"The buyer pays all costs unless the seller brings money to the deal. Indisputable fact." says Dan.
However, if we're going to get technical about who pays what to whom. The bank puts the mortgage loan money on the table, the buyer probably puts the down payment and did put the earnest money forward on the table, a family member or a charitable organization may put money on the table, and the lender might or might not put money on the table (in effect) as a credit. All the money on the table is split up by the escrow agent to the various parties making claims to it, including the listing agent, the buyer's agent, the title company, who in turn pays the tax certificating people, the survey people, the inspection people if any, taxes to the local government bodies if needed, and so on.
Since the bank puts the biggest chunk on the table usually, isn't it more correct to say they pay the commissions? I think Dan is splitting hairs. The buyer causes the majority of money to appear at the closing table - that's true. But the seller receives only what's left over after his mortgage loan balance is paid off plus his costs, such as a home "warranty", liens to be cleared up, and so on. The seller is considered to have paid the commissions, by custom. Commissions are attributed to his cost basis when subtractions are made from the sale price. You might ask yourself if the leftover amount after all deductions is actually what he sold it for, if you're going to say the buyer paid for everything, because the buyer did pay off his mortgage balance and all the other costs besides the commissions in your view of things, Dan.
It's a lot like saying the price of something at Wal-Mart is actually the price marked plus the sales tax, because the purchaser pays that. Or, that the price of a car is not the amount on the invoice, because the dealer may receive a rebate or have to pay an inventory tax outside of the transaction. And what about the amount you paid to have a mechanic look at it before buying or the salaries of the receptionist and so on and so forth?
I dispute your claimed fact, Dan.
You're just muddying the water for the Seller Dpaee and trying to stir up trouble.
The low entry threshold to this industry, both educationally and financially, only impresses those inside the field as the general public does not see us as being on par with true professionals like doctors, lawyers, CPA's, etc., and for good reason.
Merely beating a drum doesn't make one a member of the band.
Kim, I am sure you are a wonderful agent and an asset to all who hire you so please understand that I am taking issue with what you say, not with you personally.
Your first paragraph I agree with for the most part.
The second one is making me chomp at the bit.
In NJ we require 70 hours of education and to pass a test that isn't particularly difficult, a high school diploma, to be 18 and not a convicted felon. I would not call that impressive. The amount of education required is minimal and by no means are all agents created equal. Being called a Realtor® means having to pay dues in order to do business. In NJ in order to use the mls, you have to be a Realtor. No broker will hire you unless you are a Realtor. It doesn't make one more ethical just because we have to sign a code of ethics. We all know there are plenty of unethical realtors out there. Even the exalted tax benefit really isn't all that impressive- for most people it makes little financial difference.
The NAR is the most powerful lobby organization in the US which says a lot since there are a lot of well-monied lobby organizations which all contribute to the buying of our politicians for self-serving agendas.
This is nothing to be proud of as far as I'm concerned and I believe the NAR has done more of a disservice to our already tarnished profession than helped.
Regarding whether or not agents are worth the money: many, maybe even most are, but obviously plenty aren't and I think to paint a broad brush in response to a question posted by a seller who is one of many these days that are finding themselves in a financially difficult situation is not right. We should be constantly striving to improve this profession, not perpetuate some of the sometimes justifiable stereotypes.
I apologize for my blathering. I know many will disagree and that's fine but I just felt the need to say what I said.
You can always ask your agent to reduce the commission, but he's under no obligation to do it, and if he operates under a broker other than himself, it's doubtful that the broker will allow it. You made an agreement to pay the commission, and without knowing all the details, it's difficult to say whether or not your agent earned his pay. Let's assume he did - when the buyer comes back after the deal is agreed to, the option period is over and it's time to move ahead to closing, what will be your response when he says "Oh, I feel a little pinched by the price, I really need to renegotiate the price with you"? Negotiating a less than 6% commission when the property is listed is one thing, afterward is another thing completely.
I am sorry that you feel like selling real property is a bit like selling cars - I can assure you the two are nothing alike. Professionals that take the real estate industry seriously are nothing like car dealers, the amount of knowledge we must possess and the education we must continue to possess it are significant, the ethics we maintain are considerable, and the lobby we bring to real estate issues nationwide are substantial. When you continue to be able to deduct your mortgage interest from your annual income tax, thank a Realtor. When you sell a property without a state transfer tax, thank a Texas Realtor. When you pay a 6% to get your home sold by a professional with the skill and knowledge to help you sell at the best price the market will bear, in the shortest amount of time possible, thank a Metrotex Association of Realtors Realtor. We are worth the money.
