I have a question for MY FELLOW REAL ESATET AGENTS regarding reduced commission and commission splits:

Asked by Carl Head, Maitland, FL Sat Jul 6, 2013

We all know what the standard commission is, and how that’s typically split equally between the Listing Agent and the Buyers Agent.

I have lowered the standard commission before on a Listing, if it was someone I knew, or I REALLY wanted that listing some reason. When I did, I offered any Buyers Agent the full price 3% commission, and took the “discounted” amount out of my side.

I am now very reluctant to show reduced commission listings. And, of course, trying to get a Listing Agent to respond as to why the lowered commission amount is impossible.

My question is this: if a Listing Agent agrees to lower the standard commission, for whatever reason, shouldn’t the reduced amount come from THEIR side, not the Buyers Agent?

I welcome your thoughtful comments.

Thanks,

Carl Head
Realty Center Orlando

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Answers

12
Bill Eckler, Agent, Venice, FL
Sat Jul 6, 2013
Hi Carl,

In my opinion, cutting fees for professional services can be counter productive especially when the selling side shows less than the standard amount. Many agents resist being part of pre-determined discounts.

It's our experience that when fees are discounted, this decrease is normally split between both parties.

It often better to demonstrate why a standard rate is a better choice by justifying the services that are included rather than just discounting. Asking the customer which services they would like to eliminate can often "help them see the light."

Hope this helps,

Bill
2 votes
Annette Law…, Agent, Palm Harbor, FL
Sat Jul 6, 2013
Excellent question Carl.
The reduced commission can come from any 'pot' they choose. Be aware, the entire reduced commission can come from the buyer side while the listing side may actually get a raise. I tend to like this concept when realizing some mortgage brokers and agents are working on a rebate basis. If the buyers agent wants to work for less...that is the agents business choice. But their 'less' gets smaller and smaller and smaller. Where will it end?
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The agent who is not paying attention to the compensation element of the listing is a ship looking for a rock.
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It is now the RESONSIBILITY of the buyer's agent to educate their client that the 'assumed' seller pays all professional fees is no longer valid. Some discount brokers in the Tampa area have entered listings with a total buyer agent compensation at $1 (one whole dollar). ALL real estate professionals should have a minimal compensation standard spelled out in the buyer agreement.
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WE MUST COMUNICATE: The BUYER may find themselves responsible for paying professional fees. It depends on the property they choose. And they have no way of knowing which listing may have costs deferred to the buyer or result in exaggerated fess for which they may become responsible.. This reality often results in the BUYER asking you to avoid showing or presenting to them, any real estate where conventional seller costs are deferred to the BUYER. Remember, you must get this agreement beforehand.
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You should have a unique plan ready should your buyer choose to take a ride on the dark side that makes the seller and their agent held accoutabe, exposed and punished. (state your case. The agent is OBLIGATED to show the offer)
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There will be those chapter/verse quoters of the 'Ethics' standards who believe compensation can not be an element in what the client is shown. This is a business...not a hobby.
2 votes
Great Points. 'The agent who is not paying attention to the compensation element of the listing is a ship looking for a rock'. $1 compensation - that's scary
Flag Sat Jul 6, 2013
Jill Murty, Agent, Mission Viejo, CA
Thu Jul 11, 2013
In my area, the commission allocation of funds is written in the listing agreement as well as in the commission instructions, both of which require the seller's signature. It would be surprising if the seller didn't know or care about the allocation of funds, especially if they understood that reduced buyer's compensation probably resulted in fewer showings and a lower sales price.

An even split is certainly more equitable and appropriate. Agents who engage in the behavior you describe will become known for the way they do business and it will ultimately hurt them.

The massive gap between 3.75% for the listing agent and 2.25% to the buyer's agent may not be considered a violation of the Code of Ethics, but it does strongly suggest that the listing agent is a wh*re.
1 vote
Carl Head, Agent, Maitland, FL
Sat Jul 6, 2013
What prompted this: I recently showed a traditional sale home with a 2.25 % commission to the Buyers Agent. I assumed that the Listing Agent would be getting the same amount, however when we closed, I see they got 3.75%. I realize I have no recourse against the agent, as I agreed to show for the reduced amount. However I feel this is unfair and unethical.

Also, to be clear, I’m sure the SELLER doesn’t tell the Listing Agent they only want to pay a Buyers Agent a certain percentage. What happens is the Listing Agent will agree to lower the STANDARD COMMISSION, so they can get a listing, and then the Listing Agents decides to take the discounted amount from the BUYERS Agents side, not theirs. The seller says “I agree to pay you _____%. You deal with that however you deem appropriate.

Again, my question: if a Listing Agent agrees to lower the standard commission, for whatever reason, shouldn’t the reduced amount come from THEIR side, not the Buyers Agent?
1 vote
In my area, the commission allocation of funds is written in the listing agreement as well as in the commission instructions, both which require the seller's signature. It would be surprising if the seller didn't know or care about the allocation of funds, especially if they understood that reduced buyer's compensation probably resulted in fewer showings and a lower sales price.

