"Commissions paid net of closing costs"

Tax, SDIRAs & Cost Segregation
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"Commissions paid net of closing costs"

David T.
Specialist · Las Vegas, NV · Member since 2013 · 639 posts · 176 votes

For the benefit of simplifying matters, lets address the issue on the basis of an average close of $200k per property deal.

Between agents fees and buyers closing costs (around $4k) and other stuff tacked on the the closing we end up paying about 10% closing costs on the average transaction. If you take for example the Buyers closing costs of $4,000 per deal which is straight off the top and we're still paying agent fees of 6% on this which is $240 per deal, $2400 for 10 deals and $24,000 per hundred deals. We have often tried not to pay this or asked for the buyer to pay it and the agents all get really hissy about it.

So looking at the bigger picture if we're getting deducted around $20k in closing costs per deal and 6% agent fees on  this is $1200 which seems to be unreasonable because this is money other people are getting and we're effectively being charged fees on funds we never even get to touch.

Most banks for example do their closings "Commissions paid net of closing costs" which means they won't pay any commission on money they don't get at closings. 

Why shouldn't Investors take the same position?

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Dooreuhn Cee
Real Estate Investor · Chicago, IL · Member since 2014 · 229 posts · 171 votes
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Realtors don't make much money.  That 6% is effectively 1.5% by the time it is split firstly with adverse parties and split secondly with a broker.

I remember the Realtor preparing me on my first deal.  He pointed out how many different people had a hand in the deal (from Realtors, to attorneys, closing company, and more, and each of those have support staff, rent and light bills) and noted that "everyone has to get paid".

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
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    Probably because customary commission are required to be off of the sale price unless that seller has a volume of listings and negotiates the listing agreement which any investor can do as well, your gas mileage may vary. :)

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  • Ned CareyPro Member
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    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
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    That is part of the cost of doing business. If I were an agent i would tell you to take a hike unless you were giving me significant business. If you were giving me significant business then it becomes a negotiation. 

    FYI It took me a long time to figure out what you meant. 

    Who is "WE" in this situation. I presume you mean you, but the meaning was difficult to figure without knowing if you were the, buyer, seller, wholesaler, or lender.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
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    Good luck with that, I'd laugh too....you want to deduct the mortgage balance from that too? As for the banks, I think you're mistaken.  I know they analyze the Offers they receive by the "net" proceeds, but that has nothing to do with their closing costs or transfer fees....it has to do with comparing offer "nets" when one buyer is asking for the seller to pay part of the Buyer's closing costs as opposed to others that don't.  They pay commissions on the sales price like everyone else.

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  • David T.
    OP
    Specialist · Las Vegas, NV · Member since 2013 · 639 posts · 176 votes
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    @Ned Carey by "we" I meant Investors generally. My bad!

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  • Joel OwensBusiness Member
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    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
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    I have seen this before although it is not as common.

    It's a tactic to try to pay less commission. I have it where it is paid off of the total sales price at closing. This way when it gets into negotiations the commission is off the table when it comes to concessions.

    The sellers often want someone else to pay for their mistakes of over paying and not having much of a profit margin when selling, doing too many repairs etc.

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  • David T.
    OP
    Specialist · Las Vegas, NV · Member since 2013 · 639 posts · 176 votes
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    All very self serving, especially you @Joel Owens. Typical of agents, take as much cash as you can out of a deal with the minimum of responsibility so if there's any debate, it's always the seller's fault! lol.

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  • Account Closed
    Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
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    that is why i always recommend for someone to become an agent 2-3 percent a deal adds up 

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  • Dooreuhn Cee
    Real Estate Investor · Chicago, IL · Member since 2014 · 229 posts · 171 votes
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    Realtors don't make much money.  That 6% is effectively 1.5% by the time it is split firstly with adverse parties and split secondly with a broker.

