Oct. 27, 2006: Learning to negotiate the buyer's agent's commission
In past weeks we talked about using the simple question -- "How much do you charge?" -- to negotiate a more reasonable buyer's agent's commission. Buyers traditionally have not known to ask this question, but here's the really cute part:
"Your" agent is not required by law to disclose the amount of the sales commission. You are entitled to know an infinite number of facts about the property and the transaction, but you are not entitled to know how much you are paying for representation.
The buyer's agent's commission is set by the listing agent, generally in consultation with the seller. The listing agent does not have to offer any commission for the buyer's representative. This is the essential component of an "exclusive" listing -- only the listing agent will be compensated upon the sale of the property.
But if the listing agent wants to advertise the home in the Multiple Listings Service (the MLS), an offer of compensation -- a "co-broke" commission -- must be included with the solicitation of cooperation. This coupling of cooperation with compensation is what makes the MLS work so well as a tool for marketing real estate.
How much will the "co-broke" commission be? For a resale home it will usually be 3% of the purchase price of the home. For a $100,000 condo, that's $3,000. For a $1,000,000 mansion, that's $30,000.
Does it take ten times more effort to sell a mansion than it does a condo? Ten times more expense? This pricing structure is completely absurd -- mostly because, until lately, no one thought to change it.
In fact, the listing agent might be getting 2% or less. Why? Because the seller asked the magic question -- "How much do you charge?"
Buyers need to learn that they, too, have the power to negotiate the fees paid for their representation. There can be cases where the negotiated fee might exceed 3% -- for example, a difficult transaction for an inexpensive home. But there will be many more cases where some of that "co-broke" should be going toward the buyer's costs.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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