IN 2016 DENVER PAID OVER ONE BILLION DOLLARS IN REAL ESTATE COMMISSIONS.
(By the way, more than $65 billion was paid nationwide)
GOOD NEWS: YOU CAN PAY LESS. MUCH LESS.
ALL YOU MUST DO IS TALK WITH YOUR AGENT.
ASK YOURSELF THESE FOUR QUESTIONS:
- Knowing that some agents are better than others, why does the entire industry insist that all agents to be paid the same commission?
- Selling a $250,000 and a $750,000 home takes the same amount of work, so why does the entire real estate industry push for a percentage cut of the transaction, meaning a triple commission on the more expensive house? Why should consumers pay even more to buy and sell in 2016, just because Denver home prices have soared?
- Since most people find their own homes online and technology allows agents to do more faster, why does the industry still push to charge what they did 30 years ago?
- Here's a curve ball: Who really pays the buyer's agent? Is the industry colluding to prevent consumers from negotiating this commission?
WANT ANSWERS? FOLLOW THE MONEY...
Every time a house sells, both the agent working for the buyer and the agent working for the seller walk away with a percentage of the sale price, often totaling 6%. It is the seller's agent who makes this possible. How's that? The 6% commission is written into the listing contract between the sellers and their agents. When listing the home, agents use a private field in the MLS to offer compensation (usually 2.8% - 3%) to the agent who brings the buyer. If the agent listing the home also finds the buyer, he or she will often keep the entire 6%.
LET’S LOOK AT THE TYPICAL COLORADO 5.6% DEAL.
The seller signs a contract, entitling the listing agent to 5.6% of the sale price at the closing table. That agent then uses the MLS - where only agents can log in - to offer half of the commission to an agent who brings a buyer.
WHY DO BUYERS NOT NEGOTIATE?
The biggest myth is that “the buyer's agent is FREE." Yup, that’s right folks, just ask any real estate professional. Buying a house? You pay nothing for your agent. Nada. Zip. "It all comes out of the seller's pocket," they will state.
It’s a BRILLIANT subterfuge. Let’s face it, the best way to avoid negotiating a fee is to persuade clients that there isn’t one. Pure genius.
The truth is that nobody gets paid until the buyer brings money to the table, and then everyone gets paid with the buyer's money. So who is really paying the agent? In reality, buyers AND sellers are both involved in the flow of money that ultimately pays agents' commission checks.
HOW MIGHT THAT SAME DEAL LOOK NOW WITHOUT COMMISSIONS?
Every home sale uses the same contract and goes through the same process. The amount of work involved has nothing to do with the price of the home. Some deals go smoothly and some have bumps in the road. Transactions like this happen every day in Colorado.
Buyers and sellers can stop monkeying around and negotiate EVERYTHING. Both have complete control over how much each agent is paid. Buyers have the power to negotiate commissions freely, as part of any offer made on any house.
When this happens, the world does not end and nobody's hair is set on fire, although 95% of agents will tell you otherwise.
WHAT AGENTS HAVE FALSELY CLAIMED ABOUT FLAT FEES AND DISCOUNTED COMMISSIONS...
CLAIM: "The MLS doesn’t allow us to enter a lower commission in a listing."
False. The MLS has “not for public viewing” sections. These private broker, agent-only, areas are where commission and other side agreements are hidden. Agents are absolutely allowed to post flat fees and discounted percentages. Most MLSs only stipulate that something must be entered in these fields. It can be $1. The MLSs cannot legally control and/or mandate specific fees should be paid.
CLAIM: "No one in our company is allowed to agree to lower commissions."
False. This is an easy way for agents to pass the buck and avoid a challenging conversation. Brokerages cannot legally control or mandate fee structures for their independent-contractor agents. That would be collusion and price fixing. Not cool.
CLAIM: "Our fees are industry mandated, and it is illegal to change them."
False. Again, the industry and its national associations cannot legally control or mandate fee structures for their independent-contractor agents. Doing so would also constitute collusion and price fixing.
