I hired the Opposing Negotiator???

By
Title Insurance with Family Abstract, Inc.

There was an interesting debate at a settlementdebate1 today at Family Abstract, Inc. The buyers of a $600,000 dollar property were pontificating on the idea that they, as buyers, paid all the commission. The sellers of course, were certain that the commissions were being paid by them! The buyers complained, You simply raise the price of the home to include the commissions. In fact, he said, "Every home in America is probably overpriced by 6%"! The sellers complained that there realtor suggested they upgrade certain items and that the $36,000, "THEY" have to pay in commissions will barely cover the costs of renovations!

Buyer asks: If your realtor is going to pay my realtor... "Why would I ever hire a (realtor) negotiator to negotiate against the person that is ultimately paying her"? HMMMM??

Buyer asks: If the $36,000.00 being paid is commission, then why am I paying transfer tax on the full $600,000.00 and not$564,000? HMMMM??

Seller ask.... Is my home worth $600,000 or was it really $564,000 HMMM?? Do they both make a good point?

Ethics, morals and values aside, is there any other business in America today that places the salesperson on one side of the transaction to be paid by the salesperson of the other side of the transaction and not by the client that hired them?

As far as recording...I never really thought about it before, but math does not lie! When the deed is presented for recordation at the county courthouse, it came with a transfer tax, based on the selling price of the home, that was split between the Sellers and the Buyers at the closing. This tax amount varies depending on the state (you can find an overview of transfer tax rates here - http://www.taxadmin.org/fta/rate/B-0306.pdf). In Pennsylvania, the transfer tax can be as high as 4%. This percentage can have a huge financial impact on the amount of money that changes hands depending on how we access the final cost of the home - are we talking $600,000 or $536,000?

Let's say that in this case the transfer tax was based on the recorded price of the house being $600,000. A 4% transfer tax on this amount would mean a transfer tax total of $24,000 split between the buyer and the seller. Now let's say that the recorded final price of the home was $564,000. At a 4% transfer tax, the total fees recorded would be $22,560 - a difference of $1440 less. This is real world money that generally comes out of the money that the buyers borrowed for the purchase.

$1440 borrowed over the terms of a 30 year mortgage could mean an extra payment of over $2,500.00 over the life of the loan. This is a significant amount for what may amount to a clerical mistake. This approach to determining transfer taxes has been around for many years. Unfortunately this may mean that the majority of homes in the greater Philadelphia area, which are subjected to this 4% transfer tax rate, are actually being artificially valued at 6% above what they are actually worth because of automatically factoring in the cost of the buyer and seller commission payments. This whole scenario begs the question: how fair is it that today's home buyers and sellers are also being double-taxed on the amount that they payout in commissions?

Thoughts??

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About Family Abstract, Inc.

Established in 2002, Family Abstract, Inc. provides Title Insurance to clients and customers throughout Florida, Maryland, New Jersey and Pennsylvania with more than 40 years of combined experience in management alone. We pride ourselves on retaining the most skilled and knowledgeable employees who share our goals of providing the best service in the industry.

Located in Horsham, Pennsylvania, Family Abstract, Inc. maintains an extensive network of skilled title insurance abstractors in all the states we service in addition to a nationwide network of qualified closing agents who are available to close loans at any location.

Backed by the strength of four title insurance underwriters, we are able to provide expert attention to detail without sacrificing versatility in the closing process, thus providing more options in difficult title situations. Due to our depth of industry knowledge and commitment to excellent service, Family Abstract, Inc. has been able to develop client relationships that have endured for decades.

Having successfully settled and insured thousands of transactions, we have already earned the trust and confidence of hundreds of customers, lenders, brokers, and realtors and now we would like to share our expertise with you!

Comments (15)

John McCormack, CRS
Albuquerque Homes Realty - Albuquerque, NM
Honesty, Integrity, Results, Experienced. HIRE Me!

Glen, Fortunately we don't have a transfer tax here in NM at least yet.  Regarding values and the argument of who is paying the commission, I am of the belief that when a home is appraised they are looking at the value of real estate not the value of real estate plus a commission or any other closing costs for that matter.  The commission is a service fee paying one broker who then shares an agreed portion of the commission with the buyer broker, providing there is one via the confines of the MLS agreement.  I do agree we may be the only profession who actually do this, I think it convolutes things a bit.

Feb 12, 2013 12:00 AM
Glenn Freezman
Family Abstract, Inc. - Horsham, PA

John, I found the conversation to be fascinating.  They have no "inventors remorse" when it comes to commissions and the broker agreements and the mls, they just know that $36,000 was spent somewhere, by somebody, I told them to make believe it's monopoly money and I made myself the banker!!

