What is your current situation in the real estate market?

[James]

I've discussed this with a few realtors who I regularly work with and for sellers, reducing the buying agent's commission right off the bat is a difficult tactic to employ since you're basically telling all the agents who are representing buyers that they're going to earn a reduction in commission on that property. Now I do agree 100% with cdr108 above in that it should be a buying agent's duty to show the property if it fits their client's criteria but oftentimes, buyers don't scour MLS persistently and in those cases, it's very easy for the buying agent to simply not present that property to them if they know their commission rate will be reduced. All that said, all commission rates are negotiable and in this market I don't know anyone who accepts a 5% (2.5/2.5) split anymore.

 

[Adamhoffer]

I am living in California. Now I am shifting to Colorado. I purchased a new house with 4 bedroom and 3 bathrooms. I got it through an agent. Before buying this house I was little confused. But My cousin suggest me to contact any real estate agent and you will find a good property. I am happy now and feeling relax. Next month I am shifting to Colorado Springs.

 

[drewp]

cdr, I have at times told my clients of properties that weren't paying the full commission. I would say 95% of all listings offer 2.5%, but those that don't, like private listings or discount brokerages, and these are properties that I show to my clients if they want to. Before I show them I make it clear, as it is my duty to disclose the cooperating commission amount. A lot of buyers don't want to see private listings, or they don't want to see it because they don't want to pay, or they see it and we negotiate the sellers commission. It is not like there are a lot of these listings so it doesn't matter that much.

James, at my office 76% of all listings are at 5%, and yes the commission is always negotiable. The consumer needs to know their options, because there are many service models out there that accommodate just about anyone.

 

[Ric]

An agent representing a Buyer will usually sign an agreement (BRA) stating what the agents commission is (usually 2.5%) and that any shortfall from this amount will be covered by the Buyer.

Now lets put aside this notion that the Agent will only show properties that pay him his 2.5%. As long as he discloses that the Seller (Finn) is only paying the Buyer agent 1.25% and Buyer will have to cover the remaining 1.25%: that buyer will most often chose not to view that property. Why would I as a purchaser chose to pay half my agents commission when most other properties on the market will pay his full commission. Therefore, I see no reason (although it is done often) for an agent to withhold these listings from his Client; as 9 times out of 10, client will chose properties that will pay his agent the BRA agreed commission; so as not to be on the hook for an additional cost.

Having said that, there are other factors at play here. You may be located in a very hot area where 2.5% maybe enough. Maybe your house is worth $1M and will sell in 3 days. Your listing agent may then offer a 1.5% commission to buyer agent and take 1% for himself (or 2%/0.5%). Be careful of your property not getting enough showing and then becoming a stale listing. Then you're in this position of trying to save on commission but losing property value. All the best!!!

 

[Finn]

That's interesting, Ric, because I've never heard of a buyer/purchaser having to pay a real estate agent a fee since that agent would naturally make his/her share of the commission on any sale. If, as some here have said, most listings offer 5% commission, then both agents are making 2.5%. Why then, if 5% the norm, would any buyer bother with a contract to ensure his agent receives 2.5%? When contracts are created to protect a commission structure/rate, it is usually because a situation once considered the norm is no longer. In this case, that would indicate that the old 5% commission rate is no longer the norm. A friend in B.C. tells me that what is normal there is for a 3.5% commission for sales up to $100,000 (this would be higher here of corse) and 1.5% after that.

What, exactly, are we as sellers paying for? Access to the MLS system, an agent who can host open houses, advertise (where/how frequently/at what cost) and be available for showings, negotiate and filing final paperwork. As stated, I'm all for paying for good work done, but there should be a reasonable limit to the expectations on the part of agents.

If you compare the approximate hours a RE agent devotes to selling a property and the revenue received from a sale with what an average real estate lawyer earns per hour for his functions to complete a real estate deal, the numbers are frightening. If I'm paying my lawyer $1,000 and my real estate agent $7,500 or more, yes, I would like to see what I am paying for.