    I remember the Realtor preparing me on my first deal.  He pointed out how many different people had a hand in the deal (from Realtors, to attorneys, closing company, and more, and each of those have support staff, rent and light bills) and noted that "everyone has to get paid".

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
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    Originally posted by @David T.:

    All very self serving, especially you @Joel Owens. Typical of agents, take as much cash as you can out of a deal with the minimum of responsibility so if there's any debate, it's always the seller's fault! lol.

    Is that the pot calling the kettle black David? Who's trying to save $240 bucks?

    If you do some volume and allow your Realtor to eat, they might negotiate a lower commission.

    What about hard money lenders, why don't they assess the actual risks involved to their secured lending at 70% LTV and charge all they can get? How about we hit these lenders up with a couple more points than they are getting with idle funds sitting in their accounts? :)

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  • David T.
    OP
    Specialist · Las Vegas, NV · Member since 2013 · 639 posts · 176 votes
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    @Bill G. I think you're getting your lines crossed here. You have never done business with me so you can't really comment knowledgeably about how I operate or what fees I charge. I thought this particular forum posting was about the venality of Realtor fees? 

    If you want to get into a discussion about HML fees, I might jump in on either side of that one so go ahead and post!

    @Dooreuhn Cee, what you decide to pay and how you negotiate that is up to you, but do you really need to whine about that as well?

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
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    My position, which is the same as Joel's, also comes from a contracting background.  Most of my work was as a sub on Gov't projects, and almost every GC always wanted to chisel price, or constantly wanted some extra work for free.  I had to pay for all my mistakes, so I refused to help pay for other's mistakes.

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  • Jesse T.
    Herndon, VA · Member since 2014 · 1k+ posts · 324 votes
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    Originally posted by @David T.:

    For the benefit of simplifying matters, lets address the issue on the basis of an average close of $200k per property deal.

    Between agents fees and buyers closing costs (around $4k) and other stuff tacked on the the closing we end up paying about 10% closing costs on the average transaction. If you take for example the Buyers closing costs of $4,000 per deal which is straight off the top and we're still paying agent fees of 6% on this which is $240 per deal, $2400 for 10 deals and $24,000 per hundred deals. We have often tried not to pay this or asked for the buyer to pay it and the agents all get really hissy about it.

    Most banks for example do their closings "Commissions paid net of closing costs" which means they won't pay any commission on money they don't get at closings. 

    Why shouldn't Investors take the same position?

    If you are selling many properties, you might try a discount agent such as Redfin or a flat MLS service and comparing it with a normal sale of a similar property. If it works, it should save you more than $240/deal.

    If you do find a seller's agent who is worth the 3% commission, I doubt you want to lose their services in the future over $240(or likely even $2400).

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  • Joel OwensBusiness Member
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    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
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    I am an investor myself as well.

    It doesn't bother me that investors try all of different types of angles. They will just not do it successfully against me.

    I have made a lot more by holding the line over the years.

    Control the inventory... MAKE THE RULES........... : )

    I am not the average broker / agent. I am sure plenty of brokers / agents out there desperate for a deal to keep the lights on and eat and will take anything for commission. I imagine they are not highly sought after as well and bring little value to the table. If you need a residential type agent you could just use a flat fee type service if you are used to doing everything yourself.

    My commercial clients are very affluent and want me doing a lot of the work for them so it's a different space than residential.  

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  • David T.
    OP
    Specialist · Las Vegas, NV · Member since 2013 · 639 posts · 176 votes
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    I think you all seem to be losing sight of the point I have been trying to make here or deliberately confusing the issue. If an average home sale comes in at $200k and the agents are getting $12k in commissions and the buyer is getting $4k "costs" straight off the top, why should the seller have to pay 6% fees on these amounts. So the agents are insisting on getting a commission from the seller on their fees and clearly it's a form of double tax on the seller and reflects poorly on agents, but clearly from these posts and all the whining, there is a huge sense of entitlement to this? You can call me all the names you like, but this is the reality of it.

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