Feb 12, 2013 12:10 AM
Travis "the SOLD man" Parker; Broker/Owner
Travis Realty - Enterprise, AL
email: Travis@theSOLDman.me / cell: 334-494-7846

"Monopoly money"....haaaaa - good response! I tell the Buyer's that altho it seems the Seller is paying me, that they actually are in the final "bill" - the mortgage.

Feb 12, 2013 12:14 AM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Glenn -- that is some very heavy thinking you are expecting us to do so early in the day.  I am sure that the states that have tranfer taxes have defined how they are to be calculated.  After all, the government is not going to let us get by with using what gives us the best benefit, if they can get it for their coffers.

Feb 12, 2013 12:17 AM
Glenn Freezman
Family Abstract, Inc. - Horsham, PA

Travis do you ever get the debate as to the negotiator being paid by the other side of the transaction and how ludicrous that must appear to the buyer?  Thanks for commenting, I appreciate it.

Feb 12, 2013 12:33 AM
Glenn Freezman
Family Abstract, Inc. - Horsham, PA

Steve, to me it appears as a classsic "Double taxation"  and WE ARE THE GOVERNMENT LESS WE FORGET!!!!!!!!!

Feb 12, 2013 12:34 AM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Glenn - well we do elect our representatives (though I sometimes wonder what is happening --- as example our local state legislative district votes repeatedly to limit how state can raise taxes, and then elects representatives that want to ignore that and raise more taxes.)

Feb 12, 2013 06:46 AM
Brian L. Sirota, Esq.
Bristar Realty (Realtor/Attorney) - Orange, CA
For Solutions: (714) 501-7660

Glenn, apt as the analogy seems, it takes a sense of humor as grand as yours to present it to a community of Realtors whose livelihood depends on "double taxation."  ;-)  Brian   

Feb 12, 2013 12:10 PM
Glenn Freezman
Family Abstract, Inc. - Horsham, PA

Steven, It's just brutal.  We are Marionettes on the government strings!

Feb 12, 2013 10:09 PM
Glenn Freezman
Family Abstract, Inc. - Horsham, PA

Brian, do you think that's why there were very few comments?  I was looking for an answer, if the topic ever came up again that could be easily explained.  Oh, well, Ill continue in ignorance.

Thanks, as always, Brian

Feb 12, 2013 10:10 PM
Brian L. Sirota, Esq.
Bristar Realty (Realtor/Attorney) - Orange, CA
For Solutions: (714) 501-7660

Glenn, your thinking is way more expansive than folks here are willing to entertain.  ....Wouldn't quite call that ignorance.  =)  Brian

Feb 13, 2013 01:02 PM
Glenn Freezman
Family Abstract, Inc. - Horsham, PA

Brian, what a shame, thanks for your reassurance!

Feb 14, 2013 01:28 AM
John G. Johnston
John G. Johnston & Associates, LLC - Westcliffe, CO
An Exclusive Buyer's Agent ~ Westcliffe, CO

Glenn  I have to agree with John Q.  Colorado does not have a transfer tax either.  This should be a great discussion but as Brian mentioned it might be one of those step-children not to be discussed.  One possible comparison is car values.  Typically, it is cheaper to buy directly from the owner...without guarantees!  But, the book value also shows dealer price with protections.  As you know in the title business there can be a seller claiming to have title...but!  I guess I would consider a commission some sort of insurance policy.  I do think the client should pay the commission.  You have got me thinking off the cuff.  A commission gets you a 'recorded' deed.  There are just so many protections a licensed agent provides a client that a prudent person was demand an agent just as you would expect them to have auto insurance.  Too much to lose without an agent or insurance  I'm rambling...GREAT BLOG

Feb 18, 2013 09:47 AM
Glenn Freezman
Family Abstract, Inc. - Horsham, PA

John, as an Exclusive Buyers Agent, who pays you?  If it is the seller as John Q. points out how do you explain that the other side is paying for the buyers exclusivity? I can't get it through my thick head how this can possibly make sense if it is broken down like that? I also want to thank you so much for your inclusion and your insights. 

Feb 18, 2013 10:05 PM
John G. Johnston
John G. Johnston & Associates, LLC - Westcliffe, CO
An Exclusive Buyer's Agent ~ Westcliffe, CO

Glenn  A 3% commission nets me $30.00 per $1,000.  I explain to my clients that their business and referral is much more important than making another $30.00.  The buyer could pay me the 3% and deduct it from the offer price or pay the seller and the seller pays me with the buyers money.  Half a dozen of one and 6 of...

As long as listing agents write into the listing agreement that the seller's agent is paid...why not?  I would not want to be paid by my client and have the listing agent collect all the commission because the seller was uniformed.

I do agree EVERYONE should pay their own agent, regardless of the relationship or lack thereof.

Feb 18, 2013 11:30 PM