise your investment in your home. Call Nick Vandekar, Tredyffrin Easttown REaltor, Selling the Main Line with Long & Foster Real Estate, office 610-225-7400, cell or text 610-203-4543, email Nick@Vandekarteam.com, website www.SellingTheMainLine.com.

 

What is your home worth?

 

 

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Rainmaker
1,288,473
Amanda S. Davidson
Amanda Davidson Real Estate Group - Alexandria, VA
Alexandria Virginia Homes For Sale

Good morning Nick, I am seeing more and more of these "hybrid" models pop up and to date, I haven't found one that makes more sense than a traditional brokerage. Your post really exposes why they can cost more in the long run. If it sounds too good to be true... :) 

Apr 14, 2018 06:26 AM #2
Ambassador
1,529,131
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

It's amazing to me how many sellers defy logic in the guise of a saving a few bucks. It makes little sense and yet...

Apr 14, 2018 07:01 AM #3
Rainmaker
3,355,234
Dorie Dillard
Coldwell Banker United Realtors® ~ 512.346.1799 - Austin, TX
Serving Buyers & Sellers in NW Austin Real Estate

Good morning Nick & Trudy Vandekar, 610-203-4543 ,

It's amazing to me what some sellers will do to save a buck in their mind. Their home is a huge investment and they just left money on the table.

Apr 14, 2018 07:51 AM #4
Rainmaker
3,507,594
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

Until people realize that the info zillow has is so wrong  they will  continue to lose money because of it!

Apr 14, 2018 09:16 AM #5
Ambassador
3,229,104
Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

Nick and Trudy- it's so unfortunate that people often look at just the surface and don't take the few minutes to do the math. This is an example too of if it sounds too good to be true, it usually is. 

Apr 14, 2018 11:14 AM #6
Rainmaker
1,879,089
Brian England
Arizona Focus Realty - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

It's a real shame that so many people fall prey to these unscrupulous companies that hide fees.

Apr 14, 2018 11:23 AM #7
Ambassador
3,229,104
Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224

                                

Apr 14, 2018 06:31 PM #8
Rainmaker
3,436,129
Joan Cox
Metro Brokers - House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Nick, it is amazing what homeowners will do to "supposedly" save some commission.

Apr 15, 2018 06:55 AM #9
Rainmaker
830,634
Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

It used to be that there were city buses with huge photo of a realtor advertising only 1% FULL Service. People joked about the idea as "fool" service. This year throughout US freeway 101, 680 into San Francisco, East Bay, I see huge signs RF will list for 1%!  Got someone a fix upper near Spaceship recently the seller refused to honor what MLS says on the coop fee.  Client wanted me to camp out to see release of new condos on first day in Sunnyvale. I did get there at 7:30 AM and being the first agent waiting for the opening with a cashier check for deposit in hand. What? No balcony, A/C is an upgrade that one needs to pay? OMG the referral fee is also discounted. My client's other choice is a development under high power transmission tower or a 1.8M 2 bd condo near FB. BTW: those condos are all taken. Do you want to live on fault line from East Bay commute 2 hours?  The technology allows people to save and that is going to be the model of doing business. Those flexible can survive I am afraid majority will not.

Apr 15, 2018 07:06 AM #10
Rainmaker
645,834
Nick & Trudy Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtors, Philly Main Line

Sheila Anderson in this case I know they were,but I could not get through to them how foolish this approach was.

Amanda S. Davidson when she first described it to me she only mentioned the 2% she was paying, I am not sure if the agent told her about the 5% the buyyer would pay or not. Maybe they did and they just did not think about how it would affect them in the end.

Debb Janes EcoBroker and Bernie Stea JD totally agree.

Dorie Dillard I don't understand it as these were inteligent people as well.

William Feela the info on Zillow was not incorrect, it was in the feed from the auction site, so have to say it was the agent who entered the information incorrectly.

Apr 15, 2018 08:46 AM #11
Rainmaker
645,834
Nick & Trudy Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtors, Philly Main Line

Kathy Streib absolutely, they got pulled in by you will only pay 2$ total the buyer will pay the other commission. Thank you for the feature as well.

Brian England I am not sure they were hidden or just not understood. Either way the seller hurt themselves thinking they were saving money.

Joan Cox very true.

Sam Shueh thanks for stopping by, you got to just keep hustling.

 

Apr 15, 2018 08:50 AM #12
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Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

Hi Nick and Trudy

While the title is a seemingly simple question, that is no longer true in these days of creative, and sometimes unscrupulous selling models. Sounds like another example of what seemed too good to be true is not.

Jeff

Apr 15, 2018 10:49 AM #13
Ambassador
2,693,144
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

yeah, now much have they actually saved in all these months of still owning their house?

Apr 15, 2018 01:27 PM #14
Rainmaker
645,834
Nick & Trudy Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtors, Philly Main Line

Jeff Dowler, CRS just did not understand the thinking of the client, and their determination to defend their decision as being the right one.

Tammy Lankford, they still sold it quite quickly, but they would have done so much better listing with a local agent and having it in the right MLS.

Apr 15, 2018 01:44 PM #15
Ambassador
2,693,144
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

I understand that for sure.  I had to hunt down a listing that a client found and talk to her rude agent son who just gave me mom's number without a single question asked.  She needs a better agent.

Apr 15, 2018 02:20 PM #16
Ambassador
2,432,299
Debe Maxwell, CRS
www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

O M G - My gut is that they left more than the $14K on the table, Nick! A full-time, experienced marketing agent is worth their weight in gold. So many go the route with the 'used car salesman' type and regret doing so when they hear of their neighbor's successes! Then again, some are oblivious to what they left on the table!

Hope all is well with the grandkids - and grand fur-kids!

Apr 15, 2018 03:08 PM #17
Rainmaker
2,632,093
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Yes I have heard people selling their mothers out for a couple per cent.... there are a handful in every market... my take is what you pay is what you get and ultimately there is always karma....Endre

Apr 15, 2018 06:21 PM #18
Rainmaker
1,142,773
Kat Palmiotti
Grand Lux Realty, 914-419-0270, kat@thehousekat.com - Monroe, NY
The House Kat

Sellers always need to be aware of what exactly they are getting, and what exactly the cost will be - commission, delay in selling, other fees, etc. 

Apr 16, 2018 05:52 AM #19
Rainmaker
324,713
John Wiley
Right Move Real Estate Group- EXP Realty - Fort Myers, FL
Lee County, FL Real Estate GRI, SRES,GREEN,PSA

The Consumer needs this information. 

I fear most look at the front end of the equation but fail to go to the end results.

This can be a costly mistake.

Thanks for sharing.

Apr 18, 2018 06:59 AM #20
Rainmaker
144,655
Corey Martin
Martin Presence Group - Ruston, LA
Real Estate and Management Solutions

There are a lot of devious and sneaky things agents can do to inflate their own gains from the transaction. Ultimately, it may come back to bite them, but in the interim the buyers and sellers pay the price. Thank you for sharing.

Apr 18, 2018 12:43 PM #21
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Rainmaker
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Tredyffrin Easttown Realtors, Philly Main Line
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