BUYER'S AGENT CLAIM: "We are not allowed to lower our commissions. So if a seller is offering less, the buyer must to cough up the difference."
False. Not allowed by whom? Nobody can legally control or mandate fees structures for an entire industry. Once again, that would be collusion and price fixing.
Listing Agent CLAIM: "If I offer less than the 'standard' commission, buyer's agents will refuse to show your home to their clients."
Sadly, some agents are unethical and dishonest, at times going out of their way not to show homes offering lower commissions. Fortunately, these agents make up a small percentage of the population, as most understand that they have a fiduciary responsibility to put their client’s best interests above their own. Subversive agents are easy to identify as they often want to avoid talking about commissions at all costs - specifically, when asked to explain how they will earn the traditional 3%. Food for thought: Maybe they realize their services are no longer worth 3% (or never were). Over 90% of buyers find the home they eventually buy via the internet and without an agent’s help. The role of the buyer's agent is relegated to opening the door, being a sounding board, and facilitating the transaction documents. Buyers who talk with their agent before they start shopping for a home are in a more powerful position when negotiating with the seller. Sellers who tell their agent to offer less than 2.8% to a buyer’s agent should ensure the public remarks in their home's listing says, “Commissions are negotiable,” so that the dishonest buyer's agents aren’t as quick to steer away naive buyers.
CLAIM: "Lenders don’t allow the fee to be discounted."
False. This is another one to add to the list of easy ways for agents to pass the buck and avoid a challenging conversation. No bank can legally control or mandate fees structures for independent-contractor agents. That would be another form of collusion and price fixing.
CLAIM: "You get what you pay for. Anyone charging less is obviously not as good. I, on the other hand, will offer better service and sell your house for more."
True, you generally get what you pay for. The question you need to ask is, "What services am I getting for my money?" You will find that most of the lower-priced or flat-fee agents are offering the exact same services as agents who take a high percentage of the home's value. So this brings the question right back to them: "What MORE will you do for such a huge pile of money?"
CLAIM: "The money from the deals I close has to cover all the work I do on deals that don’t."
This is just crazy talk! Why on earth should you have to pay for the work your agent does for other clients - that offers no benefit to you? Enough said.
CLAIM: "I can’t afford to discount my commission because my broker takes a 40% cut."
This might be true, but don’t let an agent's fee arrangement cost you money. If he or she chose a brokerage with high expenses, that’s not your issue. Find a different agent.
SO WHY IS THERE STILL A “STANDARD COMMISSION”?
The real estate industry has worked tirelessly over the years to protect the almighty 6% "standard" commission. Worse, they have made built many silent deals and “agreements” to block anyone who threatens their high fees. This happens at all levels. It starts with two or three agents standing around the office water cooler whispering about not showing discount-commission houses. But where does it end?
HOW TO TALK WITH YOUR AGENT
BUYERS - TALK WITH YOUR AGENT
Buyers. You are being mislead. Your agent is not "free."
Before signing anything, tell your agent you want to negotiate a fair, flat fee for their services - not linked to the price of the home you buy. If the listing agent is offering more than that fee, state that you will decide if you want to keep the balance or refund it to the seller to strengthen your offer. If your prospective agent says, "this can’t be done," then move on.
Yes, that's right. If you agree on a flat fee or discounted rate up front yet the listing agent is offering more, the money left on the table is YOURS. Can you now understand why the industry works so hard to not have this conversation?
SELLERS - TALK WITH YOUR AGENT
Sellers. You can change the world.
Before hiring an agent, tell them you want to negotiate a fair, flat fee for services rendered that is not tied to the sale price. Further state that you also want to offer what you think is a fair flat fee to the buyer’s agent. Insist that this language be included in the MLS listing;
“Buyer Commission Negotiable. All offers presented and considered...”
Use the information above to navigate through their objections, but if they say "this can’t be done," then maybe it's time to consider another listing agent.