In the end, it's what the market will bear whether you are selling, buying or representing either party. It is up to consumers to do their homework and cut the best deal they can for themselves considering all variables.

 

[TOphotog]

"If you compare the approximate hours a RE agent devotes to selling a property and the revenue received from a sale with what an average real estate lawyer earns per hour for his functions to complete a real estate deal, the numbers are frightening. If I'm paying my lawyer $1,000 and my real estate agent $7,500 or more, yes, I would like to see what I am paying for."

@Finn: if you only knew the amount of work we do on behalf of sellers and buyers which they never see, it would astound you. I've had two b/f's in the past who've stated "I had no idea of how much work is done in the background that people don't see" as they've seen me do countless hours of research, phone-calls back and forth, etc etc.

As the market has softened slightly, I am now having no problem in convincing my sellers to list for 5.5%, with 3% being offered to the selling agent. They have all the buyers, and I want them to come to my listing FIRST. I want them to sell my listing FIRST. I can even stretch on the listing price by offer a commission higher than my competition out there. There's an old saying: You have to spend money to make money. There are agents out there who book their appointments based on the commission they're getting (I'm not saying it's proper, but it does happen). By offering 1-1.5% commission to the buyers' agents, you might be doing yourself an injustice. In my past three listings, I asked the agents "what brought you to my listing - honestly????" Answer: "the 3%". It's all about numbers and how you make them work. In this industry, you are quite entitled to list your house at whatever price you want, and offer whatever commission you want. The main objective is to get it sold, in a timely fashion, and at a good price. How you achieve that requires thought and planning.

 

[interested]

^^^^
To the argument that you have no problem in convincing your sellers to list for 5.5% and 3% to the buyer's agent.

By extrapolating that argument, why not 6% and 3.5% or 7% and 4.5% to the selling agent. That will get the agent in with the buyer and probably persuade the agent to try and get his client to buy the property because of the oversized commission he gets.

the problem is all that does is further extend the prices for buyers who are stretched already...or alternatively increase the cut the realtor's take from their client, the vendor...at the vendor's expense.

So I think this argument if accepted just leads to a wealth transfer for vendor/buyer to realtor and does truly not address the issue brought up by the original post.

I am not disputing the hypothesis that there is a lot more work now to sell as the market has slowed. However, like so many arguments, I did not hear complaints about the commissions or that they should be lowered because one could basically just list a house/condo the past few years and it would literally sell itself with multiple offers.

In fairness, the knife cuts in both directions.

I think it is fair for the poster to have asked for transparency so the he/she can understand for what exactly he/she is paying for

 

[TOphotog]

By extrapolating that argument, why not 6% and 3.5% or 7% and 4.5% to the selling agent

Because it is not needed. Real estate is highly competitive, we all know this. In pricing it correctly, marketing it correctly - the property must compete with the others. If we do this by lowering the price or increasing the incentive, it's the seller's choice. All industries offer inducements rather than lowering their prices. Think of the automotive industry. There are many financing inducements, free this - that - and the other, rather than reduce their MSRP.

 

[TOphotog]

It is up to consumers to do their homework and cut the best deal they can for themselves considering all variables.

The real estate agents who are commenting on here are not trying to argue whether we deserve 1% or 2.5% in selling a property. Our buyers decide what our worth is. We are just trying to point out all the ramifications of a seller offering 1.0 or 1.5% commission for procuring a successful offer. Yes, it can drastically affect marketability of their property - to their financial detriment.
Some sellers aren't aware of the pitfalls until it's too late.

 

[interested]

By extrapolating that argument, why not 6% and 3.5% or 7% and 4.5% to the selling agent

Because it is not needed. Real estate is highly competitive, we all know this. In pricing it correctly, marketing it correctly - the property must compete with the others. If we do this by lowering the price or increasing the incentive, it's the seller's choice. All industries offer inducements rather than lowering their prices. Think of the automotive industry. There are many financing inducements, free this - that - and the other, rather than reduce their MSRP.

From your previous post I quote:

"I am now having no problem in convincing my sellers to list for 5.5%, with 3% being offered to the selling agent."

