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What Do You Say When a Buyer asks You To Drop Your Commission?

In the past it was mostly once in a blue moon did a buyer ask you to drop your commission when you are the listing agent. Not so any more. It seems someone has given the buyers a guerrilla war manual for real estate on how to beat up the listing agent. I think we are fortunate that most of the buyers are not skilled negotiators and move on to prey on unsuspecting new agents that don't have the experience to deal with it.

When a person mentions they want to take X% off the top of the sales price because they do not have an agent what do you say to them? I read recently that a listing agreement is a contract to perform between the listing agent and seller. When a person comes in and tries to go between parties and effect change it more than running running interference. It could be viewed in some states as an inducement to breach of contract...which can be viewed as a misdemeanor. When we are asked, we advise the buyer to write a contract if they are serious, and we will see what the seller's response is. We do not entertain suppositions. We need a letter from a lender, real earnest money, and a contract. Then we can talk. We usually address this in our listing agreements, so we are not afraid to deal and negotiate on our terms. In all the years selling real estate, we have never come off a full commission as requested! We perform too much work for both sides especially when dealing with an unrepresented buyer.

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Posted by Jim Crawford ~ Atlanta Real Estate-ABR E-PRO on 04/01/2007 08:40 AM

Comments (78)

Listing Agents Commissions in the ActiveRain Channel

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78 Comments on What Do You Say When a Buyer asks You To Drop Your Commission?

APR

2007

I haven't encountered this yet with being brand new, but your blog topic attracted my attention immediately. Thank you for giving the great information on how to handle the situation if it ever comes up.

I don't usually have anyone ask me to reduce a commission.(especially if they are talking with me in person) I did have a referral client ask me(on the phone) what percentage I would list his home. After I told him, he said that another agent would list it lower. I didn't take the bait.

NO - any other questions? Or - "If you want me to do for you what a Buyer's Agent would do for you, then I'll have to charge YOU a fee"!

Traciwe all start someplace. Experience starts with education then action. You are smart to be reading all these blogs.

Lizzette When listing a home we address the issue with seller. If not other agents / brokers / referral fees are to be paid, and we work with an unrepresented buyer total commission due by seller at closing is: X% of sales price. I also advise sellers it does not happen too often.

Tony I love your response "No!" Next question! LOL!

I haven't encountered this yet either.

I say "how high"?

Seriously. I guess this question is highly dependent on region. Here in northern california, every time

agent in open house try to prospect me, they always say they give commission rebat. Never fail!

I think in real estate... it is the bottom feeder agents that have absolutely no skills whatsoever...and it is part of their Modus Operandi MO...embolden the buyers to request this. The buyers get the idea someplace. I do not give up commissions in the form or rebates to either buyers or sellers. Doctors don't say to their clients after surgery, "Since your heart surgery was a success, I am going to take 60% off my bill!" Think about how much our industry can blame itself for initiating non-sense.

Jim

I agree with your last comment in that the industry members are as much to blame at times for the challenges we face as Realtors. Find me another industry where members bend to the cut in pay whenever asked!

Jon Sort of like the Fee for Services Menu Plan all the real estate magazines started talking about long before we ever saw them in our markets. It becomes fact!

Doug I like the approach! "No, any other questions?"

A certain group of people here come into Open Houses and ask this question frequenty! I had THREE ask me during one Sunday Open House.

My answer was....put in an offer and we'll present it to the seller.

I think that is the correct approach. There is no sense ticking someone off, they may not even really like the home. I also put a bug in their head the last time an agent gave up their commission to sell without questions was to sell the home in the Amityville Horror!

It's about risk and reward. In our business, when we list a property (or bring a buyer out) we do so at our own risk of time, money and resources. We do not get paid until the deal closes. We take a listing (or show the properties) and basically work in the good faith that the home will sell and the closing will occur. Until that closing takes place and that commission check is in our hand, we worked for free.

On the other hand, if a seller decides they do not want to sell their house, or if the market just won't bear the price that the seller wants for their home, or any other litany of reasons that a home might not sell, the seller is only out the time it took to get out of the house for showings. In the same vein, if a buyer walks away from a deal, we're in the same boat.

We did earn commission once we brought about a "meeting of the minds" but pursuing that commission in court is a pain.

The fact that we are working in good faith should make our commission non-negotiable.

Best of luck to you if are going through this.

Mike it works for me!

