The commission rate to sell a home has always been, and will likely always be a hot button issue. Commission rates vary but most people recognize the rate of 6% of the sale price of a home as the industry standard. So what is the seller actually paying for?
Prior to 1999 home sellers contracted with real estate brokerages in an effort to find a ready willing and able buyer for the seller’s property. The overwhelming majority of residential home sales were achieved through the efforts of a seller agent and a seller sub-agent. Yes, both brokerages represented the seller. It was a time before the advent of buyer agency. And, as stated above, the commission for providing this service was often 6% of the homes sale price. In most cases 3% would go to the seller’s broker and 3% would go to the seller’s sub-agent.
Fast forward to today’s most common home sale representation scenario. The seller hires a broker to represent their interest in the sale of their home. No longer is it the duty of the broker to simply find a ready willing and able buyer. It is now the broker’s duty to find a buyer and complete the transaction, as needed, up to the time the home is conveyed to the new buyer (settled). In many cases the buyer is represented by their own agent yet the seller still pays the same rate of 6% with 3% going to the seller’s broker representative and 3% to the buyer’s agent.
So does this mean that the seller is paying 6% for half of the service? It seem so but actually it is not the case. The fact is that real estate statutes were simply updated in 1998 to what they should have been all along. The agent that brought the buyer was called a seller sub-agent. Most of the buyers were under the impression that the agent showing them homes was representing their interest. While the real estate statutes of the time stated differently the rational belief was that the agent bringing the buyer was representing the buyer. It was for this reason, and pressure form consumer groups, that the statute was changed and the consumer notice was born.
Maybe someday the governing bodies that control the real estate industry will take the next step and change the way fees for real estate services are distributed. What would happen if the home owner would pay their representing agent 3% and the buyer would pay their representing agent 3%. While this may be less of a conflict of interest the economic results would likely not change. It would still cost 6% of the sale price to sell the home. It would shift the burden of costs to the buyer which would have a negative effect on the overall home market and thus likely make homes sell for less. Maybe 3% less. It would take sweeping changes in both the real estate and the banking industries to make this work. Don’t look for that to happen anytime soon.
This scenario is obviously speculation on my part. In order to better understand this dynamic one must understand how many home buyers ask for a 3%+ seller credit in an effort to afford themselves a home. This tells me that adding 3% to their costs would have a negative effect on home sales overall.
While it is necessary for a home seller’s Realtor® to cooperate with other Realtors® when selling a home cooperation has nothing to do with fees and commissions. The following is an excerpt from the National Association of Realtors Code of Ethics…” Article 3: REALTORS® shall cooperate with other brokers except when cooperation is not in the client’s best interest. The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker. (Amended 1/95). While saving some commission may be an acceptable practice per the NAR it is often frowned upon by the industry. This alone can have a decidedly negative impact on a home sale. It is an example of something that is legal but not logical in most cases.
One thing a seller can ask the broker/agent they choose is to consider a variable commission rate. This means that if the listing agent sells the home and does not have to pay a commission to a buyer representative the commission may be less than 6%. At Weichert Realtors® Neighborhood One we regularly consider a variable rate commission. To us it seems like the right thing to do.
Remember, all commissions and fees for service are negotiable in a real estate transaction!
Knowledge is power!
Jeffrey C. Hogue
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