An even split is certainly more equitable and appropriate. Agents who engage in the behavior you describe will become known for the way they do business and it will ultimately hurt them.

The massive gap between 3.75% for the listing agent and 2.25% to the buyer's agent may not be considered a violation of the Code of Ethics, but it does strongly suggest that the listing agent is a wh*re.
Flag Sat Jul 6, 2013
Mack McCoy, Agent, Seattle, WA
Sat Jul 6, 2013
I think so, Carl.

The entire point of co-brokerage is to get other agents to bring their buyers to your listing. As Annette Lawrence points out, real estate brokerage is a business, not a public utility. While there are many agents who will show properties regardless of the commission (especially if they have a commission agreement with their buyer), many will not.

Recently, I've had a couple of listings sell because an agent picked up the phone and called someone in their data base. I am pretty sure they wouldn't have done that if I had offered half the co-brokerage fee, so, why do it?
1 vote
Jill Murty, Agent, Mission Viejo, CA
Sat Jul 6, 2013
Will asking an agent why they are offering a reduced commission on a listing cause them to increase it? No. Will knowing the answer make you feel better? Nope.

When an agent offers a commission that is less than typical, their side may even be less or it may be much more. I think that seeking answers from a listing agent as to why they and their seller client(s) have elected to offer a particular commission to buyer's agents is a waste of your time and will drive you nuts. What if your client wants to offer on that property? Do you think the listing agent will view the offer favorably after you've confronted them about the compensation?

Agents work differently and not always in ways we like. I think human nature tends to drive agents to show properties that pay better compensation and that is to the seller's benefit. When you're acting as a buyer's agent though, you need to show your clients all properties that meet their needs even if they don't meet yours.

We all have agents we'd prefer to avoid for various reasons and if they can be avoided without being detrimental to your client, that's okay.

As a side note, commissions are not standard; they are negotiable.
1 vote
Scott Miller, Agent, Boca Raton, FL
Thu Jul 11, 2013
I agree with Annette below, but just keep one important point in mind: All of these negotiations for commissions MUST be done before your first showing. They cannot be negotiated afterwards. Once you book the showing and physically show up, you've agreed to the commission terms, fyi.

GOOD LUCK.

Scott Miller
Realty Associates
Boca Raton, FL
0 votes
Annette Law…, Agent, Palm Harbor, FL
Thu Jul 11, 2013
As long as the compesation, as published in the MLS, is accurate, there is NO PROBLEM!
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As the parable of the laborer goes, 'A workman is worthy of his wages.' You can not, as the parable reveals, complian or regotiate later when 'another' pay plan is discovered. (this refers to the harvester who were hired at noon for the same pay.)
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The agent you describe is clever and cunning. We need to be equally clever and cunning. After all, are not we all EXPERT negoitators? There is NO reason an inadequate compensaton can not become a negotiated element in the purchase offer. Your choice of language will supplement or compound your compensation. This option also will server to alert the seller of the imbalance.
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I do not feel the metioned agent is unfair or unethical. This agent DID catch someone asleep at the wheel. I bet that won't happen again without a full assessment of, "Is this workman worthy of his wages? Of these wages?"
0 votes
Suzanne MacD…, Agent, Morristown, NJ
Thu Jul 11, 2013
I think it depends on the type of sale. On Short Sales I ALWAYS keep 3.5% as the listing agent. The reason is the amount of work I have to do (I do my own negotiating because I haven't found anyone I feel I can trust to handle that for me ethically, putting my client's best interests ahead of their own as I do) just to get the bank to accept an offer. Not to mention the fact that we may go through 3 buyers before we finally get one approved. On regular sales I am far more flexible, however, my time and expenses spent marketing and advertising the house are significant so I really don't see it as an issue. I know I am going to get only 2.5% when I show the home, so, what's the issue. The difference between 2.5% and 3% is minimal. I am just glad the discount brokers here went out of business.
0 votes
Scott Miller, Agent, Boca Raton, FL
Sat Jul 6, 2013
In Israel, each side pays 1%.....just a point of reference.
0 votes
Carl Head, Agent, Maitland, FL
Sat Jul 6, 2013
Amanda and Jared, You missed the point, and the answer to your questiosn is "no"

Everyone else, thank you for your responses.
0 votes
David Rudd, Agent, San Diego, CA
Sat Jul 6, 2013
Great questions and responses.

In real estate everything has to do with location, right? I think this is another location dependent variable. In the San Diego area it is more common for the buyer's agent to receive 2.5% than 3%. Some listing agents are now trying to 'push' down the commission to 2%.

My listing I split any reduction 50/50. The reality is buyers are much more savvy and competitive. With my average listing price ate $800k (which is not uncommon) a buyer quickly does the math at 3% and sees "you" making $24,000 on the transaction. They demand some sort of discount, and hence, nearly every listing agent offers a full listing contract at 5% (2.5%/2.5%).

On my lower end listings, sub $400,000 I am much more inclined to keep commissions at their tradition rate of 3%.
0 votes
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