My undersanding is the listing contract is a contract between brokerage and seller. If you procure a buyer for the property and the seller changes his/her mind, they still owe you a commission. Have you taken the CRS Listing class. That one is fabulous with teaching listing skills adn techniques to justify and show our value as well as some tips for negotiating so everyone feels like they one.

I tell the buyer that the commission is not theirs to negotiate as it's a contract between my seller and me. Then I also explain everything I'm going to do since there won't be another agent involved. I've run into buyers who are only looking for the 3%, and they aren't really looking for "the house".

"No" works well. Often times the buyer will shrug and say, Well, I had to at least TRY.

LOL @ Sharon: I like your answer best!

Ockham's Razor: "entia non sunt multiplicanda praeter necessitatem" translated to "entities should not be multiplied beyond necessity", more commonly stated as: "All things being equal, the simplest solution tends to be the best one."

I haven't encountered this yet either. I admire your record of never having given in to this request. Thanks for the post.

Great comments! I think keeping the conversation light is best. Humor them, and then say no! : )

Yes the full commission is due if there are no other special stipulations. Sometimes we deal with novices that are just kicking tires...they play their hand too fast, and I know they are not even going to make an offer. I guess it is like a obsessive compulsie disorder...they just can't help themselves. A great time to pracice your "No's!"

Mike, I like latin. My Phase is appropriate also! "Non illegitimi carborundum est." - Don't let the bastards grind you down. Maybe there weer buyer 2000 years ago that did the same thing.

I just smile and say, "Some agents discount their fees.........and they should!

Or how's this, "Are you kidding me? Have you seen the price of gas lately?"

APR

2007

Greg I like that!

Actually your are hitting a couple points here. I am in Washington St so my comments are colored by our law but i think we are in the same ballpark.

The listing agreement is between seller and listing agents broker. Therefore (technically) a buyer cannot negotiate the agency fee. Because 1) he/she is not a party to the agreement and 2) if he puts it in the offer, again he is not part of the agreement..the offer being a separate agreement. 3)IF he has an agent and the agent puts it in the agreement again it does not hold legal muster as the selling agent (other than the listing agent) is also not part of the agreement and may very well be in violation of code of ethics and or local rules. Finally even IF the listing agent were to agree to cutting the commission he/she may not be able to do so as the agreement is with the broker with the listing agent as an agent for the broker.

From your comment it looks like there may be dual agency involved or at least an unrepresented buyer. As a practical rule I try not to do dual agency. Sure it is much more $$ but too many risks and I am not just about $$. If a buyer wants to be unrepresented well that is their business but I always had a rule in business... when you walk into a serious meeting and one party has their attorney there I end the meeting until my atty can get there. RE should be the same thing too... that is if one party is represented you do not want to be unrepresented. Neither do you (using the same analogy) want the same attorney representing both side of a divorce...so to with your Real estate Agent.

Perrin - Great comments! Dual agency in Georgia I would have to already have a signed listing agreement with the seller, and already have had a signed buyers agency with the buyer making an offer. So this in not any form of dual agency, This scenario is with an unrepresented buyer on one of our listings..trying to muscle in on the commission. These buyers are more than happy to reaffirm they are unrepresented. That is their leverage for the commission reduction. In other words the buyers think they know everything! LOL!

@Jim Crawford: "Non illegitimi carborundum est." I LOVE IT! If ever I were to get a tattoo, it would be that... ;)

Jim it's a tough situation we are in. By collecting the full commission we are doing the "right thing". The seller considers it stealing most of the time. I am very lucky to have run into this only once last year. I collected the full commission and gained an angry client. After hours of explaining and talking about it, they were still mad. O well......

Jim, great article! Hit home with me today. I'm meeting with a client that always wants to discount his listing. Just in time - you write about negotiating commission. Thanks!

My answer is "NO" as well. If I ever feel inclined to give an explanation, I simply state that any 'discount' in the commission amount is already negotiated with the seller as they are paying the commission to get the property sold.

The comments are great! As far as the seller side...First of all I am not mentioning any commission % That is Anti Trust. I am going to explain commissions, Since we all work in a system that employs the use of an MLS to give the broadest possible exposure of a seller's real estate to the broadest possible market (Members of the MLS) The listing agreement with the listing broker specifies a % the seller is comfortable to pay the listing agent. The listing brokers choice to coop the listing to other brokers which benefits the seller at the brokers expense in a shared deal. The Broker is giving up 1/2 of the commission to another broker. If there are no other agents involved, the negotiated commission is still due to listing broker. The old saying that goes with this one is "People in hell would love a glass of ice water!"

