Jul. 13, 2006 - Who Pays the Commission
As most of my readers know, I have been experimenting with negotiating and/or simply giving back a portion of the buyer agent commission since February of this year.
I had a very interesting call from an agent wanting to explore this concept. It was great tossing this around for an hour or so with another real estate professional. Most agents don't want to talk about the buyer having any say in the real estate commission. It's convenient to say that the seller pays the commission. The agent who called me asked if I felt the buyer paid the whole commission. I responded that from a real estate professional's standpoint, the best way to think about commissions is to apply the wisdom of Solomon and keep the issues and the commission separated. When you are the buyer's agent you don't know or care what the listing agent is being paid. So leave that between the seller and the seller's agent.. Look at your buyer client as if he is the one paying you whatever you will receive at the end, and treat the buyer accordingly. That is the only way to treat people as you should and never favor the seller when you are representing a buyer.
The seller pays the listing agent and the buyer pays the buyer's agent. He asked how I determine a fair fee as you don't know how difficult the transaction will be when you first meet the buyer. I asked him how he sets a fee with the seller up front, not knowing how long it will take to sell the house? Apply the same logic to a buyer. The more we negotiate the fee with buyers, the better we get at evaluating a fair price up front, the same as we have always done with sellers.
In the first transactions, and in most transactions of $300,000 or less, I simply credit the buyer at the end with what I feel is representative of "an overpayment" to me. This surprises them and makes them happy. At the lowest sale prices, under $200,000, I do not usually give a rebate. For buyers who approach me wanting to purchase over $500,000, I offer the buyer agent fee negotiation up front after I "interview" them.
A buyer doesn't have to ask for a fee reduction with me. As I experiment with different price and different methods of fee negotiation, it gets easier and I get better at it. So far all of the clients have been happy with the result.
I wish more agents would discuss the issue so that we would all get better at treating buyer clients with the same dignity and respect with which we treat seller clients. Telling buyers your service is "free" is insulting to their intelligence. It's more like saying "It's none of your business what I am getting paid to represent you". Clearly no one believes that it is none of their business.
With Buyer Agent Fees getting higher and higher with even builders offering 4% Commissions or $5,000 bonuses to "selling agent", we as an industry need to agree that the buyer does have some say in the matter. Or we simply have to offer the excessive amount back to the buyer, without the buyer having to ask for it. We are not mercenaries bringing lambs to the slaughter who encourage buyers to purchase the house that offers us the most money...we can't be that...and yet, unfortunately, most just don't see it that way...yet.
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