How did it become "normal" for sellers to pay the buyer's agent?
Rental Property Investor · Kansas City, MO · Member since 2018 · 86 posts · 38 votes
How did it become "normal" for sellers to pay the buyer's agent?
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Investor · Pawleys Island, SC · Member since 2015 · 324 posts · 385 votes
8yThink of it like a wholesale fee in reverse. They are being compensated for bringing you motivated buyers you may not find otherwise. If you can sell it without the buyer bringing a realtor, great. If the house sells quicker with the realtor bringing a buyer, you are saving on holding costs. Investors may be proactive and don't need much realtor involvement, but a lot of buyers need their hands held through the process. A retail buyer through a realtor may end up paying more in the end as they are probably not looking to low ball you or get seller financing or anything out of the customary.
I am not a realtor and occasionally get a annoyed with realtors, but I get their benefit too.
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Yes buyers should be footing the bill. When I sell FSBO and a agent brings a buyer the buyer pays their agent or, more often, we agree to increase the sale price to cover the agents fee. I will then pay their agent. Increasing the sale price is obviously a stupid move on the part of the buyer but if they don't have the cash to pay their agent they have little choice.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes8y
It is a custom that has added incredible liquidity to the US real estate market. Some countries do not have this custom and have a much more illiquid market.
District Invest Group545 Reviews - Rental Property Investor · Kansas City, MO · Member since 2018 · 86 posts · 38 votes8y
Originally posted by @Thomas S.:
Yes buyers should be footing the bill. When I sell FSBO and a agent brings a buyer the buyer pays their agent
How do you communicate this? When agents call me, I've basically been telling them that we will not be paying buyer's agent commissions. That leads to them getting short with me or telling me to contact them when I'm ready to "get serious about selling."
- Rental Property Investor · Kansas City, MO · Member since 2018 · 86 posts · 38 votes8y
Originally posted by @Russell Brazil:
It is a custom that has added incredible liquidity to the US real estate market. Some countries do not have this custom and have a much more illiquid market.
It definitely makes the market more liquid... because buyers are getting a free service at the cost of sellers who have accepted this odd practice as "normal." It's definitely the path of least resistance for real estate agents, since the money is flowing toward the seller. They can just skim the payment off of the top.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes8y
Originally posted by @Jesse Smith:
Originally posted by @Russell Brazil:
It is a custom that has added incredible liquidity to the US real estate market. Some countries do not have this custom and have a much more illiquid market.
It definitely makes the market more liquid... because buyers are getting a free service at the cost of sellers who have accepted this odd practice as "normal." It's definitely the path of least resistance for real estate agents, since the money is flowing toward the seller. They can just skim the payment off of the top.
Liquidity is in the best interests of everyone. When an asset of any kinds has its liquidity reduced, the value of that asset drops.
District Invest Group545 Reviews - Rental Property Investor · Kansas City, MO · Member since 2018 · 86 posts · 38 votes8y
@Russell Brazil I still struggle to understand how this became an expected practice. With available technology today, a buyer can readily access a list of homes on the market. They can do the research and contact the seller or seller's agent and negotiate the price/terms. If they don't want to do that, they should have to PAY a buyer's agent to perform these tasks on their behalf.
- Investor · Pawleys Island, SC · Member since 2015 · 324 posts · 385 votes8y
Think of it like a wholesale fee in reverse. They are being compensated for bringing you motivated buyers you may not find otherwise. If you can sell it without the buyer bringing a realtor, great. If the house sells quicker with the realtor bringing a buyer, you are saving on holding costs. Investors may be proactive and don't need much realtor involvement, but a lot of buyers need their hands held through the process. A retail buyer through a realtor may end up paying more in the end as they are probably not looking to low ball you or get seller financing or anything out of the customary.
I am not a realtor and occasionally get a annoyed with realtors, but I get their benefit too.
- Rental Property Investor · Kansas City, MO · Member since 2018 · 86 posts · 38 votes8y
Originally posted by @Anna Buffkin:
Think of it like a wholesale fee in reverse. They are being compensated for bringing you motivated buyers you may not find otherwise. If you can sell it without the buyer bringing a realtor, great. If the house sells quicker with the realtor bringing a buyer, you are saving on holding costs. Investors may be proactive and don't need much realtor involvement, but a lot of buyers need their hands held through the process. A retail buyer through a realtor may end up paying more in the end as they are probably not looking to low ball you or get seller financing or anything out of the customary.
