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Where does your money for commission go?

By
Real Estate Agent with The Real Estate Power Houses

One of the most misunderstood aspects of buying or selling real estate is the commission and how it works and to whom it goes. Although there is currently no standard for where the commission goes, traditionally, the way it was set up was that, of the total commission offered, the listing broker gets half and the buyer's broker gets the other half. For instance, with the traditional 7% commission, the listing broker would get 3.5% to split with the listing agent according to their agreement, and the buyer's broker would receive 3.5% to split with the buyer's agent according to their agreement as well. What we have come across with many other real estate agents and companies is that they may, for example, list a property for 7%, but then they will only offer 2.5% to the buyer's broker and keep 4.5% for themselves.

What does this mean for you as a seller? Your money, that you are offering a listing agent to sell your home, is not being used to YOUR advantage, but for your real estate agent's advantage! If a buyer's agent is only offered 2% or 2.5% to sell your home, or 3% or 3.5% to sell other homes, which home do you think they will try to promote? Your commission money that is offered is also supposed to be there to entice the buyer's agent to sell your home as well-thus making your money work for YOU! In my opinion, it is very conceited of an individual to think they deserve a larger cut as the listing agent when, in our current market, the home WILL NOT BE SOLD without a buyer's agent! In a buyer's market especially, the buyer's agent should be compensated as much as the listing agent in order to sell your home. The temptation in a difficult market is for the agent, excited to get a listing, to get as much money as he or she can out of the listing to make up for the market conditions; but you need to make sure you are not taking the brunt of their circumstances! You need to sell your home, not pad the pockets of the listing agent!

I work with both listings and buyers; and as a listing agent myself, I explain this concept to my clients. How can I ask for a 6%, 7% or 8% commission if I am only willing to pay 2.5% to the buyer's agent? If I am only going to offer 2% or 2.5% how can I justify making you pay more than 4% or 5% to sell your home-I can't, because it is not fair! If it is not split equally, it is NOT to the seller's advantage, who is paying this money, to use that agent to sell their home! If you are currently under contract with another agent, you need to make sure that your money is going to benefit YOU, not your agent. Ask them what they are offering as a co-broker!!! Make sure they know that you will be sure to look at the HUD statement at closing to make sure they are being truthful to you! YOU HAVE A RIGHT TO KNOW HOW THEY ARE SPENDING YOUR MONEY!!!

There is a very large company here in our area that their standard is to offer 2.5% no matter how much commission they negotiate. Even if you specifically ask them to offer half, they say they CANNOT, and must walk away from the listing if you demand that half go to the buyer's agent! I personally know an agent from this company who had to walk away from a 7% listing because she couldn't offer 3.5% to the buyer's agent at their request! Be sure to find out the company policy on commission and co-broke offerings! Chances are that they will tell you that they offer less because that is what many other agents or offices do and it all comes out in the wash! Even if this is the reason, they are still not spending YOUR money wisely-just because they feel cheated!

As you are interviewing listing agents, BE SURE TO ASK what commission they are going to offer the buyer's agent. If they do not initially say that they will offer 1/2 to the buyer's agent-my suggestion is to move on to the next agent! If they are not fair in their everyday business dealings, what makes you think they will be fair while dealing with you? Be sure to let them know that you will check on the HUD (settlement statement given to you at closing- the top of Page 2 shows the commissions paid) to be sure they are being honest with you!

 

Mary Sitton Real Estate Team
Mary Sitton Real Estate Team - - Hendersonville, NC
RealtorĀ® - Western North Carolina

Jese,

In NC the seller specifies what percentage is to be given to the listing agent and buyers agent.  I find your post interesting to find out that TX does not address the issue of commission split in the Exclusive Listing agreement.  Thanks for posting.

Aug 14, 2008 11:39 AM
Antoinette Galindo
Alain Pinel Realtors - Burlingame, CA
CRS,GRI,SRES,e-PRO

very good blog

Aug 14, 2008 11:44 AM
Bill Parecki
Elite Pacific Properties - Hilo, HI
RS, ABR, RDCPro, SFR, E-Pro, SRS, AHWD, Green

I could not agree more.  Over her on the Big Island we do not see that very often. When we take a listing we have to have a seller sign our MLS information data sheet and on that is the co-op rates.  I think that companies that do that are cutting their and their clients throat's.  We have a little more aloha over here.

