Paying Through the Nose . . .

By
Real Estate Agent with RE/MAX Realty Services

Paying through the nose . . .

This is going to be a "Chicken or the Egg" argument, I will be interested in your opinions.

I recently wrote a post Are Sellers better Consumers than Buyers?  In that post I ask the question of why do sellers seem to do more homework and research when selecting an agent as opposed to the buyer's process of agent selection.

The consensus from most of you was that the seller pays the commission and wants to protect their equity.  The buyer does not pay commission to the agent so maybe the choice is not as important? Okay, that sort of makes sense to me, well sort of?

 I have a big but with that argument - yes, I have a big butt elsewhere, but that is another post entirely. 

My argument is the SELLER would not have the MONEY to pay both of the agents if the BUYER didn't come up with the money to buy the home.  The seller doesn't pre pay us, at least not in my market?

So, yes, as a ledger sheet goes, the money does come from the seller's side of the sheet, but the buyer has to come up with the lump sum in order for this to occur.

For me, the argument that the buyer doesn't pay the agents doesn't hold water.  I believe that the buyer should be very selective in the choice of real estate agent when they are making their selection for the best representation in a transacction.

This doesn't mean I think the seller's side of the transaction is less important. Not for one minute.  My opinion is that the buyer should stop and give more thought to the fact that they are "paying" too.

In the end, not having an agent with experience and know how could end up costing the buyer MORE money

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Rainer
52,574
Sharon Young
Ivy League Mortgage Philadelphia, Pa - Southampton, PA

Audrey ... good point! Any agent can show houses, but a good agent can help a buyer find the right home. I can't think of a good answer as to why buyers aren't more particular. I'm parked to see the responses. Good post.

Jun 11, 2008 02:29 AM #1
Rainmaker
523,111
Ernie Steele
Berkshire Hathaway HomeServices Homesale Realty - Lebanon, PA
Call me, let's get started!!! 717-273-3774

I've always been of the opinion that the buyer is the one paying the commission...It works that way in every other commissioned sales business...cars, appliances, insurance etc...The commission is part of the price of the product just like homes.

Jun 11, 2008 02:29 AM #2
Rainer
82,781
Patty Carroll
Vancouver, WA

Audrey, this is a thought provoking one for sure. The seller thinks that they are paying everything but you are right the buyer is also paying but with interest.

Jun 11, 2008 02:41 AM #3
Rainmaker
209,487
Audrey June-Forshey
RE/MAX Realty Services - Darnestown, MD
GRI, Gaithersburg, MD

Sharon, I am curious on others take on this as well.  I have often thought this, but never said much?

Ernie, Good analysis, I think I agree with you.  The commission is built into the price.

Patty and Scott, Yeah, almost like you could say to the seller, well you wouldn't have the money to pay if the buyer didn't buy the house?  Not as harsh a statement, but it does beg the question.  So, Mr or Ms Buyer, why are you not pickier when choosing your agent?

Jun 11, 2008 03:08 AM #4
Rainer
71,135
Jim Fischetti
The Fischetti Group/Keller Williams - Wake Forest, NC

Audrey,

 

It is not simply the fact that the seller pays the fee, unfortunately it is how too many agents sell their service with buyers, "oh it doesn't cost you anything, the seller pays my fee, etc." Too many agents go that route.

 

That's my take.

 

Jim

Jun 11, 2008 03:20 AM #5
Rainer
10,390
Darcy Rockwell
eMortgage LLC - Latham, NY
Mortgage Consultant

Good points

Jun 11, 2008 03:46 AM #6
Rainmaker
211,029
Kara Casamassina
International Property Management Group, LLC - Aiken, SC
Boomers and beyond

good point, Audrey.    

Jun 11, 2008 03:52 AM #7
Rainer
14,744
Kimberly Underwood Kostescu
Coldwell Banker Crampsie Realty - Windsor, ON

Audrey,

I firmly believe that part of the role of salesperson is to educate your client...whether it is the seller or the buyer.  The buyer is the cheque writer and therefore the buyer always pays the commission.  Buyers and Sellers don't know the rules unless they are taught.  Once explained, most will understand.  As long as there are salespeople who continue to tell a buyer that they aren't paying the commission, the seller is, this issue will never be resolved.  We can't be afraid to do this because sellers and buyers only do what other sellers and buyers have told them they've done and were successful at !  They don't know any better.  Other areas of education should include commission cutting and overpricing a home.

Kimberly

Jun 11, 2008 03:54 AM #8
Rainmaker
209,487
Audrey June-Forshey
RE/MAX Realty Services - Darnestown, MD
GRI, Gaithersburg, MD

Jim, I think that is what most agents do with their buyers.  Good to see you, thanks.

Darcy and Kara, Thank you.

Kimberly, you are a girl after my own heart.  I tell it all to the clients, I want them to know what is going on.  I have good, smooth transactions because no one is in the dark about their real estate transaction, no matter if they are the seller or the buyer.  Good comment.

Jun 11, 2008 03:58 AM #9
Ambassador
251,212
Jesse & Kathy Clifton
Jesse Clifton & Associates, REALTORS® - Fairbanks, AK
Retired

It is kind of a chicken vs egg argument, but not really.  Yes, without the buyers funds @ closing, the seller wouldn't be paying a commission... but... the commission is being paid from the sellers equity (in most cases). We would see a much different attitude from the majority of buyers if the mechanics flipped and the buyer had to bring funds to closing to pay for the commission in the transaction.  Buyers would be (and in fact are) MUCH more diligent if that were the case.

