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.