Last week I discussed why brokers representing home sellers often pay the commission of brokers representing home buyers. This is the second part of the answer to that question, as well as other information about commissions.
• Commissions are always negotiable. The seller decides what fee they are willing to pay for their broker’s services and how much that listing broker should offer to a broker who brings in a buyer to close the transaction. Commissions can be negotiated at any time throughout the transaction, including at the beginning and at any time before the closing of the transaction.
• The cooperation of intermediaries benefits consumers. Broker cooperation in the commission process leads to brokers sharing their inventory with each other. In turn, that means sellers have access to the largest possible number of potential buyers and buyers have access to the largest number of housing options in one place.
• Fees cannot be included as part of a mortgage. The vast majority of mortgage lenders do not allow fees to be added to home loans. Listing broker compensation offers to buyer brokers gives low- and middle-income and first-time homebuyers a better chance of affording a home and professional representation in the home buying process.
For many buyers, saving for a down payment is difficult enough, if buyers had to pay real estate commissions out of pocket on top of closing costs, it would push the dream of homeownership even further out of reach for countless people. .
• Commission rates are determined by market forces. Fees fluctuate over time and have steadily declined markedly in recent years. In fact, in 2020, the average real estate commission in the US fell to a new low of 4.94 percent, according to Real Trends.
• You get what you pay for. Local MLS broker markets allow small brokers to compete with large brokers and provide unprecedented competition among brokers, including different pricing and service models. Therefore, you can choose from many commission models. As with other things, you can expect someone with discounted commissions to provide a different level of service. Those are options to consider as you prepare to make probably the most important investment of your life.
• The real estate market in the United States is the world standard. The US real estate model has long been seen as the most consumer-friendly in the world. Overseas buyers are forced through complex markets that require consumers to work with multiple brokers to access fragmented inventory because listings are not freely shared in the marketplace. The result is slower, impersonal and more expensive.
1. Is there a “fixed commission” that real estate brokers charge consumers?
No. Commission rates are decided by the market and commissions are always negotiable. Consumers have a choice of who they want to pay and how they want to pay them. Due to the pro-consumer local MLS broker market model and options such as a success fee, there is unprecedented competition among real estate brokers, especially when it comes to the service and commission options available to consumers.
2. Why not require buyers to pay commissions directly to their broker instead of the historical practice of publicly traded brokers paying the buying broker?
Forcing buyers to bear the additional out-of-pocket expense would cause incredible hardship for them and lock many, particularly first-time and low- and middle-income homebuyers, out of an already competitive market. That could also force homebuyers to forego professional help during what is likely to be the most complex and momentous transaction they will ever make.
3. How does the US model compare to other international broker markets?
The US approach is the most consumer-centric model. By consolidating fees and the overall process, our nation’s model simplifies the experience, provides greater certainty of success for both buyers and sellers, and provides guidelines that ensure the accuracy of available housing inventory for home professionals and consumers. real estate, all at comparable or lower prices. total costs than those of other countries.
4. Why should real estate professionals earn the money they do in commissions when so much information is available online?
Real estate brokers provide essential guidance as consumers navigate the legal, financial, and community aspects of a purchase, including everything from determining property value to negotiating price. They also make local broker markets, accessed by online housing portals, possible because of all the information they put into those databases. And real estate agents’ annual income is just $43,330 and 88 percent are small businesses, most of which are owned by women.
5. How does the current commission approach benefit small businesses?
Access to free advertising and inventory, as well as the practice of having the realtor pay the buying agent’s commission, encourages participation in these local housing markets and creates the largest, most accessible, and most accurate source of housing information available to consumers. the consumers. That levels the playing field among brokerages, allowing small brokerages to compete with large ones, and providing unprecedented competition among brokerages, including different pricing and service models for consumers.
(Reissued from the National Association of Realtors)
Marlin Palich is president of Stark Trumbull Area Realtors, serving Trumbull, Stark and Carroll counties.
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