Basically you (the Seller) are hiring the Listing Agent to sell your home for say 6% commission.
That's it. Now that Listing Agent then goes out and "hires" Buyers' Agents by offering them 1/2 of the commission circa 3% to bring a Buyer to the property. So you can think of it this way -
You are hiring a Professional to sell your home. That professional then sub-contracts with other Professionals in the marketplace to match a Seller and Buyer together.
The system works remarkably well when you think about it. And I read another response which said
"You aren't complaining when you ARE the Buyer and not paying a Commission up front." -
So it really all comes out in the wash so to speak. You pay a little more when you go to sell -
but when you turn around and buy - you aren't paying anything !
But ultimately it comes down to "value" - according to Nat'l Assn. of Realtors which does EXTENSIVE
market analysis - both locally and nationwide -
Homes sold with the help of a real estate professional sold on average for 12 to 32 percent more than FSBO sales. The median FSBO selling price in 2006 was $187,200, compared with $247,000 for agent-assisted transactions. That's a substantial difference.
So even AFTER paying a Commission of 6% - the Seller is still coming out ahead
on average vs. trying to go the For Sale by Owner route.
JAY NAREY ABR, ALHS
Keller Williams - Preston Rd.
Knowledge is Queen.
KIM: Remember, even those who has never sold a single house also believe they're worth the same commission you earn! Hmmmm.........
I don't fault those of you who perpetuate the myth that most agents are worth what they're paid...after all, it's human nature. And we can all continue to beat our chests and yell at the top of our lungs about how professional, knowledgeable, skilled, ethical, etc. we are, but I simply can't find real evidence to support the stance that the majority in our industry fits that mold. If I lie to myself, it becomes far too easy to lie to others.
But again, I don't fault those who have a different viewpoint. For many, it's the only way they can go forward each day.
Your listing agent negotiates a commission with you, the seller, to sell your home. Period.
Then from that fee, your listing agency determines how much they will pay the buyer's agent if and when they bring a ready, willing and able buyer. In some cases, the listing agent brings the buyer too, and then NO buyer's agent gets paid.
And you accomplished that, how?
Let's talk about ethics. The thing about having an established Code of Ethics is that everyone can see what is expected. Having a personal COE is nice, but it isn't worth the paper it's printed on unless people can hold you to the contents.
As far as the "used-car" analogy goes, it's even weaker than real estate agents comparing themselves to attorneys and doctors. Regardless of how low the bar may be, the fact remains that we are State-licensed, and meet the qualifications for selling real estate.
As far as "The NAR is the most powerful lobby organization in the US," according to OpenSecrets.org, "real estate" is #5, behind "Lawyers/Law Firms," "Retired," "Health Professionals," and "Securities/Investments" - something to note when your financial planner or a writer in the Wall Street Journal rips real estate.
- Regarding whether or not agents are worth the money:
One fact of life - if the agent doesn't produce, they don't get paid.
This isn't an abstract concept, by the way. It's not enough to market a home, hold open houses every week, buy advertising, hire stagers and photographers and advise on home prep and line up contractors and movers and all of the ancillary things real estate agents do in a transaction - if there is no deal, the agent does not get paid. If there is a deal, then - and only then - does the agent get paid.
Yes, times are tough. What's really tough is to get homes sold. Brokers in every field need to have ready, willing, and able buyers on one hand; they need to have quality, well-priced merchandise on the other. Most real estate brokers I know aren't especially eager to take on listings that aren't of good quality and well-priced, and I'm really surprised that they don't demand higher fees to take these listings on, as selling many of them would be quite an accomplishment.
- There is an argument that the buyer truly pays the commission instead of the seller.
Cash is the glue that holds a deal together, and whoever brings the cash pays the bills. The buyer pays off the Seller's mortgage, they pay the transfer taxes, they pay the title and escrow fees and all of that - from one point of view.
The same point of view holds that you, the consumer, pay packaging and advertising and delivery costs for the supermarket. C'est la vie, non?
Since this was obviously a Texas question, I too am surprised at the other State agent/brokers who suggested answers. However, I did read most of the answers in a quest to gain more knowledge about how we real estate people think. However, the "answer" session digressed into agents sharp shooting each other; especially interstate. Don't Mess With Texas.
"The requirements for a real estate salesperson license in New Jersey include being at least 18 years of age and having a high school diploma or GED.Salesperson applicants need to successfully complete at least 75 hours of approved real estate courses, and at least three of these hours need to be about ethics and ethical conduct. All salesperson applicants need to successfully pass the real estate exams before applying for their license."
