How Much Would You Pay to Bring a Buyer?

By Dave Fratello | December 14th, 2009
When you list your home for sale, you decide who gets paid, and how much, for helping.

The always-negotiable standard commission rate, in total, is about 6% – with half to the listing agent and half to the buyer's representative. In the South Bay, it seems the standard is closer to 5%, given higher prices (i.e., same or more money even at a lower commission rate), which means 2.5% per side.

Of course, a small percentage of a large number is still a lot of money. When you sell your house, you want the money. So people look for ways to cut costs.

From the listing side, you have options to save. You might go FSBO, maybe use a low- or flat-fee service to put your property on the MLS and wait to see what happens. (A letter-writer in yesterday's LA Times claims to have succeeded more or less this way; scan down to "A way to save on commissions.")

As a seller, you might also list with a discount firm. Or you might persuade your friend who's got a license to take your case for less. All these methods, and more, might save thousands of dollars.

What about the buyer's agent?

Who's thinking about the buyer's agent?

That person is purely imaginary at the time the rate is set. He or she doesn't get a vote. You might assume they'll be happy to make a little money fulfilling some eventual buyer's overpowering desire for your home.

So should you view the buyer's agent as a lucky intermediary, a necessary evil who takes some of your profits?

Or should you view the buyer's agent more like your eyes and ears, your real connection to the physical world of buyers, the one person who can actually make your sale happen?

Blake Roberts writes today about the re-emergence of full 3% commissions for buyers' agents in standard listings – a sweetener in today's environment. By his calculation, excluding listings that canceled, there have been 306 listings in the South Bay this year offering 3% to buyers' agents, and they've been flying off the shelves (in a metaphoric, not seismic, manner of speaking):
  • 202 sold
  • 50 in escrow
  • 54 still active
That's 82% sold (including escrows) – again, without canceled listings in the denominator. Pretty impressive regardless.

Blake's point: Whether you like it or not, dangling a little extra money in front of buyers' agents appears to help your chances of making a sale. And that's because our current system of RE sales is a capitalistic endeavor for agents, who are human, and who therefore respond to enticements of this nature.

Blake even offers his own perspective, saying that a higher commission offer makes him think of more potential buyers in his network:
As the commission goes up, we'll dig a little deeper into our cold case database looking for a potential home/client fit.
Is it possible today, in a world of broader-than-ever property exposure (mainly online), an increasingly disintermediated real estate sales process and expanding buyer options, that a part of a percent offered to RE salespersons could tip the balance and get a property sold?

Much the same perspective emerges in a recent 3-part series posted on the Irvine Housing Blog. (See Part I on FSBOs, Part II on Cash/MLS Listing Services and Part III on Full-Service Brokerages.) The bubble blog, which launched in late 2006, largely warns that today is still not a good time to buy, and provides cautionary tales each day about the fate of bubble-era buyers.

But blogger Larry Roberts (no known relation to Blake) argues that you need to see the system with clear eyes if you're going to participate in it:
If you list with a cash listing service (or a relative), you pay for the listing, so you cut out 3%. You can set the commission at whatever level you feel motivates buyers agents who work the MLS. If you get cheap and put 1%, clients of buyers agents will still see the property on the MLS, and I am sure the buyer's agent will work just as hard for 1% as they would for 3% in a normal transaction.... Do you see the problem? Human nature gets in the way....
You can set the total commission at 4% and have it all on the buy-side. This will entice every buyer's agent on the web to see your property; human nature again.
Is a slow, but slightly hopeful, market like today's one where sales commissions should get squeezed, or increased?

Or are we stuck in old ways of thinking, not yet considering the full range of options buyers and sellers have?

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