However, it really ticks off sellers! So I place in the listing agreement a special stip that modifies the commission paid if this occurs. Everyone is happy, and it only happens once in a blue moon!

APR

2007

Very good Jim, for some reason that is the most consistant question I get at listing presentations. "If you sell my home, what will the commission be?" I always tell them I will discount the commission if that happends. In my last 100 transactions it happend once. 1% isn't bad...LOL

I am shocked at how brazen people can be- I ask them what they do and then ask thema similiar question...

Lawyer- How many tickets will you fix for free? Will you gfet my child support raised for me?

Dentist- How about a year's worth of free cleanings for my family?

Contractors- can you come work at my house for a week?

I think everyone gts the picture when thier jaw drops. the I don't need to say anything else. I think it finially rings a bell when it is put in prospective for them.

APR

2007

Jennifer it has become a standard part of our presentation. It closes the presentation for us.

Shanna Exactly!

The latest one I have in on the buyer's side for a condo I'm closing next week. They came to my Open House and while talking to them I asked if they were working with an agent. Then the auntie asked me if they were to work with me would the seller lower the commission, the price etc. I answered by telling them we can only find out by presenting an offer to the seller.

Their agent called that night and flew me an offer ....a low ball one. We countered and they still accepted. Isn't it grand to list at a price that is AT market and not way above as the rest of them were?

Thanks! It is really amazing!

APR

2007

Jim, great subject. My answer is a firm NO. It is between the seller and yourself. It is a signed agreement.They can always try.How would they like to have their pay cut?

My sentiments also. A one percent cut on a X% co-op is equivalent to a 33.333% reduction in agents compensation. I am not going to address specific per-centages in reductions. Do the math! In Atlanta, we pay the highest MLS fees in the nation! It is based / per deal closed! Why would I give up what I have negotiated with the sellers?

APR

2007

I just did a cut on commission but for seller....but again....market here is high and so is this house!

And again....for buyer's when I am the listor....they can still put in an offer and I'll present it to the seller.

Until now, I've said "no" plainly and simply, but I had a listing that has been on the market for over a year with a number of price reductions and finally had an offer just days before it expired. I did sign up the Buyer, he isn't unrepresented, and ended up closing the gap between buyer and seller by giving up the buyer's commission. As an overall rule, I'd say "no", but in this case I'd rather get some commission than none. You do have to look at the specific situation and make a business decision.

APR

2007

Gail - We have to do what we have to do. I will not offer this carte blanche, and try to avoid it if at all possible. Last year we sold several homes on the last day of the listing.

JUN

2007

Even thought it is legal in Virginia, I won't do dual agency.

Frank

I tell them NO. I do give my sellers a break (small one ) , if I double drip, but it is for them not the buyers.

Frank I agree I do not do Dual Agency! If I am under a listing agreement with the sellers, and a buyer comes in off a sign call..that is not dual agency. We make it very clear it a contract shuold come out of it....even in the contract we are not representing the buyer only the seller.

Missy Same here! Never for buyers!

In Texas a buyer can represent himself whether he has a license or not. Consequently, if he handles the buyer side of the dual agency himself, he can write the contract stipulating that 1/2 of the commission is payable to him at closing. And it will be.

I am inclined to believe that the rational is either universal and most real estate people just don't know about it and the public doesn't either, or if it's not, it will be tested in the courts and this practice upheld.

When we got all bogged down in this dual agency stuff, we left ourselves wide open for this to occur. A person does not have to have a license to buy or sell or lease property in his name. Therefore, he has the same statute in this situation as a licensed agent does.

So when a prospect calls the listing office to see a listing, the agent needs to first ask if he is being represented by a real estate agent, if not, will he be representing himself. If he says he'll be representing himself, he needs to be referred to the listing agent. If he says he already has an agent, he needs to be told to contact them to set up the appointment to see the property, and finally, if neither of those apply, then the showing agent needs to get his agreement that the showing agent is his agent...at least on that one listing. That 1/2 of the commission is up in the air until that is settled in writing.

I have gone to show a particular property that was not my listing. On two different occasions when I got there, the prospect wouldn't sign the agreement that I was his representative. In both cases, I explained to him why I wasn't willing to show them the property, and drove off. In both cases, the next day the prospects called and signed the agreement for me to be their exclusive buyer's agent.

