Greg Broiles

Don Tepper -

In the SF Bay Area, it is relatively common to see commission rates differ for transactions of different size - smaller properties or bare land typically have a higher commission rate, while higher-end properties - say > $1M or so - typically have a slightly lower commission rate.

I ran an analysis using historical MLS data regarding commission rates for homes in the $750-$1M range; I didn't see any correlation between higher/lower commission rate and the time on market or the delta between asking price and selling price, so my conclusion is that a relatively small adjustment in the commission rate (.5 % is typical here) doesn't have a significant impact on the behavior of buyer's agents.

I'm not a statistician, YMMV, and all of that - but I found it interesting (and a little surprising).

Ultimately, for better or for worse, commissions are typically negotiated and paid outside of the relationship between the buyer and the buyer's agent so it's tough for buyers to get a lot of information about them, or to have a lot of leverage to change commissions. - Fri Aug 29 2008, 02:17

This is an ongoing debate within the real estate community and with the public in general.

I don't think it's helpful to frame the question in terms of what someone "deserves" - there are a lot of things that go on in this world that aren't "deserved", good and bad. I don't know how you make your money or how much you make, but it's possible that if the details of your business or employment were the focus of public debate, you might find people willing to say that you don't "deserve" to be paid what and how you are paid. Chances are, this would not change your ideas about how much you should be paid.

You sound like you might like Redfin's approach to real estate.

I disagree with your suggestion that the amount of work involved in a $200K transaction is the same as the amount of work involved in a $1M transaction. Even if the amount of work involved were the same, the risk exposure for the agent and the broker involved is very different - if a $200K transaction blows up, chances are the liability exposure for a participant won't be more than $200K. If a $1M transaction blows up, the participants might be looking at $1M in potential liability. The agent and the broker working on the $1M transaction with the increased risk need to be compensated for taking that risk - or they won't do it. (Which means that, even in a hypothetical world with flat fees for transactions, participants would need to offer a "bonus" to the agents to do big risky deals, which means fees aren't so flat any more.)

The buyer's agent is motivated to negotiate the price down because they want to get it to a level where it's acceptable to the buyer - if no transaction takes place, the buyer gets nothing. An agent may also work hard to do a good job without a financial motive because they see themselves as a professional, or because they don't want the other participants in the transaction to view them as idiots.

Granted, the last $5K or $10K of space between the buyer and the seller is worth a lot more to them than it is to the agents involved - if the gross commission is 6%, split 50/50, and the agents then split that 50/50 with their brokers, adding or subtracting $5K to the sales price means a difference of $75 in the agent's bottom line, which isn't especially motivational.

On the other hand, I have seen agents on either or both sides agree to make concessions from their commissions where necessary to close a small financial gap between buyer and seller, or where the deal looks like it's about to disappear because nobody wants "give in" and pay some miscellaneous closing or repair cost. Most agents would prefer to take a $1000 hit against their commission versus see the whole deal fall apart and lose a much bigger commission entirely.

On the other hand, expecting an agent to do that - or trying to force them to - is a good way to get fired as a client.

My best advice to you is to focus on getting what you want out of a transaction - a fair net buying price or a fair net selling price, and don't worry about how much other people involved in the transaction are making.

If it's a good deal for you, it's a good deal for you. If it's not a good deal for both sides, it probably won't happen. If you insist on bringing your counterparty to the point where the deal is only marginally helpful to them, don't be surprised if they walk when (not if) they get an opportunity.

The other thing you should understand if you're trying to negotiate commissions with buyer's agents is that the buyer's agent's commission is typically fixed by the listing agreement that was signed between the seller and the seller's agent. This means that the seller is still going to pay the same commission amount, and the seller's agent will still get the same split - but the buyer's agent might have to share their part with you. You won't be able to write an offer that says "I'll buy your $500,000 house for $485,000 and I'll pay my agent separately" because that's not how the contracts are written. - Thu Aug 28 2008, 14:56

The sales prices will be on Zillow eventually - also, the SJ Mercury News publishes recent real estate transactions in, I believe, the Saturday edition of the paper.

If you're feeling really energetic, you could go to the county recorder's office, and look for deeds transferring the properties from the current owner to new owners, and then calculate the sales price by dividing the documentary transfer tax by .00055. The result isn't perfect, but will be within $1000 of the actual contract price. The Santa Clara County Recorder's office will let you look at the index of recorded documents online, but you must go to their office (or pay a third party) if you want online access to the document images.

If this is a one-time event for you, it's probably easier to find a real estate professional with MLS access who can look this up for you without spamming you to death in the following weeks/months.

If this is data you need on an ongoing basis, there are several vendors - one to look at would be Realquest. - Thu Aug 28 2008, 13:32

I think it would make sense to frame this as a matter of professional courtesy, e.g., it would be inappropriate for you to interfere with the relationship between your neighbor and the listing agent by offering unsolicited advice. However, you'd be pleased to meet with the neighbor and the listing agent together, but you'll need the listing agent's contact info before the meeting, so you can call and negotiate compensation for your time. After all, this is what you do for a living. :)

Once Mr. Smartypants figures out that you're only going to deal with the listing agent, I suspect he'll lose interest.

The neighbor is - out of cluelessness or deliberate ill will - trying to get you to work for free. I suggest you become equally clueless with respect that suggestion, e.g., just keep coming back to the compensation issue directly. He won't be able to treat it as mistakenly omitted from your conversation for long - which means he'll either have to own up to wanting you to work for free (which should be met with honest shock and revulsion at such a ridiculous idea) or he'll have to forget about the entire project.

The neighbor's trick only works as long as you're too shy to ask for compensation directly. - Thu Aug 7 2008, 22:50

Yes, but just barely. There are three residential properties for sale in EPA right now at or below $200K.

One looks like it needs a lot of work, one is a probate sale, one is owned by a bank after a foreclosure.

Feel free to be in touch if you'd like to look at any of them. - Thu Aug 7 2008, 19:10

The problem you are trying to solve is not very well defined, so it's tough for someone to give you only relevant answers. It would be helpful to know which area(s) you are interested in - the use(s) you describe for the property are not particularly consistent with zoning in densely populated areas, particularly in light of your desire to pay less than $250K. It would also be helpful to know if you're concerned about security (do you need fencing? lighting?) and/or truck or highway access and/or the availability of utilities and nearby services. Also, it would help a lot if you said you're looking for a lot that's 10,000 square feet, or 20,000 square feet, or whatever your parameters are. Land in Silicon Valley, especially if it's near anything interesting, is pretty expensive, so it's unlikely that you're going to find a 20,000 square foot lot for $250K.

The other simple fact of economic life is that a $250K purchase price probably means a $7500 commission to the selling agent, which will probably get split with his/her broker, meaning the agent will keep something more like $3750 - so this looks like a relatively small transaction, and won't necessarily attract people who are prepared to put in hours and hours tracking down properties for you. You will probably find someone more cooperative if you're willing to sign an exclusive buyer's agreement; you should also know that if you go looking for properties on your own, some sellers won't split commissions with a selling agent unless the selling agent makes first contact. Bare land sometimes has a higher commission rate - but the bottom line is that even though you probably won't have to pay a selling agent out of your pocket, they need to keep track of the basic economics of the deal, and it can be hard to put together small deals.

Have you looked into renting/leasing land instead? It sounds like your plans are not very firm yet, and that might make a lot more sense until you figure out exactly what you're up to. You cannot depreciate bare land (only improvements to land) so the income tax advantages of owning property may not be what you're expecting if you have experience with other business property. - Sun Aug 3 2008, 20:29