Home Selling in Palo Alto>Question Details

Douglass Mcn…, Home Buyer in Palo Alto, CA

Can a seller arbitrarily set the buyer commission rate?

Asked by Douglass Mcneil, Palo Alto, CA Thu Dec 12, 2013

I noticed some builders of new construction sometimes set a flat broker fee (e.g., $25K flat fee to buyer agent).

Got me thinking...Can a 'regular' seller do the same? For example, could an FSBO seller set a lower commission rate (e.g., 1.5% buyer commission rate) or flat fee commission? Are there any regulations that determine what the seller can and cannot do?

I know this might negatively impact the buyer pool. An agent may or may not go out of their way to show a prospective buyer the home, but I assume buyers could find the home on their own...

Thoughts?

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Answers

18
Douglas,
As you noted and other expert professionals have confirmed, ALL professional fees are negiatiable and the seller CAN dictate the compensate provided..
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Many sellers get cranked when a portion of the compensation they agreed to provide the buyer's agent is handed to the buyer. If you are a buyer, working with a rebater, you may be hurting your position.
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Buyers are trying to purchase the best house possible for the money they have available. When the FSBO discussion takes place and they realize their OUT OF POCKET expenses will increase by MULTIPLE -THOUSANDS of dollars, they typically say....'Don't show me any houses where the seller is not fully compensating the buyers agent." This includes many homes submitted via flat fee and discount brokers.
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Then there is the situation Marge Draper suggests. An non-vetted seller can become a serious issue as the process gets closer to the closing table. I've encountered FSBO's attempting to sell before the estranged spouse found out about it. The live-in was presented as and assumed to be authorized to sell. A HIGHER fee is merited. Much higher.
1 vote Thank Flag Link Sat Dec 14, 2013
hi Douglass,
commissions are negotiable, and the seller with his Broker's assistance sets the compensation offered to the buyer's Broker. It is recommended the compensation be competitive with that being offered in the same market area

good luck!
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1 vote Thank Flag Link Sat Dec 14, 2013
Yes, the seller (and/or the seller's listing agency) sets the co-op fee. And they can choose to make that co-op fee as low as $1.00, or as high as they choose.

As a FSBO, the can opt to cooperate with buyer's agents/agencies or not, and they can decide what they choose to offer.... it could be anywhere from zero all the way up to... well, the sky's the limit.
1 vote Thank Flag Link Fri Dec 13, 2013
Alan May, Real Estate Pro in Evanston, IL
MVP'08
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The seller and their representation establish the fee for professional services. The thing to remember is that lower splits do not endear buyer agents with your initiative. So seeking a lower fee for professional services can decrease buyer activity while setting a higher fee can be money not well spent.

Sellers are usually best advised to set their fees "in step" with the going market rates for your location.

Bill
0 votes Thank Flag Link Fri Dec 13, 2013
You can set/negotiate any commission rate the other side will agree to. Give it a try!
Web Reference: http://talisrealestate.com
0 votes Thank Flag Link Thu Dec 12, 2013
You've received some great answers to your question but I will still add my two cents in re: to doing a FSBO & paying a buyer's agent.

1¢ Ignore what the builders pay agents because you can not even begin to compete with what the builders provide to the agents that bring them buyers. Builders have their own sales staff & the 'commission' they offer the procuring agent is really more of a referral fee because the builder's in house staff will do EVERYTHING from selling the property & upgrades, writing the contracts & all the disclosures, explaining everything to the buyer, scheduling & attending all the walk thru.s at different stages of construction, holding the buyers' hands when they get anxious, dealing with the lenders & appraiser's, etc. Not to mention your advertising budget probably wouldn't even cover what they spend on bottled waters for the potential buyers that are walking through the models.

2¢ You can rightly assume that some buyers will find your home on their own but 'A FSBO! & he's not paying a commission so we are going to offer him less because we want to save on the commission too! (which is why we are driving around neighborhoods searching for signs & checking out Craigslist)' is what most of those buyers are thinking. (It's the same concept for all those buyers that go to listing agents & say that they won't use another agent, so with the commission they are 'saving' the listing agent & the seller they want to get a better price- matter of fact, they are usually the same buyers).
1 vote Thank Flag Link Thu Dec 12, 2013
Yes. Since they are paying the commission, they can work out whatever type of deal they want.