But it wasn't what I expected to happen. All I know is that if we are not willing to protect our business and ethics, we can't be surprised when our business as we know it erodes away.

I agree with Missy. I never lower my commission for the Buyers, only the sellers, and only if I get both sides. The Buyers I have run across still want representation, however, they don't want to pay for it. After explaining the situation, most Buyers have backed off and agree to Dual Agency. If not, I tell them that they can have another agent write up the offer and I will talk with them about compensation.

FIRST RESPONSE, "NO" and THEN RESPOND WITH,
WHAT PART OF "NO" DO YOU NOT UNDERSTAND??"

JUN

2007

BILL CHERRY: THIS IS STRAIGHT FROM TREC'S WEBSITE. AN UNLICENSED PERSON CANNOT RECEIVE A COMMISSION, NOT EVEN AN ATTORNEY, IN THE STATE OF TEXAS!!

Section 14(a) and Section 15(a)(6)(F) of the License Act prohibit a licensed

broker from sharing a commission with anyone who was acting in the capacity of

a broker but was not licensed as a broker. In cases such as this, the listing

broker still needs to present the offer to the seller. The listing broker should

inform the seller that the broker is prohibited from sharing the commission... The

listing broker can agree to reduce the commission if requested by the seller

without violating the prohibition on splitting.

Jim Great Post as always. I tell them I cant do it. You want cheap go and it. I am not cheap! I am a Realtor.

Thanks for all the comments!

Get really good at what you do. Become an area expert. Buyers won't ever ask the question and sellers only ask

for referrance. if it comes up say " what would you charge if you were the expert advising a client ? "

I would only consider reducing the commission IF it was my listing and I also had the buyer. When I take a listing, I generally let the homeowner know that if I am the one bringing the buyer to the table, I will drop the total commission. Since that is something that generally does not happen, I really don't worry about it.

My feeling is that we spend too many hours working for our money! Would you ask your physician or attorney to reduce their rates? We are professionals too and spend plenty of hours in continuing education to keep abreast of all of the changes in the industry. We earn every cent that we make and if someone wants a reduction, they need to work with another agent! I am sure their physician or attorney would tell them the same thing!

You get what you pay for!

Paul exactly!

Bill & Barbara I agree.

I ditto Sharon "no". That what I say when someone asks me to drop my commission

Ann the thing I like about the word no is it implies final! It means it isn't open for debate, discussion, let me think about it, I'll get back to you..., let me sleep on it etc....! It is almost as if there are two thoughts conveyed that are said. "NO, and NEXT QUESTION!"

If I'm asked to drop my commission, I always say NO. Then I say ,"if it is so easy to give up my commission & my money, how strong a negotiator do you think I would be with your money???

Pete Very good!

Thanks, every now & then this old brain works.

I agree, The answer is No and Stop interfering in a contract you are not Party to. Sweetly.

Ahhh No! I say the same thing Pete says and I also note, commissions are only negotiated with the seller as he is offering them up and is not part of the purchase contract. Or maybe oh I am sorry are you offering to pay me a commission, that is negotiable! (ha, ha)

JUN

2007

Pete Thanks

Sarah in some states it can be viewed as an inducement ot breach of contract. It is running interferrance with an already valid contract the listing agreement. In those states it is a misdemanor.

Kelly...I like that!

big fat no!!! agents who do this are making it harder for the rest of us we do work hard for our money people don't realize how hard this business is until they go into it

The view that the conduct in question would be viewed as a crime is new to me, but even in states where the behavior does not rise to criminal levels, it could be argued to be tortious interference with the contract - a civil cause of action.

Thanks, Jim - a lot of comments on this one, clearly a topic of general interest.

I personally haven't experienced this but have friends who have. This is the reason some buyers don't use agents when purchasing new construction. They feel that the builder will cut them a deal if they don't have to pay commission. One of the big things in my market is buyers asking their buyer representative to give back a portion of the commission received and/or any bonuses being paid. Certainly, there is still a lot the public has to learn about how commissions are paid and when.

John No is good!

Ted that is why I love Active Rain!

Gwendolyn I love it when someone thinks they don't need an agent. What was the old slogan from MAD Magazine years ago? What me worry?