Joan: Are you proud of the 75 hr requirement in NJ vs 210 in TX? You will not be happy if you think you'll get a salesperson license in TX with your education/experience.
I hope you can make some sense of the numerous comments here. You original question of the why has been answered (that it is to attract buyers through other brokers than the one you hired and to get paid from the commission you promised that broker).
Of course all sales situations resemble each other, including used car sales, but your Realtor should be bringing more than just sales tactics but also sales strategy and a wealth of knowledge that most ordinary people don't have. That's the reason for offering a commission in the first place: to get those.
I am not sure what brought on all the sniping. It needs to be taken off-line. MLS data are proprietary to the member brokers - it's not public data, Mack and Peter. Texas, being a non-disclosure state, does not have a repository for public disclosure of sales data. I love Trulia. Zillow and other webplaces attempt to provide their estimate of value, but if a process uses faulty data on the input side, only faulty data can come out.
However, sales data method is only 1 of 3 accepted methods for determining value: depreciated reconstruction cost and income being the other 2 methods. But the income method would again require non-public data to establish a value, while reconstruction cost would require cooperation with builders and insurance folks.
Given the long-term trend of real estate to rise in price, a seller can expect to sell at any price he chooses so long as he is willing to wait long enough. Which brings us to shorter term considerations. At any moment in time buyers are present (just like in the stock brokerage arena) who are willing to pay a certain price. But they come and go. Some will be higher than the listed price, and these days many will be lower.
Statistically they form a distribution curve around the "value" of the property. We can't see the cuve easily because it is formed over a long period, sometimes more than a year. Sellers don't want to wait that long to discover what the curve looks like. They have to deal with the shorter term vagaries, usually selecting the highest offer available at the point in time. Realtors can estimate the curve going into the listing to help the seller understand what might happen.
For sellers and buyers to get sales data from the MLS is a logical reason for using a Realtor. It's all the other things that a Realtor can offer that differentiate one Realtor from another.
Joan, it's not about pride. Please see my blog http://www.trulia.com/blog/t_e_sumner/2011/03/is_450_hours_e
Not to put too fine a point on it, but the 1,200 hours is required for a cosmetologist-hair stylist, not just a barber (someone to cut/style your hair). Besies, as highly trained as they are I sincerely doubt if any of those licensees know the difference between listing and lis pendens.
My question remains Peter. Please provide at least 3 of the many sources you use (outside the MLS) that provide accurate sales data. You can't. You use the MLS...period. And by the way, that "battle" you mention has been fought and lost. We are a non-disclosure state for a reason. But I guess snide remarks are more your forte than research.
I don't know Mack from Peter, but I am sensible enough to know that I don't make determinations about one's competence, skills, knowledge, etc. based on a post. Apparently Peter has a sixth sense that allows for this. Perhaps that is where his marginal attempt at humor comes from.
Since this original question was posted in Texas, not Washington, France etc., I won't pursue issues that have no bearing outside of Texas. And while I would love to banter back and forth with those who are comfortable consuming vast amounts of the "all agents are professionals" Kool-Aid, forgive me for bowing out as none of us will change our points of view. For many, facts and truth can be bent to accomodate one's comfort zone. For others, we see it for what is is and try make positive changes even when it means confronting an ugly reality.
Remember Peter...one will never find that which he does not seek.
I have this sense that you do a terrific job for your clients because you have a good grasp of the realities involved in getting deals done. We should be good advocates for our clients as well as for our profession. It is obvious you care about your profession and what we do for our clients. You know in the UK they have estate agents. But then you as a buyer make all the arrangements with the sellers to see their properties and have to listen to them give you their pitch on why you should buy their house. The people I have worked with from the UK and from France love our system!
To my experience the majority of agents are good hard working people with integrity who really do a good job being advocates for their clients. 20% to 25% are not the caliber I would hope to deal with, but that can be true in any profession. Mortgage officers, Title Services, Inspectors, AND the Cable GUY!
Take care and stay on course Mack!
T.E., TREC requires 210 hours. Great. In NJ, the requirement to be a hair stylist is 1200 hours, manicurist, 300 and skin care 600. Still feel proud of the 210 hour requirement?
Look, contrary to what Mack thinks, I love real estate and I know there are a lot of good/great agents out there. I happen to work with a lot of them and I know how hard good agents work and the value they bring. But just pretending as if our industry is fine and dandy just the way it is and there are no problems that need to be addressed isn't doing anyone, the public or our industry any favors.
REAs need to realize that things are changing and changing quickly and we better keep up with the times. We also better have more awareness of what the NAR is doing with our money because I can guarantee you the public's perception of things is often very different than our own.
