Seems like anyone and everyone has an opinion on how real estate agents should get paid.
I can’t think of any other business where compensation is discussed, at such length (well, perhaps Major League Baseball, but that’s about it).
Let’s disregard all discussion over whether or not an agent is “worth it”. I, for one, am “worth it”.
So, let’s ignore that.
A better issue to focus on is buyer’s agents, and how they get paid.
Let’s start it off by asking, “Who pays a buyer’s agent’s commission?”
The buyer, of course. Indirectly. When you buy a home, you’re paying the seller, and the seller then gives 5% to the listing agent, who splits it, 50-50, with the buyer’s agent.
Some buyers feel that, well, since it isn’t money out of their pocket, directly, then it’s okay for their agents to get whatever commission the seller has agreed to.
Other buyers feel that, well, since the money is generated from their purchase, that they, the buyers, should have more control over how much their buyer’s agents receives.
It’s an issue that has been discussed, ad nauseum, over the past eighteen months, if not before then.
As more and more states outlaw dual agency, it’ll become more of an issue.
I’ve begun to think about this whole thing, more and more, over the past several weeks and months.
I’ve drawn some conclusions.
In the old days, a seller listed his property with an agent, known as the listing agent, and/or sales agent.
The buyer might also work with an agent, but almost always, that agent also worked for the seller. This agent was known as the seller’s “sub-agent”.
(A lot of the time, buyers had no idea who their agent was working for, until they sat down to write up an offer. Um, yeah.)
Therefore, to an extent, having the seller pay both commissions made sense.
Today, the situation is different, yet the compensation set-up has remained the same.
Now, the buyer has his own agent, working for him.
What I’m suggesting is that the purchase price should only go to pay off the seller and also to pay the seller’s agent’s commission.
Perhaps, the buyer should pay his agent, himself.
This would result in buyers becoming much more interested in how much their agents are getting paid – buyers will probably pay much more attention, even though they were already paying their agents.
What I’m saying is, buyers will start questioning why they are paying a 2.5% commission.
Which makes me wonder, should buyer’s agents start working on a flat-fee basis.
You may ask, why flat-fee, and not at closing, as a percentage of sales?
Well, why should I only be paid if you end up buying something?
I’m doing my job for you, every day.
If you end up not buying just because there’s nothing out there that you like, that doesn’t mean I haven’t already provided a service.
I have.
Worse, if you end up not buying because, after you take a look around, you think things are “too expensive” or “going to get cheaper” or “I lost my job and can’t buy right now”, I should still be compensated.
You may feel differently. You may think I haven’t provided a service unless I’ve found you the perfect place to live.
I may feel differently, and think that my service isn’t just finding you the place to live, but finding you several suitable places from which to choose, helping you determine these homes values, making an offer and negotiating it, for you, even if it is declined.
You are paying me for my expertise, my knowledge and experience.
Those who say they can find a home on their own, can do so. They are correct. Get access to MLS and search on your own, make an offer, and buy a place you like.
But, that’s not what I’m paid for.
I’m paid because I know more than you do.
Regarding hard dollar amounts, I’m not sure.
I don’t think it should be on an hourly basis, because I think it’s hard to track how many hours work I do for each client. Many of the things I do are unrelated to specific clients, or maybe related to a client I meet next week, or next year.
I’m not a contingency-fee attorney.
I think an upfront retainer would work. Along with a flat fee, due upon closing.
Most sellers and their agents offer 2.5% to buyer’s agents.
With my pricing scheme, we’ll still collect that 2.5%, at closing. But, anything above a predetermined flat fee would be turned over to the buyer.
This is different from the “discount brokerage” scheme. With them, you still pay a percentage, it’s just that you get a percentage of the percentage back.
To me, that sounds “discount”, but in a bad way.
Like, “buy today, and save 20%”.
Yuck.
I think a flat dollar amount is more reasonable, and respectable.
You want hard dollar figures?
Hmmm.
I think a $500 non-refundable retainer, up front, makes sense. For any client, regardless of purchase price.
Then, a flat fee, due on closing. $5,000 range, up to $500,000, $7,500, up to $1,000,000, and $10,000, over $1,000,000.
That is a very significant savings, over the current way of doing things.
If you buy a $500,000 condominium, today, you’ll pay a 2.5% commission, to your buyer’s agent (again, indirectly), $12,500. For a $1 million condo, you’ll pay $25,000.
With me, you’d pay $5,000 for the $500,000 purchase, and $10,000 for the $1 million purchase.
But, let me be clear. Very clear. Although I’m ending up receiving less money, percentage-wise (and reality-wise), it’s not because my services are worth less.
Far from it.
It’s because my costs are less, and because the risk of you not buying is mitigated by the fact that I’ve already collected $500 from you.
I’m actually not sure how this would work out, with regard to your mortgage loan. I assume you would end up writing two checks at closing – one to the seller and one to your buyer’s agent. That’d work.
What are your thoughts on this?
Other agents are discussing this sort of arrangement, as well.
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Updated: January 2018