I am not a realtor and occasionally get a annoyed with realtors, but I get their benefit too.
This is true, but my frustration stems from agents who refuse to show the property if I don't agree to pay their commission. Instead of bringing motivated buyers, they are withholding them. This actually seems like a breach of their fiduciary duty to act in their clients' best interest.
We have priced our house at fair market value, based on recently financed (and appraised) properties within a couple blocks. Agents have tried to sell me on the "we will get 6-10% more for your house," when I know that doesn't work. No lender will issue a loan, if the house doesn't appraise.
- Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes8y
Agents are typically hired to sell a house for say a 6% fee, all in.....if they need to split that with a buyer, which is the vast majority, then so be it. Therefore Buyers don’t normally have to pay “extra” for a buyer agent , out of their pocket....just the way it is. If you don’t want to pay a buyer’s agent then so be it.....the buyer agent will/should move on to another property.
If you expect the buyer to pay that fee, assuming they have the extra cash, then they will of course subtract that additional out of pocket expense from their offer.
One thing to remember, the “market price” you are supposedly using is the price achieved when the property is exposed to the “whole market”, through an agent listing it and all buyer agents/buyers being exposed to it.
If you insist on not going this route, and only exposing it to maybe 10% of the buyers out there, the ones not using an agent, then don’t expect “market price”.
It's much like a FSBO car seller thinking they will get same price a dealer does for the same car....they won't reach nearly as many buyers and they aren't paying a salesman to get the highest price.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8y@Jesse Smith How much money are you really losing with a buyers agent? Are you selling a 100k house or 500k house? Is this a rental or a owner occupied House? If it’s owner occupied you may have a struggle selling without a buyers agent. If it’s an investor you can probablt get by without it, of course then you may not get top dollar, and it may be a wash. As an investor I’m comfortable buying without a buyers agent. If I’m buying a primary house I’ll Probably have one.
- @Jesse Smith it's actually the buyer that usually pays realtor commissions. Because a house listed on MLS, generally, sells for more than a FSBO, it is the buyer paying the premium. You've decided to list yourself, and that has caused buyer's agent to want you to foot the bill....
- Rental Property Investor · Kansas City, MO · Member since 2018 · 86 posts · 38 votes8y
Originally posted by @Caleb Heimsoth:
@Jesse SmithHow much money are you really losing with a buyers agent? Are you selling a 100k house or 500k house? Is this a rental or a owner occupied House? If it’s owner occupied you may have a struggle selling without a buyers agent. If it’s an investor you can probablt get by without it, of course then you may not get top dollar, and it may be a wash.
As an investor I’m comfortable buying without a buyers agent. If I’m buying a primary house I’ll Probably have one.
This is a $300k+ owner occupied house. Would cost us ~$10k in buyer agent commissions... seems like a serious premium to pay.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8y
Originally posted by @Jesse Smith:
Originally posted by @Caleb Heimsoth:
@Jesse SmithHow much money are you really losing with a buyers agent? Are you selling a 100k house or 500k house? Is this a rental or a owner occupied House? If it’s owner occupied you may have a struggle selling without a buyers agent. If it’s an investor you can probablt get by without it, of course then you may not get top dollar, and it may be a wash.
As an investor I’m comfortable buying without a buyers agent. If I’m buying a primary house I’ll Probably have one.
This is a $300k+ owner occupied house. Would cost us ~$10k in buyer agent commissions... seems like a serious premium to pay.
10 percent seems high. Isn’t the standard 6 percent total or 3 percent to each side of the transaction ?
- Rental Property Investor · Kansas City, MO · Member since 2018 · 86 posts · 38 votes8y
Originally posted by @Jason D.:
@Jesse Smith it's actually the buyer that usually pays realtor commissions. Because a house listed on MLS, generally, sells for more than a FSBO, it is the buyer paying the premium. You've decided to list yourself, and that has caused buyer's agent to want you to foot the bill....I've heard this argument a few different ways. It seems that lower FSBO prices would involve sellers who don't know much about the local market. I'm very confident that we have listed at the top of the appraisal range for our area, so the house couldn't sell for more (unless to a cash buyer).