Dpaee, I am truly sorry for taking things off track. I will agree with this: you can't change a contract after the fact. You agreed to pay a certain amount, signed on the dotted line and you are obligated to do that. To reiterate, the seller pays the commission out of the proceeds the buyer brings to the table. YOU agreed to pay a certain amount but it comes out of the money the buyer hands over. I know that 5% hurts but as others have mentioned, you had other options and you chose to hire an agent and pay a certain amount and you are now obligated to honor your contract.
I rest my case guys, going to go watch a movie with my family!
Hardly. There's more information out there than can be digested. We do have knowledge and experience, but as far as information, we haven't had any real secrets besides the owner's phone number since the invention of co-brokerage.
C'mon, Guy, we've been desperately trying to give away information for decades! Yard signs, flyers, open houses - then, thank G-d, the Internet! Now, eighteen still photographs, virtual tours with music and narration, everything at fingertips!
They don't use us because we have a secret store of data, they use us because of what we know.
Mack - I hold myself to the NAR established COE and my personal COE, plus a few more local ones. I like to sleep at night - doing business any other way simply isn't worth it. No, I don't have the paid hours of education required by doctors and attorneys, but I know many of them and feel very confident stating as fact that I am as equally professional in my business as they are in theirs - education or not, my attorney and physician clients trust me with real estate, just like I trust them with the jobs I hire them to do.
Guy, I am not beating a drum in order to be a member of the band, nor have I attended any seminar to form what are my own opinions. I don't have to justify my work by quoting NAR dogma to the consumer, but the statements I made are true. Like it or not, those lobbies have been part and parcel to those protections being kept for the consumer. Is the NAR a perfect organization? No. Are all of their positions ones that I would choose? No. Are they right on a lot of stuff in spite of that? Yes.
It's possible that I popped off too soon, having lately become quite annoyed at consumers that assume that all agents are the same, none of us are worth our pay and have no pride in the jobs that we do. Maybe I've just had a bad day, maybe the seller just had a bad day. Still, when I hear that the seller feels a little "pinched" about his agreed commission, I am not hearing "I will have difficulty paying this much" but "I don't want to uphold the agreement I made". It's possible that I read something into that question that isn't there, but I have been doing this long enough to know it's a pretty small possibility.
"he same point of view holds that you, the consumer, pay packaging and advertising and delivery costs for the supermarket. C'est la vie, non?" Another conversation entirely - but that is certainly the best description of why things cost what they do - straight out of economics class and it's spot on.
I agree with most here and especially - Kim: When you continue to be able to deduct your mortgage interest from your annual income tax, thank a Realtor. When you sell a property without a state transfer tax, thank a Texas Realtor. When you pay a 6% to get your home sold by a professional with the skill and knowledge to help you sell at the best price the market will bear in the shortest time possible.
The MLS is a cooperative of brokers who offer a commission to another broker bring them a buyer. Hence, if it's in MLS, it's almost for sure that the seller has agreed to attract buyers from any broker by paying a commission. That's the long and short of it.
As to the other comments about how easy it is to be a Realtor and how unethical conduct is tolerated - I strenuously disagree with these characterizations. TREC requires 210 hours just to take the licensing exam. After licensing, the Realtor must take 60 hours of training every year for 3 years and then 15 hours for renewals.
Ethically, Realtors must (to be renewed) take a legal update and an Ethics course. The Texas Association of Realtors runs a program that allows ethics complaints to be filed anonymously, just to make sure that ethical compliance is high on the priority list for all Texas Realtors.
I can't comment on other places, but we don't cotton to unethical or dumb Realtors - it's a disservice to our customers and the public.
When thinking about how much an agent deserves to earn, you have to realize that most homes are not sold by the listing agent, So that each person involved in the transaction ends up with 1.5% of a 6% commission because they split it with the company they work for.
Keep in mind that few agents will agree to reduce their commission until they realize that 5% if better than nothing. If you decide to interview additional agents, let those agents know in advance of your commission structure and that it's not negotiable. Then you'll only be interviewing agents who you already know will work for the reduced commission.
Believe me, the agent that said you couldn't trust her unless she received 6% commission probably can't be trusted even at 8%.
The agent who got all huffy and puffy with you about asking what you had every right to ask was absolutely wrong and I would have called her broker and let the broker know about the agent's unprofessional behavior.
To answer your question, I can understand why it may seem unfair, however its a way for the commission to be handled with the proceeds from the sale, as opposed to out of pocket. You price your home with the commission in mind. The buyer may not think of it that way but they are the ones who are handing you the check at the closing table so although the commission comes out of your proceeds, the buyer pays you the money to do just that.
