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OK, so, if you have slogged through our other blogs, you are probably ready for this blog. This truly is why we exist. It gave rise to the entire idea, the name of the website, and has consumed our lives over the recent past . We are passionate about consumers being informed and saving money in real estate transactions, and we realized there is very little information for the consumer about this new first step in real estate. We may have let it slip a few times through the blogs and website, but without further ado, here is the NEW first step that sellers and buyers must do before they sign an agreement with a real estate agent:
NEGOTIATE THE COMP!
What we discuss below may seem like an easy thing to do – it can be, but oftentimes, you are up against an industry that has perfected their game over decades. You may try to go it alone here, but there are many intricacies and tricks agents utilize to hold their comp at around 6% combined, which it has been for decades. They have gotten very good at holding the line on their comp. Fortunately, if you want, we have your back.
Yes, not earth-shattering advice, but few consumers are even aware of the fact they can, and as NAR has said, should negotiate the compensation (commission) paid to their real estate agent. The lid was blown off this whole topic back when Burnett (class action involving agent commissions and anti-trust allegations discussed in a previous blog) was settled for $418 million by NAR and significant rule changes were enacted. The light was shown under the rock, so to speak, and the real estate industry’s practices were exposed.
The first response by the industry was, “you have always been able to negotiate an agent’s commission.” While technically this may have been true, the actions of those industry professionals kept real estate commissions inflated at around 6% for decades. Want to guess how much the industry makes in commissions every year? If you guessed $100 billion (you probably did not guess that), you would be right. $100 BILLION – that’s a lot on the line. I bet you would like a piece of that $100 billion to stay in your pocket – I know we do.
So, what do you need to do? You need to negotiate down the commission you pay to your agent. If you keep reading future blogs, we will give you the education and tools needed to be able to negotiate your agent’s commission down. We have personally done it quite a few times now, and we have looked at and implemented varying strategies to get the commissions down as far as they will go – while still getting the maximum value the real estate agents bring to the table. Yes, we have been on a personal mission to negotiate down the real estate commissions we have paid for over a year.
One very important point of clarity here that has arisen since the rule changes have taken effect. Both sellers and buyers have to understand this very important, basic rule change that can affect both the buyer and the seller.
Prior to 8/17, most sellers would just blindly accept that they had to pay 6% commission to the agents and a buyer was told they did not have to pay anything to their agent. Now, the seller may try to shift the buyer agent’s commission cost over to the buyer. That is why sellers and buyers must take this very important first step created in the post-8/17 world. Again, we will state it because it is vital:
NEGOTIATE THE COMP!
Prior to the rule change, if a seller used a REALTOR®, that seller would have to pay some amount of money to the buyer’s agent. It could be $1, but it never was because of alleged industry anti-trust behavior – it was typically around 3% of the purchase price that was paid to the buyer’s agent. In a typical real estate transaction, a seller would end up paying 3% to his Listing Agent and then 3% to the buyer’s agent. For example, consider a $500,000 house, that is $30,000 total – or $15k to the Listing Agent and $15k to the Buyer’s Agent. That’s a lot of cake. Most of the time, that $30k is baked into the cost of the house, so it is passed on to the buyer and financed over 30 years. That house sells again, another $30k in price increase to cover agent fees. You can see an obvious trend here – increase upon an increase upon an increase – especially in a seller’s market.
What happened after the rule changes went into effect on August 17, 2024? A seller is no longer forced to pay the buyer’s agent – great for the seller in theory (more on seller steering in a later blog), but potentially tough on the buyer, because they may be forced to pay their agent in part or in full.
Let’s use a $500,000 home as an example – not far off the average price for a single-family home in the US right now.
The Math for the Seller
Prior to 8/17, the seller would pay 6% of the sale price at closing to the real estate agents involved – or $30k. We are going to let that number hang below here for effect:
$30,000.00 total commission paid by seller prior to 8/17
Let’s run this one out in the post 8/17 world, and this is not unrealistic for a savvy seller that knows the game and how to play it well and to their advantage. Let’s say the seller tells their agent “I don’t want to pay the buyer agent commission.” That seller’s agent has some tricks up the old sleeve they are still utilizing to get the seller to pay that 3% commission, but because you are savvy, you don’t fall for those tricks. Immediately, that seller trimmed $15k off the $30k that they would have had to pay prior to 8/17. Not bad by having some knowledge. You will get push back when you announce this to your agent – be advised but also be prepared to push back yourself. OK, so that gets us here:
$15,000 total commission paid – seller tells Listing Agent they are not paying Buyer’s Agent and seller saves $15k
The next thing a savvy seller does – Negotiate the Comp with their Listing Agent. The standard 3% commission which has been paid to the seller’s agent for decades, try to get it down to 2%. You just saved yourself another $5K! Not bad for a day’s worth of work. So now we have:
$10,000 total commission paid – seller negotiates with his or her agent down from 3% to 2% thus saving $5k
LET’S SUM THAT UP IN ONE VERY QUICK STATEMENT – THE SAVVY SELLER JUST SAVED THEMSELVES 20K BY DOING THE TWO THINGS MENTIONED ABOVE!!!!!! NICE WORK!!!!!!!!!
A seller, if they negotiate well, can save serious money when they go to sell their home.
The Math for the Buyer
The above is great news for the seller. For the buyer, not so much. If the seller refuses to pay the buyer agent’s commission, then that becomes the responsibility of the buyer. In the above scenario, that could translate into an extra $15k the buyer has to pay, along with their downpayment, other closing costs, inspections, surveys, and the like.
This will be the subject of a future blog that every buyer must read, but a buyer must understand the rules of engagement in the post 8/17 world and try to negotiate the commission down they agree to pay their agent at the very beginning of their relationship. If not, the buyer may be on the hook for upwards of 3% of the purchase price. This whole area is very tricky and will be reflected in the agreement a buyer signs before he or she tours a home with their agent. You must understand all the terms of the agreement that you will be signing.
Of course, the buyer agent will try to have the seller pay his or her commission, but that may not happen, or the seller may only agree to pay 1% towards the total buyer agent commission or something like that. A buyer must also not be fooled that the seller pays the commissions – a standard industry talking point. That commission is still paid by the buyer, just in the form of an increased purchase price.
A buyer must also:
NEGOTIATE THE COMP!