Why not just remove the charade, have buyers and sellers pay for the services they deem beneficial, and let the market normalize?
- Rental Property Investor · Kansas City, MO · Member since 2018 · 86 posts · 38 votes8y
Originally posted by @Caleb Heimsoth:
10 percent seems high. Isn’t the standard 6 percent total or 3 percent to each side of the transaction ?
$10,000... approx 3% of our list price.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8y
Originally posted by @Jesse Smith:
Originally posted by @Caleb Heimsoth:
10 percent seems high. Isn’t the standard 6 percent total or 3 percent to each side of the transaction ?
$10,000... approx 3% of our list price.
My mistake lol. I read that as 10 percent instead of 10k. I guess it depends on how quickly you need it sold. I would accept accept buyers agents personally. Try getting like 2 percent maybe
- @Jesse Smith you're just trying to skirt the system. A system you feel is wrong but that still what you're trying to do. You can try to negotiate agent fees and have the buyer pay for their agent, but be prepared for a very long wait, because for every one of you, there are a million sellers using agents willing to "pay" the commissions, and they will all be sold before you get a look.
- Rental Property Investor · Kansas City, MO · Member since 2018 · 86 posts · 38 votes8y
Originally posted by @Jason D.:
@Jesse Smith you're just trying to skirt the system. A system you feel is wrong but that still what you're trying to do. You can try to negotiate agent fees and have the buyer pay for their agent, but be prepared for a very long wait, because for every one of you, there are a million sellers using agents willing to "pay" the commissions, and they will all be sold before you get a look.You're correct... I am trying to skirt the system, because I believe it to be broken. Sellers shouldn't have to pay 3% of their sale price because buyers chose to have an agent do their work. A system exists until enough people say "enough."
- @Jesse Smith I feel like you are looking at it very narrowly. The buyers agent is selling your house for you. They may not be listing it, but they are bringing you a buyer. I'm sure if you went out and found your own buyer, you wouldn't have to pay a commission. They may be "representing" the buyer, but they are helping you sell your house. I guess I can justify the cost that way, but I use a listing agent as well so I do nothing but sit back and get a check...
- Real Estate Broker · Apopka, FL · Member since 2017 · 492 posts · 528 votes8y@Jesse Smith technically speaking, the seller is agreeing to pay only the listing agent for sure and the agreed upon amount doesn't change once the listing is signed, whether or not the listing agent brings the buyer. It's the listing agents that offer the cooperative commission to the agent who brings the buyer (it is all on the contract, but the coop commission only leaves the listing agents brokerage IF another realtor brings the buyer). Many feel it is already earmarked for a yet to appear buyers agent and otherwise kept by the seller, it's not. If I take a 6% listing, technically I will be paid that 6% upon sale, period. What I owe to a buyers agent is then deducted from "my money" in a sense. However, no matter how amazing I am as a Realtor (that's sarcastic, I'm fairly new) I know that cooperating with buyers Realtors is beneficial to all. In return for ALL other local Realtors bringing their buyers, I then offer to pay them a portion. People say "making both sides" but it would be more accurate to say that by finding a buyer, a listing agent makes their "full commission". Splitting with others is part of the industry and benefits all. My brokerage is the one to pay the buyers agents broker, money doesn't get paid directly to the buyers agent brokerage from seller in a listed property. It isn't always split evenly either. Sometimes the listing agent may go as low as 1-2% while still paying 2.5-3% to the buyers agent. Listing Realtors are able to legally withhold from the MLS (with a signed waiver of entry from seller that is) and hustle to make a full 5-6% or whatever commission is agreed upon themselves by finding a buyer, but instead they choose to offer up half or more of their total listing fee and cooperate with other Realtors through the MLS. If listing agents are constantly "wasting money" paying buyers agents, it may be worth considering. You seem plenty capable of researching and comping your house, most FSBO sellers are not as equipped. I don't think you need a listing agent. However, the buyers agent may have shown them 15 houses before yours, dealt with lenders, inspectors, appraisors, contracts falling through, etc. If 17 houses offer to pay them for their time and you are asking them to ask their buyer, they'll just go look at house 18. That being said, don't feel that it's 3% or nothing. You could offer 1-2% or even just a flat fee of a given amount, maybe $3500-4000. But as others have said, trying to get it from the buyer directly will ultimately reduce the price offered dollar-for-dollar. Why make it an odd negotiation from the start without any potential gain? Even if you do consider that option, still feel free to try to find a direct buyer with no realtor. You may get lucky and do so, but they may end up offering you less anyways knowing there's no commission being paid. No sense in blocking out majority of buyers on principle alone before even seeing their offers.