This is my first experience working with a realtor and, unfortuantely, in some ways, it reminds me too much like buying a used car...
You can also try to sell FSBO or pay a flat fee broker and save money on the listing side of the transaction. You could consider offering less than 3% to the buyer agent (for instance, a 5% total comissions split between the two agents/brokers)....just depends on your motivation and preferred time frame to sell.
The real answer is because years ago when all sellers had lots of equity (needed 20-40% down), so they had all the $. The used to pay the buyers "mortgage Points" too.
Unfortunately, if you choose not to pay it then no real estate agent in their right mind will represent you nor will a buyer's agent show your property. Good luck!
The seller is compensating the listing Brokerage Firm. Typically there is a pass through at closing from the listing brokerage to the Selling brokerage. These Brokerage firms are responsible for the adequate compensation of their individual Agents. The "Seller" is only paying their Brokerage firm.
For a typical breakdown of the "Breakout" Listing agency 3% Buying Agency 3%
Brokerage to Agent: .50% or 1.5% Broker to Agent
100,000 sale workout: Sellers Agency splits $3000.00/ Buyers Agency splits $3000.00
Typical exp ratio per transaction here in NYC $600.00 to $800.00 in advertising costs on each side of the deal . This is an Exp. to the Brokerage. As an agent, I have lost money due to Expenses on both the sell side and the buy side. If you want a break down of the most resent loss.
1722 Madison in Ridgewood. NY Ini sale price. 660K 1.5 % comm. $9,900.00
245 Hours Working the deal would have worked out to 40 Dollars and hour. Before the Chop.
Bank Cut structure down to 4% total on contract. Based on Additional Concessions I requested for the buyer.
Savings to Buyer, 22K Plus 3.5% Finance rate.
New sale price 638K Projected Comm. $ 6,380.00 0r 26 dollars per hour. Not bad for 30 Days work.
Tax rate .369% NYS, FED Leaves .61 cents on the dollar
NY City 10% makes it a Cool .53 cents on the dollar.
Don't forget travel, insurance, gas, and tolls!. Let's Just face it. If I did not love my Job, If I did not get a kick out of helping people make their dreams come true, I couldn't afford to do my Job! Some deals work out quickly. Some don't. I work on the Buyers side of the deal for the most part. It is my Job to complete the Due Dil for my client. The sellers Agency has a job to protect their Client with the same respect as I have for mine.
Sure, From time to time things go so smooth that it is like skating on ice. It looks easy from the Client's side.
I'm sure that a lot of the Seller's Agency would say the same about their client. Truth is. Buyer's Agents and Seller's Agent have to do a lot of talking. From time to time we go at it tooth,nail, and chain saw. When it's time to sit down at that table, the Lawyers take over and the fighting is done"almost" The Agents lay down their swords once again and smile at one another. We will meet again. We will continue to answer the other realtor's phone call. Even when that smell of burnt flesh from the last scorching we took is still lofting in our own home. End of the story on 1722? The deal broke up at the closing when the bank disclosed Contractor Liens payable by them to a service provider. Seems that the Contractor filed the lien one day before closing!
So, the Agents, Brokers, bank, and lawyers will meet again. Yes that was Monday 8/15/2011. I stopped counting the hours last month, but my Broker has not!
Most of us don't know who Colby Sambrotto is. He created a web company that assists homeowners who want to sell their homes by themselves or with a discount broker.
Now, Mr. Sambrotto will stubbornly insist that homeowners can sell their homes without an agent, but he turned to a real estate broker when he couldn't sell his condo in New York. Note that Sambrotto was clueless about what price he should sell the unit for and his broker had to convince him he was way under the market.
By upping the price $150,000, the sale covered the cost of the $120,000 in commission - and more importantly got results.
Sambrotto sniffed that the Manhattan market is tightly controlled by real estate agents. (If that's the case, why would anyone waste their time and money using his service.)
Here is the link:
Real estate professionals live, eat and breath the market. That's who you are competing against when you go to sell on your own. Agents and brokers are widely networked. Those contacts have value.
This is an excellent question, Dpaee. Thanks for your post.
PML of Longmont, CO
The seller pays one comission. The comission is then co-broked to the selling broker if there is one. In some areas of the country each side pays respectively, but in most areas, the seller agrees to pay the Realtor as set fee and the realtor pays out from there :O)
You need to understand that while you feel you're paying both sides commission, the buyer feels they paying both sides; as it's their money your paying with. If you were only paying one side and the buyer had to pay their broker, do you honestly believe you'd get the same price? It's only one pie and this is the most practical way of slicing it.