This does not sound to me like: It is the seller's choice. It rather sounds that the sellers are being pursuaded that to be competitive one has to offer the highest possible commission to the buyer's agent. I am not sure this represents a highly competitive environment....rather I believe it represents a rather large monopoly being manipulated by real estate agents for their own personal gain. Perhaps somewhat akin to the banks getting together and setting the Libor rates amongst themselves to the detriment of consumers and resulting in inordinate profits for the same banks? Just saying.

One just has to look at the grief encountered by those who tried to set up discount brokerages or flat fee franchises and the degree to which the Real Estate Association went to to try and block them.

I am not naive and understand full well the desire to protect once's turf and income. It stretches across all professions. But to suggest that sellers really have the choice when 90% of all transactions are done on the MLS which is jealously guarded by the realtors is a "highly competitive environment" in my view is a misstatement of the facts. Realtors may be highly competitive against one another but the whole "game" as it were is set up to favour the realtors as a group overall.

Just my opinion. Not meaning to insult anyone so please don't take it that way. I am just trying to express facts as a neutral observer witnessing it "from the outside" though perhaps I am not neutral as I am one of the sellers/buyers at the end forced to pay for a home a price which incorporates the mark up placed by the real estate industry.

 

[Finn]

From what you are saying: buyers decide what an agent is worth, but an agent decides what to show his buyer based on what he/she will earn from the sale. I am not saying agents should not be compensated reasonably for their work. Any agent that avoids a property based on a lower commission rates is not acting in the best interest of his buyer client. Of course agents rely on other agents' client lists to expand the range of potential buyers, but a good agent will also have several clients him/herself to focus on so the sale would net him the full 2.5%.

Regarding the "softening" of the market, to some degree there is too much reliance on what the media is spewing out. It's only January and all this is speculation. You can't for example say there is a glut of starter homes including condos or including the subburbs because a lot of people like me don't want a condo or to live outside the city of Toronto. The small two bedroom semi across from me sold for $370,000 in October and is now being flipped with a small renovation for 500K. I doubt they will get it but this tells me that at least I'm in a hood that people have interest in. Depending on the desirability of the neighbourhood, the amenities and the listing price/sales levels in that area, it would seem to me the smartest move is to price the house properly, don't get greedy and be able to offer buys a little bit of a break that the seller can afford because s/he isn't paying 5% in commission to an agent. As a former home buyer I refused to even look at homes listed above a certain price point because I knew the seller would not come down enough for me to be comfortable with the sale. MLS is set up by listing price category, not sales agent commission rate. I don't think any buyer relies solely on his agent's findings - we all look at the MLS and drive around areas of interest to see signs. This house I'm selling was found by me even though I had an agent looking for me.

I'm not disputing the amount of work and time that agents invest. It is a marketing consideration to some degree when we discuss commission rates. If I pay agents for a 500K sale 2.5% or $12,500 vs. 5% at $25,000, I have a little room to reduce my sale price and still come out a bit ahead. At the end of the day buyers are looking at the selling price of the home -- the amount of mortgage they will have to take on or pay out cash. I think a commission scale, 2.5% up to a sale price of 500K and 3% for over 500K might be a good incentive for agents.

 

[interested]

Finn,
I think the reality whether one is talking real estate or any other profession is people get accustomed to a certain level of income.
They adjust quickly upward but slowly to a downward push on their incomes.

So, we have had in Toronto a price escalating market pretty well since 1996 (other than a brief 9 months) in 2008-2009. REal estate commissions have gone up pretty well proportionately to the increase in value/property and given the extra properties coming to market and the buying spree, more sales and higher incomes overall.

If the prices drop and continue to drop, I would expect if prolonged that you will see a push to increase commissions further to 7% "because of the tough" market conditions.