- Real Estate Broker · Apopka, FL · Member since 2017 · 492 posts · 528 votes8y@Jesse Smith all of that being said ^, the "do you cooperate, I may have a buyer" is admittedly a tacky and overused phone script. You can screen for those who do in fact have a buyer by asking for a buyers name and proof of funds before showing. I may upset some who are crumbling their scripts as they read this, but it's honestly a poor choice of tactic to beat around the bush with a false narrative....in my opinion anyways. I do cold call, but not FSBO as a don't feel I bring value without a buyer in hand. If I legitimately have a buyer for your house, I'll call you with no script, introduce myself,tell you the name of my buyer and that I have pre-approval letter available, before I even ask if you cooperate.
- @Jesse Smith I'm honestly not even sure how to think about this anymore. While it technically comes out of the sellers proceeds, I believe sales prices go up to compensate for this (hence the higher prices with an agent), but given that the buyer is the only one showing up with funds to most closings, it is really the buyer paying for both sides and even paying 15-30 yrs of interest on it in most cases. And I do agree the system is somewhat broken. Given the technology available these days the current system is broken.
- Kansas City, MO · Member since 2015 · 609 posts · 321 votes8y
Originally posted by @Jesse Smith:
I'm in the process of selling my primary residence FSBO. We are in a very popular neighborhood, so for now, we won't be going through a listing agent. We are also real estate investors, and we've been on the buy and sell side of many transactions. I won't need help navigating the offer/contract/closing/etc process. However, I get constant calls from agents asking to list, or asking for commission if they bring a buyer.
I understand the value added by a listing agent - the have access to the MLS and marketing tools that I don't have. I also understand why a buyer's agent is valuable to to the buyer. They help the buyer find a suitable house and walk them through the process of the transaction.
So, my question is - Why are sellers expected to pay for a service for the buyer, especially when the buyer's agent's fiduciary duty is to the buyer? If a buyer wants someone else to do the legwork for them, shouldn't they be the one to pay for that service?
I sold my home FSBO and listed low on Zillow. That created a bidding war. I told agents that I would pay their fees, but I'm looking at the bottom line, so their client's offer would need to be better than someone who potentially wasn't asking me to.
The bottom line is I viewed it as the buyer rolling their part of the realtor fees into their mortgage, but they paid for it.
The way I see it, is that generally the seller is the one making money and the buyer is spending money. Buyers already have to save up for a down payment and closing costs, and as mentioned before, paying interest on a loan, plus then likely inspections, appraisal, and not to mention furnishings or renovations once they move in. What you’re suggesting is that they would also have to save for paying their Realtor or agent.
Very few of my clients have 20% down plus closing costs, most use FHA 3.5% or a First time Home buyer loan, and they would be years away from buying if they also had to pay a Realtor- part of the liquidity factor mentioned above.
The many other points above show nicely how market prices already factor in room for commissions, so the seller has room in their profits to cover the commissions.
Besides, you generally save on commissions as a buyer but then pay your dues when selling, so it balances out in the end, so to speak.
When I was young and buying my first home, and had 20% down, I was incredibly grateful that the seller covered commissions, and so was fine with covering that when I sold, as it wasn’t nearly as painful to my pocketbook since it just came out of profits.
I agree dealing with investors is different as they often don’t use realtors, but your average person doesn’t know how to buy a home and protect themselves during a transaction, nor have the time to figure it out, so they use someone to help.
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