The offer of compensation to the agent working with a home buyer is advertised on the Multiple Listing Service, or MLS. That amount can vary from market-to-market, but the usual in our area is 3%. That's all but a routine factual sight when a buyer's agent searches for properties.
But every now and then I'll see 2%, 2.5%, 1% or even a flat-fee of say X which looks better than saying 1%. This practice is even more common place with rental properties. The compensation for rentals can be so low that it's laughable. This week I saw the commission offered on a $2,500.00 lease at $100.00. It would typically be $1,250.00. Our MLS requires something be added besides.... zero.
So why does this happen?
1. The seller has hired a discount broker and has agreed to pay LESS than the typical TOTAL commission, so the listing agent is sometimes splitting what they were able to negotiate with the seller. This practice does in fact lower the odds of the seller selling their home as there are agents who quite simply will PASS on showing this property, regardless if it is unethical, selfish, or not so Christian like. It happens.
2. The listing agent realizes it's a SELLERS MARKET and knows for a fact he'll get an offer rather quick and easy. Unbeknownst to the seller, his strategy is to take 4% while offering just 2% to the agent who brings the buyer. HOW the commission is split is completely spelled out in the listing agreement that the seller signs, but to be realistic, that's almost never brought into question by the seller once the home is listed and marketed on the MLS. If the seller IS made aware of the unbalanced split of commission, the listing agent will say something like... "I have to pay for extra marketing and SOMEONE has to reimburse me." In most cases this is complete bullshit. There's a cost of doing business and the buyer's agent works equally as hard as the Listing Agent. In my opinion when this happens in a hot sellers market, the Listing Agent is just being opportunistic to make an extra slice of compensation.
3. Then there's the .. "I want both sides of the deal" mentality. There are examples ALL over our MLS (especially with leases) where the listing agent will try to dissuade their OWN LISTING FROM BEING SHOWN just so they can attempt to work with both the buyer and seller in the same transaction. Leases are easy transactions in the sense they "go quickly", so often times the homeowner isn't even aware this takes place, and there simply isn't a HUD/Closing Disclosure for everyone to see who got paid what. Another strategy for the HOG of a listing agent is to INTENTIONALLY not return phone calls. They don't want to work with other agents! They will go OUT OF THERE WAY to make the process as terrible as possible. Again, this happens with hot listings, leases or lower priced homes where the listing agent feels "I can sell this myself pretty quickly."
4. Some agents will try (but often fail) to hand out financial punishments to agents who don't completely do their job. The most common is when the listing agent tries to make themselves the procuring cause of the sale. In other words, "I showed the property to your buyer, so "F" you, I'm only paying you X." Sadly, this ridiculous behavior happens more than I'd like to admit, and in the end it typically ends up in mediation or arbitration. These panels are made up of Realtors and the outcome for the greedy individual is typically not going to end well.
5. Probably the most ridiculous reason a listing agent will pay "LESS" I've ever seen is because the listing agent has 'hired' a 3rd party vendor to assist with a Short Sale. They believe in their demented opinion that this is somehow something the buyers agent should help pay for. Any cost of selling is a listing agent expense. Period. That's my opinion.
Sometimes listing agents quite simply do not understand the financials when calculating the estimated proceeds for their seller. They miscalculate their numbers and have told their clients (sellers) you're getting back $5,000.00 at closing when you sell your home, but have inadvertently forgot to discuss the cost of pro-rated taxes. If the seller is "upside-down" because of this error (on the listing agents behalf) then sometimes the listing agent will ATTEMPT to lean on the buyers agent to help cover the mistake. The miscalculation is a gross error and perfect example of incompetence.