Really like so many systems, the percentage system is poorly reflective of the work put in by a realtor. Whether the realtor has to sell a $250K home or a million dollar home, on average the work is not 4x more to sell the more expensive property. If a realtor is located in Forest Hill or Rosedale, he/she may sells 2 houses for 1/10 of the work of someone selling in Scarbourough 20 homes. Surely you would agree the work load to do the 20 deals would be more. Before someone says it, I appreciate the market is much smaller for these multi million dollar homes but is the Forest Hill realtor bringing any more skill than the Scarborough one? Is he worth 10x the rate/home. I would politely suggest the answer is no. So perhaps there is a reasonable salary that a full time agent working should receive, and he / she should be paid this for doing the work whether or not the buyer/ seller buys or sells. However, this would involve starting the whole system over from scratch and won't happen and also won't be as opaque as the current system, nor frankly in the interests of those who have seen an ever escalating market.

Look for a similar example in the financial industry. Flat fee advisors came into being in a larger way after 2008, which co incidentally was after the big market "adjustment". People withdrew from the market or did not wish to trade or buy stocks.... the solution...introduce a % of worth as a means to sustain the incomes of the previously fee for service advisers.

As long as there is money to be made with a different scheme or it serves its constituency group to do it, the group will decide on its interest first and "spin" the result to justify itself to the end user of the service.

 

[TOphotog]

The system for sellers is an open one. They can put an ad on Craigslist and sell it themselves. They can pay a company a fee to put it on MLS and then deal with agents with buyers, or they can deal with buyers directly. They can also hire full service agents to do all the work for them. Do whatever you feel most comfortable with. My earlier post was just to explain there might be a false sense of economy with going with a discount commission. Buyers want all the commission saved in their pockets, sellers want the same. I don't need to 'spin', I'm busy enough as it is.

 

[interested]

TOphotog:

The suggestion the system for sellers in an open one I feel is disengenuous. It is open but without the MLS you have removed 90% of the transactions and the one source where most people go to do the transaction. Your other comments about the sellers having options are otherwise true and fair enough.

I agree about the discount commission comment. However, it would be abnormal for an agent to show a house with a 1% commission to them if the one next door is 2 and 1/2% in his /her pocket. Given the reality, the agents effectively tip the system in favour of other agents and better commissions.

My other comment was about the overall market and commission structure. At what point does an incentive say 5% offers by developers no longer become an incentive but a rather a bribe. When an agent can make double the amount for "steering" his client to the developers project is he not "incentivized" to do so... and if developers did not feel it works, why are they doing it?

Regarding the "spin" comment I would ask that you reread the sentance in the context. I was not suggesting you were spinning the facts. Rather, I was suggesting that any constituent group will portray the data for the result they desire.

The teachers are worried about the students.....because the students really care whether or not they get to bank 20 sick days/year....right?

The doctors want to be sure that foreign graduates are adequately trained. I believe they do....do you not believe that perhaps a system of government payments already stretched does not wish 5000 extra doctors looking for their share of the fixed pie?

Lawyers who are adversarial and paid by the hour have no incentive to drag out proceedings....they are happy to keep fighting forever as long as others are paying for it. Their "spin" if you like is they are seeking "justice", even when they know that the answer will not be in their favour or the monetary settlement will be midground between the 2 parties but by prolonging the proceedings they can get more for their own purposes?

I am just saying it is not only Real estate agents. It is society as a whole.

What perhaps distinguishes some from others is the ability or inability to be objective and look beyond one's own interests and ask the question: If I was not involved...would this result seem right? And if the answer is yes, great. But I am not convinced that most individuals can or will do this....in any profession.

 

[Hank]

The system for sellers is an open one. They can put an ad on Craigslist and sell it themselves. They can pay a company a fee to put it on MLS and then deal with agents with buyers, or they can deal with buyers directly. They can also hire full service agents to do all the work for them. Do whatever you feel most comfortable with. My earlier post was just to explain there might be a false sense of economy with going with a discount commission. Buyers want all the commission saved in their pockets, sellers want the same. I don't need to 'spin', I'm busy enough as it is.

Perhaps this has already been asked, but I was wondering: do you show your buyer clients MLS listings where you would not receive any commission (or a lower-than-average commission)? This assumes that the listing meets all their other criteria, of course.