The commission you pay a Realtor when he (or she) succeeds in selling your house does not only go to one person or one company. That commission is split between the seller’s broker and the buyer’s broker, who then pass on their due amounts to the respective agents involved. Traditionally, that commission is split 55/45 – 55% for the seller’s broker and 45% for the buyer’s broker. (Why the difference? The seller’s side has more in the way of advertising and marketing costs.)
So a 6% listing would be split this way: 3.3% for the selling side and 2.7% for the buyer’s side. A 5% listing equates to 2.75% for the seller’s side and 2.25% for the buyer’s side.
That has changed a little now that 4% companies have come onto the scene. They usually split the commission 50/50. Why? Because of human nature! I’ll get to how that works, but first, a little about the way the MLS works.
I’ve attached a piece of an expired listing from the local MLS. This is listing information that realtors can see, but which is not visible to the public. Highlighted are the areas that tell a buyer’s agent what kind of compensation they can expect. In this case, you can see that a sub-agent would get no compensation for bringing a buyer, but a buyer’s broker or a facilitator would get a 2% commission.
Picture, if you will, realtors who have had too few closings lately because the market is slow. They have bills to pay just like everyone else, and this is weighing on their minds. So what do you think they check first when they are looking at properties that fit a client’s needs? Sure, the payout. All other things being equal, it isn’t unreasonable to think a realtor might show a house with a larger payout before one with a smaller payout. In a perfect world that would make no difference, but the real world with children to feed or put through college or even just a trip to take is a bit different.
So that’s why this particular company (a 4% company) pays out 2%: anything less appears just too miserly. (I must say though, that there is a realty company in a nearby town that does, indeed offer 1.8% or even less for payouts. I can’t imagine that helps their cause any.)
Let’s look at those poor realtors again and see what happens. Suppose they find several houses that look like they might fit their buyer’s needs. They check the payouts and find 2% payouts, some 2.7%, a few 3% or maybe even one or two 4% payouts. Those listings are clearly more attractive to the agents, and they will get more attention from buyers, albeit unwittingly, as those listings are the first that the agents will try to show their clients. Rightly or wrongly, those higher payout houses WILL get more attention and more showings, and if the houses show well and are not overpriced, they will sell sooner.
So one of your decisions when choosing a realtor to help you sell your house is to decide how much you want to pay a buyer’s agent who brings you a qualified buyer. That’s the way I look at it, anyway.
Here’s what I do when having this conversation with a potential client:
1. I let the person know what I would like to make to cover my costs and to do my job. (No, I’d rather not take a pay cut for the work that I do if I can help it. Would you?)
2. I then explain about payouts and let them choose their buyer payout.
3. Add them together, and you get a commission to be paid at the time of a successful close.
There is more information to pass along than that, of course, but when you work with me you get to pick your commission!
In order to be complete, I must tell you about another factor that goes into house buying in the age of the Web. According to the National Association of Realtors, over 80% of buyers look online before they call a realtor, and we often get calls from people who have a particular house they want to look at. Since buyers don’t get agent payout information, they have no idea what payout a realtor might get and they don’t care, either. They just want to see that house. In this case a 2% payout is just as good as a 4% payout.
That leads us to the subject of marketing online to get your house in front of those web searchers. I have spent much money and time on that subject and have much to say.
I hope you’ll give me the chance to say it.
Call today for an appointment.