Might have accidentally killed a deal... oops

19 Replies

Last night my partner and I were on the phone with a seller's agent negotiating an offer and everything seemed to be going well. We had made an earlier offer which she told us they wouldn't accept. After looking at our numbers there was no way we could offer more. It just wouldn't work for us. we explained our reasoning to her and suggested that we would be willing to do a lease back at a significant discount for a few months so the current owners could be ready to go when they found their new house. This would also in effect add a few thousand dollars to deal. She liked the idea and said she'd discuss it with the sellers. Then my partner adds in that since we aren't using an agent, perhaps the selling agent would be willing to reduce her commission by 1% to help sweeten the deal for the sellers since she won't be splitting the commission with another agent. Well that stopped the to conversation cold. She was clearly very insulted by the suggestion. I didn't think it was such a bad thing to suggest but obviously I was waayyy wrong on that one. So I'm pretty sure this deal will be dead. Unfortunate, but we were going in on the top end of our budget anyway so it isn't the end of the world. That was a very valuable learning experience, to say the least! 

@Carl Carlson  asking the realtor to give up 1% where she would still be making 5% (assuming its a 6% commission agreement) instead of 3% seems like a bad business decision by her... if that is in fact why she stopped talking to you.  

Yeah....not a good strategy. Live and learn.

@Marc H.   That's exactly what I thought. It's still more % than you get if a typical buyer with an agent comes around. On top of it, this house has been sitting for 6 months with no offers. I think she realizes we're the best shot for a quick deal and the rest of the conversation was really good. I guess you just don't know what will set some people off.

@Carl Carlson  6 months and no offers? Sounds like the market has spoken and she is priced too high.  Nothing you can do about unreasonable sellers and their agents. Its all part of the fun I guess. Ha. 

Agents get very finicky about their commissions...and what may seem like good business sense to you or I gets thrown out the window.

@Carl Carlson  I am an investor and an agent. I really like how everyone assumes that an agent get paid a full commission. 

I will share with you how is works: if the commission is 6%, and usually is 6% less than 20% of time, half goes to the listing office and the other half goes to the buyer's agent office.

Let's take half of it, and in this case 3%. The agent has to split that commission with the office and most of the time gets 50-60 of that 3%, so let's say it's 1.5% that is left now.

Out of the 1.5%, the agents has to paid Error and omission insurance for each deal, expenses and income tax, and the commission that he really walk with is 1%. 

In the 2.5% commission, the agent gets around 0.8% money in his pocket.

When a buyer or seller asks the agent to discount the commission, the agent has to have the company that he works for to agree to it, if he decides to just cut the commission himself, he is actually working for free, as his company will still take the commission they have in the contract and now the agent will work for .5% or less. 

Also, 80% of agents in USA sell around 4-5 houses a year and they can barely sustain them-self from Real Estate.

I had in the past a client that was making $97,000 on a house asked me to cut my commission by $5000 as he was not making a whole 100K, which would have reduced my commission to $1500 after working for him for months and months and wrote tens of offers.

I said NO, if the value he put on my knowledge that brought him a 97K profit was a commission of $1500, then he needed a different agent, I made a lot of millionaires, and I never asked them to give me extra because I got them a better deal than they expected.

Guys, would you take a cut out of your salaries at work just because you are doing a great job? It doesn't make sense, right? - That's why it doesn't make sense for an agent to cut his commission. 

Plus, if someone cut his commission for one client, then how is he treating the other clients that pay full commission?

Good luck to you, and remember agents can make you millions if you treat them right!

@Carl Carlson  

Not the approach you want to take to try and make friends in the business.

Live & learn.

@Lumi Ispas   Thanks for the detailed breakdown. Not being an agent, All I have been told by other agents is the commission is usually 6% split between the buyers and sellers. Our clearly flawed logic was if she's getting all 6% ( then obviously minus all her costs) she should have some wiggle room since she would only get 3% if we had an agent of our own. We certainly meant absolutely no insult to the seller's agent at all and we would never had suggested it had I known what the reaction would be. 

After the call it did occur to me that I wouldn't be happy if someone asked me to take a cut out of my salary either. I appreciate everyone's input. This website is great for helping you learn and avoid mistakes in the future.

It sounds like it is time to call the agent and apologize. It might sound unreasonable but if you stepped on the agent's sensitive toe, then containing the damage is important. On the other hand, why don't you work without your own agent. The seller pays for it. The value of the agent comes in after the contract is signed. There are many loopholes the agent can guide you around because almost no property (deal) ever is in fact how it is presented to the buyer.

@James Wise   You're very correct. I enjoyed talking with sellers agent and I was thinking I might like to use her on future deals if possible. That's pretty unlikely now. 

@Carl Carlson  Never too late to make amends.  A good agent wont turn away your business for one minor faux pas.

Originally posted by @Carl Carlson :

@James Wise  You're very correct. I enjoyed talking with sellers agent and I was thinking I might like to use her on future deals if possible. That's pretty unlikely now. 

Na, this one thing isn't a killer. You can always spin it.

Call her up and say "hey it's Carl from the deal on 123 Main street. I just want to say sorry for my partner "Bill" he's a goof & gets carried away. Anyways we are interested in some properties in this area, anything you can show us"?

@Andreas W. We aren't using an agent just because of how the deal developed. The house is directly next door to our current place and when we saw the for sale sign go up we just started talking with our neighbors. It organically turned into us trying to put a deal together with them but they wanted to keep the agent involved which was fine with us. We bought our last place as a FSBO without an agent and didn't find the process to be particularly difficult so didn't see any reason to bring one in. No other reason besides that.

@Carl Carlson  

Ultimately the buyer always pays for the commission since it's factored into the price. Not that it matters...the numbers either work or they don't work.  As a broker and investor, my issue is too many agents will kill a deal over ego.  

Sounds like your deal is no different. If the seller's home has been on the market for 6 months, it's time for the seller and his/her agent to have a reality check.   

As an agent, I expect this issue to come up.  I don't get offended by it, I just respond... "nope, any other questions"?

@Lumi Ispas   I agree with your statement. After expenses there is much less left for the agent than it seems to the uninitiated eye. Nevertheless, a simple " no, thank you" would have been a more professional answer. In my area, a 5 % commission for dual agency is no exception. Don't forget that the seller is taking on a lot of risk by working without representation. The seller's agent is contractually bound to work in the seller's interest. That leaves the buyer vulnerable to to any kinds of "omissions".

@Andreas W.  , @Carl Carlson  , most of the time, when a seller hears that the buyer has no agent he just asks for the commission to be reduced. In this case, unless you were specifically told that there is no reduction in the commission, you don't know.

I've never done dual agency because that's a mine field. In IL dual agency is border line legal. First of all is impossible to be fair with both buyer and seller. How do you advise a buyer how much to offer and a seller how much to take? It is not worth it most of the time to do it, plus the risk of a law suit is too high, and for an agent to loose his license for 1% or less in his pocket is really not smart at all.

I've had represented buyers buying from FSBO and I got my clients phenomenal deals in all cases. The least my buyers saved was 20K per deal, and the other clients saved more. The sellers were happy to save 5-10K in commission and gave away 15K+ after what they could have saved.

I've also seen buyers overpay when they went directly to the listing agent, as like I said, even though the listing agent did a dual agency or reduced the commission by half, the price they got for the seller was much better than if the buyer had his own agents.

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