If you are in an area where buyers are typically in brokerage agreements, they will have a contractual obligation to pay their buyer broker a commission if the co-brokerage is lower than the agreed-upon rate. Let's just say, for illustrative purposes, if the buyer has an agreement that the broker will get $40,000 in commission, and you're offering $25,000 - the buyer will be obliged to make up the difference.

It's also worth noting whether your property is the sort that buyers will be searching for. Starter homes, sure. Move-up buyers and investors, not always. Those "buyers" typically aren't engaged in the market on a regular basis, but are open to phone calls from agents. I strongly suspect that in these circumstances, an agent may not make that phone call if they feel the commission isn't enough. Remember, these agents aren't in brokerage agreements, they have no ethical or agency obligation to go through their Roladex when a new listing hits the market . . .

All the best,
0 votes Thank Flag Link Thu Dec 12, 2013
Believe me. Commissions are negotiable across the board.

The MLS requires that the listing agent provide some level of monetary compensation to the buyer's agent if they are going to put the home in the MLS for exposure. They don't put any rules on how much that has to be though. It can be whatever percent, a flat fee, a percent with a bonus promised in the remarks if the price is above X dollars or if the home is under contract by a certain date.

Of course, this goes the other way too. We once had an agent simply put the number "1" in the compensation to buyer's agent field. Usually it reads "3.0" for 3% or "2.5" for 2.5% or whatever. My partner saw the other agents name and knew that he agent had a reputation for being shady, so she called him up.

Guess what? The promised compensation was just ONE DOLLAR! But it was within the guidelines.
Web Reference: http://plymouthhomes.tv/
0 votes Thank Flag Link Thu Dec 12, 2013
As stated commissions are negotiable. This is how it works. A Listing Broker (Company) has a standard within their office. The agent of the Broker will discuss and negotiate the list side and the offered side at the time of listing appointment. It's important to understand that the commission offered is paid to the Listing Broker. That is in turn discussed how much will be shared with a Buyer's BROKER. Each BROKER either Selling or Buyer will have an amount that is split with their agents.

So the commission is not for a BUYER it is for the BROKER. Then the Broker will share with other side of transaction and those BROKERS will split with the agent.

When a Listing Agent meets with the Seller they will explain the market condition and how buyer agent's work. If a Buyer has a Buyer Broker agreement with their agent, that agreement may state the the agent will work with that buyer without any compensation until and once a home is identified, ratified and closed, then the agent is to be paid $x. If the Seller Broker (Seller) is not offering a fair compensation to the Buyer Broker then the Buyer will need to make up the difference to the agent. So then the Buyer will use that as a basis as to the value of the house to them.
1 vote Thank Flag Link Thu Dec 12, 2013
I have seen a survey that showed that 95% of sellers who attempted to sell their house as a FSBO were unsuccessful and subsequently listed with an agent. If you are sure that you will be in the other 5%, go for it. At the end of the sale, ask yourself if you really saved any money or ended up selling for less since you were saving the commission. After all, there are plenty of savvy buyers who think they can buy from a FSBO for less since there is no commission involved.
1 vote Thank Flag Link Thu Dec 12, 2013
Douglass,
As the other agents have said by law commissions are negotiable. They are set by the seller who can offer any amount he or she wants. Of course the buyer can look for a house themselves. Looking for a house is the easy part. It is getting an offer accepted that is the hard part. With over 90 % of homes in Silicon Valley getting multiple offers the competition is stiff. Buyers often do not know what is involved in getting an offer accepted, that is why they hire an agent to help them.

Ok, so what if you find a house yourself and you manage to get your offer accepted do you know how to usher a home through the escrow process with the disclosures, inspections, loans, closing etc. Do you know enough to protect your interests? While it is not rocket science it is a complicated process that has a lot of twists and turns.

So if trying to save a few to many thousand dollars in commission is really important to you then doing it on your own is possible. However, in this market of low inventory and major competition you will have a large handicap so be prepared for possibly many months of frustration and lost opportunities. If we have another round of appreciation after the first of the year which is typical in this area the time you lose trying to do it on your own may end up costing you money if it takes too long to be successful.

