Andrew Wetzel's Musings

June 2, 2017

Call it a commi$$ion or a fee, it needs to be discussed and understood

Filed under: Uncategorized — awetzel @ 6:04 PM

I address the commission/ fee question a little differently than most Realtors based on what I hear and read.  While it is understood to be negotiable, there is some logic to how a broker determines their office fee and what they will accept from a specific client.  That being said, for me, it is NOT an arbitrary number that should be tossed around solely for the purpose of getting a For Sale listing or helping a buyer purchase Real Estate although some of them base their “hiring” decision largely on the number they are told.  I know it is an expense and often a large one but, if you compare Real Estate-listed sales with private sales, we more than earn our fee.  It is my opinion that most prospective clients, even those who have bought and sold Real Estate before, do not seem to fully understand what “the number” means so I explain it.  What they do next is up to them.

When I meet with a prospective seller and discuss the CMA (Comparative or Competitive Market Analysis) for their property, I show them what their “competition” is offering buyer agents to “show” and possibly sell their houses.  When sellers pick their price they pick their competition and that includes the compensation being offered.  Do they want agents to want to show their house?  Do they want buyers to want to see their house?  As I explain, the compensation offered a buyer’s agent is a “marketing tool” to try to achieve equal footing with the competition.  There may be other reasons why a specific house does not get shown or sold but I do NOT want it to be a question of commission.

The conversation leads to an explanation of the buyer representation contract and how commission is used there.  Assuming we are getting our buyer-clients to sign a contract such as we do with seller-clients, the contract specifies the length or term of the contract as well as what our fee is.  I agree to be paid by the listing broker as long as I am paid at least “X”.  Of course, the buyer is paying the seller who pays the listing Broker who offers the buyer agent a portion of what they are paid.  In the event that a listing broker would not pay me at least what my contract with my buyer-client specifies, the buyer-client agrees to pay me the difference.  Hmmm.

I explain to prospective sellers that my typical buyer-client will NOT pay “fair market value” for their house only to have to pull some of their hard-earned money out of their pocket to pay anything to me or any other agent.  In fact, every buyer I have ever worked for has told me not to show them properties that won’t pay my fee.  NOTE:  that is THEIR choice NOT mine.  There are ways to attempt to adjust the offered compensation and there are ways NOT to do it.  Fortunately, while I have never had to ask a buy-client to pay me anything, there have been houses they did not want to see and therefore did not buy.

There are times where a prospective seller is unwilling or unable to pay a requested fee.  Being unable is one thing, that could relate to what they owe or what they need to take from a sale to make a move, but being unwilling is a separate matter that needs to be fully discussed.  Many Real Estate gurus suggest telling the seller to add the amount in question to their asking price.  The house would still have to “appraise” and wouldn’t it be ironic if a seller said it would not work because it would impact their appraisal or make other houses more price competitive?

The final piece is an explanation of what we need to do if a house is not getting shown or not getting offers.  The MLS clearly shows a price reduction (you could literally reduce a house $1 and EVERYONE will be able to access that fact) but a raise in compensation is not so obvious.  Unless you look at a specific MLS printout, you will never see an increase in the compensation/ fee being offered.  Even worse, I discuss a possible initial reduction and, as I point out to the prospective seller, it always far exceeds the portion of the commission they attempted to save.

As with any “objection”, if a seller still wants to pay less, something is missing.  They are not understanding the market or they are not seeing our “value” as compared to another agent who may be offering their services for less.  We need to identify what the impediment is and remove it.  The answer may be to wish them luck and move on.  Tell them you would be happy to be their next agent if their plan does not work.

When markets are good, some sellers believe we should be paid less since less needs to be done to sell their house.  Perhaps BUT, the simple fact is that as long as we accurately portray what they are selling so that it can be found in searches, it is the price that will largely determine the level of activity and how long it may take to sell a house.  The reality is that we really earn our fee from the time there is some interest through to settlement.  No one can force a seller to sell or a buyer to buy so the best they can hope for is honest effort and good advice.  In fact, we trade our knowledge and time/ effort for a fee and we generally earn nothing if a house does not sell or, if it does, does not get to settlement.

Last point, frankly, an agent willing and eager to cut their own fee may be unable to negotiate the best price for their client.  There are so-called “discount brokers” as well as other “business models” and they can work in most markets but their clients need to understand what they are paying for and whether that “model” works for them.  One size does NOT fit all!

The process of getting a house on the market, working with prospects, negotiating contracts and doing all of the miscellaneous items required to get most properties to settlement requires a lot of knowledge and effort.  The same can be said for preparing a buyer to buy, showing them houses, discussing alternatives, preparing and negotiating offers as well as the details that accompany any sale and getting them to settlement also requires a lot of knowledge and effort.  Perhaps explaining the “process” can resolve most if not all questions about our fee.

This would all go away if we could reach a point where buyers directly compensated their own agents but that is a big leap away and most likely not to occur in the near future.


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