JUN

2007

I want to thank you all for your comments. I'm a buyer, and we've been negotiating directly with the builder on new construction condos (he does have a broker who we've spoken to a bit). We're only a few thousand apart, and I was thinking of asking the sellers agent to kick in some of her commission since we're unrepresented. Since I wasn't sure about the ethics, I did a search on "Is it ethical to ask a realtor for a kick back on commission?" and came across this blog. We're looking at a townhouse condo in a complex with 44 units, and to be honest we haven't been impressed with the agent (to us it seems like she lets the units sell themselves) which is why we went to the builder directly. Anyway, I now understand a little more from the agent side and think we need to get representation for ourselves.

Thank you for the insights!

Thanks for your comments! However "like she lets the units sell themselves" By law, an unrepresented byuer that walks into a builder is not represented ever by the agent on site. You have / had no representation. That translates into you may have gotten a great deal, or not such a gret deal. As a buyers agent in this market I may advise a buyer not to purchase a condo at all.

I have not had a buyer come in and offer to write an offer on one of my listings but if they did I guess I there would be no selling side commission for the the seller. Our listing contracts break down how much commission goes to each agent. You can set a price for a buyer broker and a different price for a subagent. Therfore if the buyer wanted to be unrepresented he could write the offer and have me present it to the seller and there would be no subagent or buyers agent commission. If the buyer wanted me to do work for them I would have to go to the menu thing. We are going to start that on July 1 and then go to training. We have a year to get the training. Go figure.

JUN

2007

Gene in Our area the commission negotiated by the listing agent and seller is the commission. Whether there is one agent only or an agent from the MLS. If there is another agent, it can be divided whatever way is posted. There is leverage o move the number if you so desire, but you do not have to. I am also licensed in Virginia, and from what I understand it is the same there.

Jim, I have not seen this addressed per se here but on our listing contract we have a total commission and then we have to put how much goes to the agent handling the buyer. If a buyer comes to our sellers door and wants to write an offer without an representation I think they could do that and the seller would not have to pay a commission on that side. Of course that is just our MLS in Hampton Roads.

Gene I would check into that...if I were you. The listing broker works with an agreed upon commission. It is the brokers choice to use and exclusive right to sell, and offer it to other agents in the MLS system to maximize the property exposure, and expedite a sale.

Good point Jim. The comission is the brokers not the agents. The comission is between the broker and the seller. They buyer cannot negotiate the comission as they are not part of the agreement (at least in Washington). So seller will pay the full commission, regardless unless the broker or brokers agent has agreed to something else.

Perrin It really does not matter if there is another agent or not in regard to commission, that is set in the listing agreement which is a contract. It is discretionary to reduce, unless the listing contract has specific boiler plate verbage that says in the event there is no buyers agent, sub-agent etc...

Jim... that is correct. My point is it is moot anyway because (at least in Washington) it isn't the agents to waive... it belongs to the broker.

JUN

2007

Thanks Perrin That is correct!

MAR

2008

Hmmm....do the work of two agents for the price of one? Now THAT is mighty tempting! ;-)

Debra Kukulski Exactly! LOL! :) Too tempting to pass up!

SEP

2008

Jim - it might be tortious interference for a buyer to meddle with your listing agreement -- which is a legal contract. A buyer can make any offer on price & terms, but to meddle with your listing agreement might be crossing a legal line.

Stephen Graham (Associate Broker) Buyer's Agent (Realty Professionals, Inc. - Atlanta, GA Georgia) I have talked to a few attorneys about this topic...I know you are right.

I think situations will arrise where a Realtor needs to decide if it fits his or her business model to help bridge a gap in a transaction. However, diminishing the value we bring to buyers, sellers or when representing both sides is an honest question - however insulting to a Realtors profession.

If they feel they need to ask that, then did we do a good job establishing them as our client and did we do a good job in our message to convey the value we bring to them throughout the transaction? If they don't see the value in your services than that is a red flag... If you represent both parties, are you more at risk? Yes, they've already established that you're not worth it for the job you're doing and they should get more.

We appreciate the value of Seller and Buyers Agents so if there is ever questioning it's better to advise they bring their own personal real estate representation - We're happy to work with Realtors.

Remember that value and trust are one of the hardest things to establish and the quickest thing to lose... Is it really worth it to put your integrity on the line? NO. You're the professional and you're worth every penny!

Amber

Jason Gardner (John L. Scott Real Estate) You also bring up some very valid pionts. When in the course of a transaction there is no other agent invloved, even if one party is your client...and you perform ministerial duties only to the other party. You can work your butt off. There is no other agent to assist you in making sure timeframes are met, that obligations are fuffilled in a timely fashion, and that all parties are doing their part. You do earn every single cent due you.

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