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Frequently Asked Question: How much do you charge?

Frequently Asked Question: How much do you charge?

One of the questions we get asked most often by both Main Line Real Estate sellers and buyers is "How much do you charge?"

Well, actually it depends because real estate commissions are negotiable. I jokingly respond "As much as I can get!" But seriously, it can vary on the price of the home, and if you are a buyer or seller. Also you need to understand how the commission is divided between the agents and the brokers as well.

Many people think the agent takes the whole commission and pays it into their bank account. Usually there are two agents representing one or two brokers in the transaction, a listing broker and a buyer broker. The listing contract actually spells out how the commission for selling the house is going to be divided. This is spelled out on the listing contract because in the old days everyone worked for the seller, the listing agent directly and everyone else as a sub-agent. No one represented the buyer, even when the buyer thought they did. After buyer agency was introduced so the buyer did have representation, the commission paid is still included in the listing contract. It may change in the years ahead, but many agents believe their buyer clients would have a hard time coming up with the funds to pay their commission, even though the whole transaction is currently funded by the same buyer clients and the commission is included through the seller. I believe this is a spurious argument as these same agents like to promote their services for FREE which they are not but it allows them to avoid having to quantify their value to a buyer client.

So, the listing contract splits the total commission between the listing broker and the buyer broker and this may be equally split or not. Another quirk or Real Estate Law is although you hire  real estate agent John Smith who is an agent with ABC Realty, it is actually ABC Realty who owns the listing contract not John Smith. John is an independent contractor and has a contract with ABC Realty where he gets paid a certain split of the commission earned. This usually begins at 50% for new agents and the longer and more business John brings in will increase the split John is able to negotiate with his broker. The seller then lists his home and decides how to split the commission between the two brokers. The seller may offer a bonus to the buyers agent to encourage them to show his home. Of course you as a buyer should be informed of any bonuses offered to the agent representing you. Again any bonus is actually paid to the broker and it depends on the broker if they also split this under their agreement with the agent or pass it on in full.

So, for example a home is listed for $100,000 and the seller agrees to a  total commission of 6% split equally between both listing and buyer broker. The brokers each earn $3,000 when the home sells and goes to settlement, and then divide that commission as per their agreement with their agent, in our example one of our agents has just started and he gets 50% so he ends up with $1500 and the broker ends up with $1500. The other broker has negotiated a contract with their agent where he gets 66% because the agent is experienced and brings in a lot of business, so he earns $2000 and his broker earns $1000. Out of these commissions the agents must pay for their gas, their real estate association dues, and all their business expenses. And of course they only get paid on the successful transactions, if a buyer decides after 6 months to use another agent, the time the agent has spent with this buyer is not recompensed. Some suggestions have been made that agents could be paid a retainer which is non refundable if the buyer does not buy but is refundable when the buyer goes to settlement to avoid this sort of non recompensed transaction.

Buyers

For buyers we will work for what is offered in the MLS, but not less than 2.5%, our broker also had a flat fee commission that is added in of $345. Now, if you are buying a For Sale by Owner and use our services, we can either incorporate the fee into our offer to be paid by the seller, or ask for a seller assist to cover the commission due or alternatively you can add it on and pay it yourself to keep the transfer taxes etc lower that are calculated off the settlement price. The same goes for those MLS listings where the offer of compensation is lower than the 2.5% we accept as a minimum for working with buyers.

Sellers

For sellers as I mentioned above the fee is negotiable, it really depends on the house, the price point, how difficult the home will be to sell, how much work it is going to require. Also, if a seller is buying a home as well this changes the transaction totals and this may affect the amount charged as well. Then, the seller needs to decide as mentioned above how they will split the total commission. Some listing brokers insist on a minimum commission for listing a home and the seller can then decide if they want to match this for the buyers broker or have a greater or lesser amount. Again, they may also decide to offer a bonus to encourage agents to show their home over and above other homes listed.

If you are thinking of buying or selling a Main Line home give us a call and let's negotiate how much you want to compensate us to help you achieve your real estate goals. It is a good indication how we will represent you, because if we cannot negotiate for our own commission how will we negotiate on your behalf.

 

 

 

If you are buying or selling on or around Tredyffrin Easttown or along the Main Line we can help you,  contact us or connect

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Comment balloon 3 commentsNick Vandekar, 610-203-4543 • January 08 2015 11:14AM

Comments

Good explanation Nick & Trudy, many folks are confused on this, especially on the buyer side.  Negotiable commission ensures someone can sell a lower priced home and receive the same top notch service as someone selling a high priced place.

Posted by John Meussner, #MortgageMadeEasy Walnut Creek, CA 484-680-4852 (Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA,) over 4 years ago

Nick & Trudy, This is a thorough explanation of how commissions are paid and split.  I feel so many people just don’t understand how it all works most especially buyers.  Nicely done.

Posted by Kathleen Daniels, San Jose Homes for Sale-Probate & Trust Specialist (KD Realty - 408.972.1822) over 4 years ago

John Meussner one of our main issues is that clients understand the buying or selling process and we aim to be as transparent as possible.

Kathleen Daniels we have many buyers from overseas and real estate is handled differently in different places, some have no records of property holdings even, so it is important for customers and clients to understand why we charge what we do and how we get paid. Most important is that they realize we get paid for success, nothing else. Only when our client achieves their goal, the sale or purchase of a house do we get paid ourselves. Many times in a year a client changes their goal and will withdraw a home for sale deciding to remain in the home for a while longer, or possibly they change their mind about downsizing and no longer want to purchase that condo you have worked with them on finding for 6 months. So many times we work without getting paid for our services.

Posted by Nick Vandekar, 610-203-4543, Tredyffrin Easttown Realtor, Philly Main Line (Long & Foster Real Estate Inc 610-225-7400) over 4 years ago

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