Giving Up The Commission
Published | Written by Sarah Leland
Giving Up The Commission
Originally published April 8, 2008 here.
Listing agents generally sign a exclusive listing contract with a seller (the “exclusive” contract is required for participation in the MLS as it binds the seller to pay a fee if the property sells during the contract period. Standard stuff). The fee is negotiated, but is often 6%; however in many cases, if the client is giving him repeat business, the listing agent will suggest or accept a lower fee.
The listing agent then publishes the listing, offering typically 3% of that total listing commission to a cooperating broker who procures a buyer for the property. (If the listing fee was 5.5%, for example, we’ll nearly always give the same “full fee” of 3% to the coop broker). It’s important to keep that “buy side” cooperating broker fee close to whatever the market is paying for the procuring/cooperating buyer’s broker. To whatever extent, some agents are disincentivized by a “less than market” fee. It’s easy to see what the market is paying, and it varies based on price range and region. Your listing agent can easily pull this data and show you. In Washington Park, a high priced area in Seattle, the typical “buy side” fee (we use SOC — sales office commission — as an acronym) is 2.5%. This implies the total commission might be 5% if the listing agent is offering a 50/50 split to the coop broker.
So there is the basic story. Listing agent (actually, his broker, but as a practical matter the seller works with an individual listing agent) has the contract with the seller for a commission. The contract is not with the buyer. If the seller’s co-worker, upon learning from the seller that they’re putting the house on the market, says “I’ll buy it!” then the listing agent should be elated with that. The contracted commission has already been agreed to, no matter who buys the house or whether or not they have an agent. Most sellers understand that. And when that co-worker offers a bit below asking price, the seller should negotiate with the buyer — not with their agent, with whom they ALREADY have a contact. After all, the listing agent has already put a lot of work into the property. The buyer may want the benefit of some savings, by not having their own agent. Let the buyer and seller negotiate over that sales price, and perhaps the seller and their agent can have the conversation about how much fee might be reasonably reduced to bring the parties together.
As a practical matter in this scenario, will the listing agent “throw in” some of that fee to make it work? Sure. Maybe. Depends. But it needs to be the agent’s decision, not the buyers. And not unilaterally the sellers. It’s a modification of a contract which requires mutual agreement. Of course, the buyer can certainly go to Redfin, or to his buddy, and get them to write it up and rebate as much of the SOC as they can get. That’s not the listing agent or the seller’s issue.
And there are other situations where I have voluntarily given back some of that negotiated fee. Most recently, we had a buyer balk at the 11th hour on a pending Greenlake listing that we had. Didn’t like the condition of the paint. Or the hardwoods. Of course, this was well past the inspection period, but he wanted $5,000 or he was going to default and walk from his $5,000 earnest money. While my seller was making a nice gain on this from when he bought in ’01 (selling for $500k, and had paid around $240k), I knew it would give him major gut burn to have to negotiate with this buyer. And I didn’t want to lose the buyer in this market, at that sales price. So I reduced my fee by the extortion amount ($5,000) and the thing closed smoothly. This was a seller I love, with whom we’d done maybe a half dozen deals in the past decade. So seller’s happy (I didn’t tell him about it for a few months, actually, to avoid any post-traumatic stress); buyer was happy (presumably); and I made a decision that I could live with, that no one asked me to make. And we have a closed sale.