If the buyer hires an incompetent agent and they bumble a couple of offers the most the buyer would be out is the cost of a couple of inspections, if it got that far.  The cost to the seller for an incompetent agent bumbling two offers could be tens of thousands or more.  Buyers don't get shop worn, if you will.  Sellers have a more tangible asset to protect.

The funny thing is that without the assistance of a skilled professional buyers could end up (and do) walking into a property that is a financial disaster.  I see so many folks here that don't do what I consider to be routing testing and inspections.  When the buyer discovers something post closing it's their problem.  I would rather know and address any issues up front.

Jun 11, 2008 04:46 AM #10
Rainer
205,587
Sylvie Conde
Sutton Group-Associates Realty Inc., Brokerage - Toronto, ON
Broker, Toronto Real Estate

The BUYER pays the commission (maybe through the seller's lawyer, here, but no doubt, from the proceeds of the sale... the commission is built in to what the buyer paid for the house). 

It is our responsibility to educate our sellers and our buyers, and show them exactly how things work, and how they can work to benefit both parties.  Our job is not to sell homes. The homes sell themselves.  Our job is helping people find what they are looking for, and educating them all along the way, about every single aspect of that search, and the costs involved - all the costs, including commission. Isn't that what looking after your client's best interests means?

Jun 11, 2008 05:32 AM #11
Rainer
31,474
JoEllen Stranger-Thorsen
Eustis, FL
Lake County, FL

I completely agree -- the buyer needs to make sure they are well represented because we aren't just keepers of the keys who get paid by the seller. We have to negotiate the contract and professionally guide them through the process. A mistake at any stage of the game can be costly.

Jun 11, 2008 06:29 AM #12
Ambassador
3,680,834
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Audrey, the buyer does pay the commission!  I remember the old days in cases where the seller paid the agent directly, the amount of the buyer broker's fee was always subtracted from the sales price (or put in as a seller subsidy). 

Jun 11, 2008 07:00 AM #13
Rainmaker
176,383
Rebecca Levinson, Real Estate Marketing and Online Advertising Consultant
Real Skillz-Clear Marketing for Your Real Estate Vision - Lake Geneva, WI

Audrey.  I agree that it could end up costing the buyer money in the end.  When I do purchase again, I will use a real estate agent who is not only local to the town that I choose to buy in (or county would be o.k. because I live in a resort community where the towns are small) and is familiar with the needs of a young family. 

Years in the business won't be as important to me IF the agent came from a crossover field (like finance) and IF the agent knows the neighborhoods and has done the research.  It will be the knowledge that will sell me AND the attitude:-)

Jun 11, 2008 09:05 AM #14
Rainmaker
209,487
Audrey June-Forshey
RE/MAX Realty Services - Darnestown, MD
GRI, Gaithersburg, MD

Jesse, You make a good case, it used to be that we figured the seller "built" the commission into their price, but now with values being down that is not the case.  BUT if the buyer doesn't come up with the loan, the seller wouldn't have the money?  Chicken vs egg thing. . .

Sylvie, Do you think that with the decrease in real estate values we can still say the commission is built in?  I do think that if the buyer doesn't come up with the money then the seller is just shadowboxing to talk dollars?

JoEllen, I think you are right.  This is so much money?  Think of the thousands of dollars the buyer can potentially lose if they don't have someone that is on top of their game?

Patricia, that is so interesting.  I have always been paid the way we do it now.  I just think the commission couldn't be paid if the buyer didn't bring the money to the table with them?

Rebecca, Good for you.  I think you will know when you make the connection and know that the agent knows their stuff and has your best interests at heart.  That is the best way to go.  I think it behooves any buyer to talk to more than one agent when thinking about buying a home.

Jun 11, 2008 12:58 PM #15
Rainer
205,587
Sylvie Conde
Sutton Group-Associates Realty Inc., Brokerage - Toronto, ON
Broker, Toronto Real Estate

Audrey, in my area, we are still dealing with a strong market, and multiple offers.  Things have slowed down a little bit, but the prices haven't come down.  I don't know what they will be like if and when the market changes.  I guess I will report back when that happens (hopefully not in the near future). :)

Jun 12, 2008 05:10 AM #16
Rainmaker
209,487
Audrey June-Forshey
RE/MAX Realty Services - Darnestown, MD
GRI, Gaithersburg, MD

Sylvie, that is so good to hear.  Good for you all.  See, there is good real estate news out there?

Jun 12, 2008 05:28 AM #17
Rainmaker
236,392
Debbie Summers
Charles Rutenberg Realty - New Smyrna Beach, FL

A-men Sister...  I have a listing that is currently under contract.  The buyer is local, but the agent is from 2 hours away... he doesn't know a think about the area, prices, etc.  I just don't understand why you would let someone who isn't familiar with the area represent you. 

P.S. - I think the buyer brought the house to the agent's attention...  I don't get it.

Jun 14, 2008 05:16 AM #18
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Rainmaker
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Audrey June-Forshey

GRI, Gaithersburg, MD
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