We realtors earn our money whether it is from a flat fee, 1.5% or 3%. From my perspective if I did not offer something of great value to my clients I would not be in this business.

Marcy Moyer
Keller Williams Realty Palo Alto
marcy@marcymoyer.com
CaBRE 01191194
650-619-9285
Web Reference: http://www.marcymoyer.com
1 vote Thank Flag Link Thu Dec 12, 2013
Commissions are covered by "price fixing laws". Basically no group can agree to a minimum charge. However no one has to work for a fee that is less than they want to accept.

Many real estate offices have their own minimum commission that their sales agents can accept. The managing broker may make exceptions to the office's minimum but may even have to justify the exception to his management. Whenever an agent participates in a sale they are accepting various financial risks for both themselves and the realty firm they work for.

Violation of the price fixing laws can be very costly. Simply participating in a business meeting with other companies and discussing the minimum commission your firm charges puts the real estate firm at risk of being charged with price fixing.

Home values in Palo Alto can be viewed at http://julianalee.com/palo-alto/palo-alto-statistics.htm

Juliana Lee
Top 2 agent nationwide at Keller Williams Realty, the nations largest
Cell 650.857.1000
juliana@silicon-valley-homes-for-sale.com

Over 20 years experience
Over 1,000 homes sold in Santa Clara County and San Mateo County
.
Web Reference: http://julianalee.com
1 vote Thank Flag Link Thu Dec 12, 2013
The seller can offer any rate they want. However you are sure correct when they may scare away the buyer agents and their buyers. The buyer can choose to pay the difference and that is a contract between the buyer and buyers agent. The bottom line is by trying to skimp, the sellers could be hurting their own sale.
1 vote Thank Flag Link Thu Dec 12, 2013
The seller sets the commission rate, and they can offer buyers agents whatever they want. However, if you are offering less than other sellers are, which property do you think buyers agents are going to take their clients to?
1 vote Thank Flag Link Thu Dec 12, 2013
Hello,

Good question. Commissions in real estate in California are negotiable pursuant to Business and Professions Code 10147.5. Thus, there is no regulation requiring a seller even offer a commission at all. There are some regulations regarding what an agent may do but a seller can do what they want.

However, if the seller wants to list the the home on the MLS, the seller must offer something to the buyer's agent.

Hope this helps.
1 vote Thank Flag Link Thu Dec 12, 2013
As has been previously stated, commission rates are negotiable. It's difficult for agents to screen out listings due to a low commission because most of the inventory is available on line. If an agent refuses to show a property, that would be a good reason for the buyer to find new representation.

That being said, if I were representing the buyer in a FSBO situation I might want to negotiate for a higher commission. Often times sellers without a listing agent have not completed the paper work necessary in a transaction. Those disclosures must be completed. If the buyer's agent has to provide any assistance, they should be compensated.

You see how complicated it becomes as the others who have responded to your question have indicated.
2 votes Thank Flag Link Thu Dec 12, 2013
Absolutely. A seller has the right to set commissions any way he or she chooses. There will of course be repercussions if the commission is less than area norms.

While buyers may find the home on their own...most buyers still see homes with their Realtors. I would caution you against going too low ...but of course you do have the right to offer what you see fit.
1 vote Thank Flag Link Thu Dec 12, 2013
Sure. Although your concerns are also correct.

It's all negotiable.

But if the seller wants an agent--a listing agent--then the agent has to agree to the commission rate.

In the case of a FSBO--again, yes. And, in fact, some FSBOs refuse to pay any commission to a buyer's agent, even one who brings a buyer who wants to buy. In that case, there's an in-effect buyer's agreement that the buyer signed with his/her agent that should cover that eventuality.

However, as a practical matter, if an agent contacts a FSBO and has a potential buyer, many FSBOs will agree to compensate the agent, at least in part.

There aren't any regulations that determine what a seller can or can't do. However, there are some regulations that limit what an agent can or can't do. For example, agents can't accept "net" listings. Example: The seller says: "All I want for my house is $200,000. If you can get more, great. You keep whatever you can get above $200,000." That's a net listing--the seller is requiring a net of $200,000, and is allowing the rest to go to the agent.

There are also a whole slew of regulations and ethical considerations that could arise.

Hope that helps.
1 vote Thank Flag Link Thu Dec 12, 2013
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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