Most laypeople (Non Realtors) know that the seller pays a commission to sell a property. Most people also know that most property are sold on the MLS. Most people are also probably aware that agents cooperate in sharing listings and then share the commission. In many instances the commission is then split 50/50 between both agents.
Just as the commission structure has fallen off the standard 6%, to more like 5% and sometimes less, I am also seeing that the commission split between a buyer’s agent and the seller’s agent doesn’t always have to be 50/50. Over the course of my 30+ years in real estate, when a commission has been unequally split, I have more times than not paid the buyers agent more than myself as the listing agent. As an example, if I were to be handling multiple transactions for a client and we agreed to a quantity discount for the seller of 4.5%, often I would agree to pay 2.5% to the buyers agent and only pay myself 2%. Why did I do this? Because a buyers agent was more critical 20 years ago than today.
30 years ago when I got into the business, there was no World Wide Web. There was no Realtor.com, Zillow, Trulia, virtual tours, drone arial photos, digital cameras or Photoshop. There was a big phone book with all the listings in Long Beach. This big MLS phone book was black and white and eventually after about 1 week the MLS took an exterior photo.
So how did we market homes? There was print advertising like Harmon Homes and Homes and Land. There were open houses. There was a weekly office meeting where we would pitch our listings, followed up by an office caravan of the new homes. As an individual agent, we didn’t have the leverage that the internet provides. We counted heavily on getting the word out to other agents. Homes were much more frequently sold via word of mouth and one on one interaction.
Today’s listing agent however has an marketing infrastructure that literally bypasses buyers agents and goes right to the buyers. The MLS shares their listing data with all of the major consumer websites. It is very easy for a buyer to put in search criteria and then save that search. This prospective buyer is then kept abreast of all new listings for their search. If a home is being held open then they don’t even need a buyers agent to show them the home.
I am actually shocked at how often I get calls from buyers agents asking me if there will be an open house this weekend, even though the home is vacant with a lock box. They could just meet their buyer over at the property before the weekend. To me this is a sign of laziness on the part of the buyer’s agent. If an agent is not showing the buyer each individual property, how is the agent supposed to be advising the buyer which home might be a better home, value and a more appropriate choice for that buyer?
So as a listing agent, lately I have found that I am the one that secured the listing, which is often marketing intensive. I have worked with the seller to coordinate and execute a significant face list. Then worked hard to market the property. The preparation of the home and the marketing was extensive enough that these buyers found the home, liked the photos, saw that I was marketing an open house and were impressed enough with the finished product that they chose to make an offer. So basically after I have brought a listing to market, spent 30-45 days preparing the home for sale and spent $1,000 in marketing costs and many hours marketing, should I be splitting my commission 50/50?
Well this all depends. It depends upon quite a few things. Basically, it all comes down to supply and demand and making sure that the seller gets maximum exposure and hence top dollar. There are basically two major factors:
- How hot or cold is the Real Estate market overall.
- How appealing is the property in questions.
- How much do I need the assistance of the Real Estate community.
I remember in the early 1990’s during what was the worst economic conditions, Home Savings would offer their bank repo’s with a 5% commission to the buyers agent. During this period there were about 3,000 homes for sale in Long Beach. Today there are only about 300. This is an example of a period where a buyer is worth way more than a listing. Today however we have been working in a very low inventory environment. A listing is more valuable than a buyer. This however is starting to change, as the number of buyers seems to be waning. If you have home on the market and it generates 5+ offers in only a week, then this is a listing that may not need a large buyer’s agent commission to sell.
Then comes the questions of how appealing is the home. If the home is a fixer upper or on a busy street, I would always recommend to a seller that we fully fund the commission the buyers agent. We will need all of the help we can get. But what if I take a home that is a fixer upper and for $25,000 I turn it around and make it a little jem. The home in fixed up condition will likely have a better change of selling for top dollar fixed up and presented will with a 2% commission to the buyers agent, than looking like a dog with a 3% commission to the buyers agent.
Which leads me to my third point. How much do I need the marketing muscle of the other agents? The answer is not nearly as much today as I did 30 years ago. Today, I am starting to leap frog buyer’s agents. I can’t tell you how many times, it was my preparation, my photos, my ad copy, my open houses and my marketing that got the buyer into the property. Then they ask their agent to write up the offer. The buyer has already decided that they want to bid on the property. They are unaware of whether their agent is going to earn 2.0%, 2.5% or 3.0%.
Now many sellers will think, well this is smart thinking. If you don’t have pay the other agent as much, well then you can save me money. And they would be correct. We have all heard about the commission structures coming down. This trend is likely to continue and it is not unrealistic to think that it will be coming out of buyers agent’s pockets. Technology is leap froging them and their cost structure is much less than that of a listing agent who can also function as both buyer’s and seller’s agent.
Headed into a flatter market, it is likely that I will likely be needing the assistance of agents with buyers. It is likely that as the market slows, buyers will be harder to come buy. This is also likely to cause fall out amongst Realtors. Agents without good business and personal skills will fall by the wayside. Slower markets always flush out the marginal sale person and will strengthen smart, hard working and ethical sales persons. There will be those that survive, and those that survive will have to learn how to bring more value to the table. Technology is reducing the need for buyers agents, it is not unlikely that reductions in commissions will fall more upon buyers agents.