Aug 14, 2008 12:29 PM
Jese Gonzalez
The Real Estate Power Houses - El Paso, TX
The Real Estate Matchmaker

Gann Realty---Here in Texas, in our Listing Agreement, it is specified how much is to be paid to the Buyer's Agent. But believe it or not, some agents put a different amount on the MLS. Sellers don't see the MLS information and do not even know. This all came about when I took on an expired Listing to which the Listing Agent was gettin 10% !!! YES 10%  but only paying out 2.5%. The only reason I found this out is because the seller (now my client) showed me the Listing Agreement.

 

Bill---What a great concept to have the Sellers sign the MLS information data sheet. I'll have to bring that up to our Board. Thanks for sharing.

Aug 14, 2008 02:09 PM
Angelia Garcia
Pure Realtors - Dallas, TX

10% commission, that is unheard of.  No wonder we are not liked.

Aug 21, 2008 05:05 AM
Edie Lomason
Michael Saunders & Company - Venice, FL
BA, ABR

On our listing agreement we spell out how much we are offering to the selling agent.  There is no hiding this type of fo-broke.

Edie

Aug 22, 2008 02:35 PM
Daniel J. Brudnok, REALTOR
Berkshire Hathaway Home Services Fox & Roach, REALTORS - Exton - PA License #RS-225179-L / Delaware License #RS-0025038 - Downingtown, PA
SRES, e-PRO,ABR,GREEN,CSP

Jese,

Assuming is the mother of all disasters.....ASK the questions.

Aug 23, 2008 03:02 AM
Terry Bishop
Terry Bishop Realty LLC - Tucson, AZ
Earning Your Trust and Confidence...

In Arizona on the MLS sheets, it is specifically state with the % sign how much is offered as a co operative fee to the selling agent.  The seller signs this on the Property Profile agreement.  The listing agreement just states the total commission, but the seller can indicate whether a commisison will be paid to a dual agent or a buyer's agent.  We now must put in the % sign on our Property profile sheets because apparently there was some question about what the number meant...the percent or the dollar amount...i.e 3% or $3.00.....

Aug 23, 2008 05:59 AM
Steve Mangus
not active - Oklahoma City, OK

Here in OKC, most of the time the standard fee is 6%. In our office if we take a 5% listing the selling agent still gets 3%, so it behooves us to not cut our fee(I'm trying to get used to not saying "commission"). So in El Paso do y'all usually charge 7%?

Aug 23, 2008 12:32 PM
Jese Gonzalez
The Real Estate Power Houses - El Paso, TX
The Real Estate Matchmaker

Hi Steve,

There is not a set rate of how much is charged. It truly varies from 6-7% although there are those "discount brokerages" that charge 5%. The way I defend the higher rate is by showing them all that we do to not only deserve the higher amount but show them how typically we can sell a home faster.

In essence, a 1% increase in fee is the equivalent to about a month's mortgage payment. If you explain how by offering a higher amount you'll attract more buyer's agents thus selling the house that much quicker that's money that will go back in their pocket if we are able to sell it quicker than the others offering the same anemities.

Aug 23, 2008 12:43 PM
Robert Machado
HomePointe Property Management, CRMC - Sacramento, CA
CPM MPM - Property Manager and Property Management

I personally think the harder the property is to sell, the more should be offered to the buyers agent.  That means the amount can vary based on market conditions for that particular property.

Aug 24, 2008 08:52 AM
Paul S. Henderson, REALTORĀ®, CRS
Fathom Realty Washington LLC - Tacoma, WA
South Puget Sound Washington Agent/Broker!

Jese, Very interesting insight. I find 25% of the time the higher the commission the longer the DOM. If I see a home with low commission you find an agent who wants both sides. I think we all know the agents who pay themselves first...

Aug 24, 2008 12:38 PM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Coldwell Banker Realty

 

This is a very tricky area.  No guarantees that the split between Listing and Buyer Broker will be 50/50 of the total commission.

 

Jul 14, 2010 07:58 AM