Why do stupid people (and real estate clerks) say "the seller pays the commission" when indeed, the only person bringing a checkbook to the closing is the buyer?
(hat-tip HP'ers for bringing this subject up)
January 18, 2007
HousingPANIC Stupid Question of the Day
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Well since the commission is paid directly from escrow and the seller doesn't get his money until everything is paid, including the commission, the seller truly does pay and has no choice in the matter. Imagine how much harder the R.E. clerks would work if they had to wait for payment of the commission by either the seller or the buyer...
They pay it the same way your employer pays 1/2of the FICA tax.
Yes, by procedure it appears the seller renders payment for all commissions. However, Keith's point is that sellers just factor in broker comissions (6%+ nowadays). Thus the price of a home in the US is inflated by 6% already!! Any buyer no matter what needs to demand a 6% reduction in price. Especially if they did not bring the baggage of parasite buying agent. If they do, then they should only demand 3%. Many FSBO listings state several prices depending upon how many realtwhores are feeding at the trough of the transaction. The concept needs to just go away in our modern technology and deflating bubble age.
Dumb question. Of course the seller pays the commission.
That's true Anon (10:47 1/18). The funds are paid from escrow, but ultimately without a buyer there are no funds from which to pay commission. This disconnect is one of the reasons why most buyers don't demand higher value and service from their agents.
LOL, Yep, caught that on an earlier thread.
If you look at the closing statement, the commission is paid from the seller's side and is subtracted from his equity in the home. If the commission was listed on the buyer's side, the buyer would have to write the check at closing. Of course, the buyer could add the commission to the sale price.
The Buyer's aren't the ones bringing it along, I'm seeing lots of Sellers now bringing their checkbook for their "negative equity" payment to their lender...
the seller pays using the buyer's money
why can't people understand this simple concept?
Especially in the current market, after I've had my buying client sign a flat fee agreement with me... the initial offering price for a property is at least 6% lower than asking.
Why?? It is the buyers money that makes the deal happen. Out of the total amount he pays a portion of that ends up being costs for marketing and service fees.
Just like when you buy a Coors Light 12 pack... you are paying for the marketing costs. Sure the Coors company cuts the checks to the marketing firm, but it is your end user money that pays that bill.
Actually, a lot of sellers are bringing checkbooks to closings these days.
My house was appraised at $350k, The realtor wanted 7% to sell my house, I did'nt dicker with him at all about the commission percentage, So I told him to sell it for $389k, That should cover your 7%.
We sold 22 days later for $379k.
We were going to sell for $350k untill we found out how much the realtor wanted, then jacked up the price accordingly.
I know damn well I did'nt pay my realtor one penny, the buyer paid his commission!
The ancient practice of a seller paying a commission to an agent for finding a buyer is based on the premise that buyers are hard to find. The practice predates the invention of 30-year fixed-rate financing and certainly predates the invention of the exotic financing techniques we see today. In this era of free money,it is impossible to discern who is paying a brokerage commission. Is the seller truly paying for finding a buyer, when any warm body can buy a house? Is the buyer ultimately paying out of his loan proceeds?
When buyers are hard to find, seller arrogance disappears, and sellers who thought they didn't need to pay commissions begin to embrace the idea. I was once a commercial leasing agent in NYC. It was a cyclical market. In good times, some landlords were chintzy and worse about paying commissions. In bad times, the brokerage community remembered, and agents were happy to watch them bleed. Other landlords would go out of their way to pay a commission, even if it was questionable that the broker was truly a procuring cause in the deal. These guys got good service in bad times.
Striker,
I bet you are refering to a transactiont that happened a few years ago as you won't be able to do that in the market going forward. Raise your price?? Your house will sit.
How will you handle the same situation in todays market? What if the Realator demands 7% and then tells you to lower your asking price?
Sell it yourself? Find a discount broker? Maybe, but what if the realtor says they have prospects?
That was excellent advice Striker.
IF I have to use a RE clerk the next time I sell, providing they still exist in present form, I'll just add 6% to the price he/she advises me to sell the house for, AND THEN TELL THEM WHY!
I wonder what their reaction will be!
yeah, I got an email from a real estate agent I used and it said "don't hesitate to call me, my services are free," and I wrote back:
"I like you as person and you know that you're not free because you're salary is paid through a commission that's part the mortgage. So, please: don't send me emails like this unless you want me to think less of you..."
The agent was a good guy, a math teacher who worked in low income schools but, due to student decline, he couldn't hold the job...
Many FSBO listings state several prices depending upon how many realtwhores are feeding at the trough of the transaction. The concept needs to just go away in our modern technology and deflating bubble age.
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FSBO is looney land. Greedy Sellers have no restraint on their own.
Wrong Wrong Wrong
It is not a 50-50 transaction. You may have a gotten a 3% discount for not having a used house salesman leaching off you but YOU still paid the listing agents commission.
Think about it. You bought the house. The title company took the proceeds YOU paid them and then deducted from YOUR money the used house salesman fee before transferring the balance to the seller.
JAFO
Who pays, the buyer or the seller? Neither... the bank pays. This will be clear in the toxic loan meltdown of '07-'09.
Anonymous said...
Many FSBO listings state several prices depending upon how many realtwhores are feeding at the trough of the transaction. The concept needs to just go away in our modern technology and deflating bubble age.
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FSBO is looney land. Greedy Sellers have no restraint on their own.
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And pray tell how does adding a greedy, lazy realtwhore check seller greed. The last few years realtwhores have actually stoked greed amoung sellers. Get ride of realtwhores and prices drop 6%. On a huge transaction such as a home purchase that is significant. I've used buyer agents twice & they never addeda bit of value tothe transaction, except let me in the door of the unit when there was no open house. How on earth does that translate into thousands in commission costs that I must finance. Just call the selling agent to let you in and realize if his or her lips are moving they are lying.
If you want to hedge your bet, buy new & demand all discounts on the table + the broker co-op for the new unit.
All the realtwhores I know all want to be buyer agents now, they loath incurring all the costs of being a selling agent w/o any chance of a payoff unless they get their seller to come around and drop price.
The buyer pays the seller, the seller's agent, the buyer's agent, the title agent, the mortgage broker, the tax man, the appraiser and probably a few more hands in there.
ALL the money at close is the buyer's. Then it just gets deducted. Sellers aren't cutting checks.
keith said...
The buyer pays the seller, the seller's agent, the buyer's agent, the title agent, the mortgage broker, the tax man, the appraiser and probably a few more hands in there.
ALL the money at close is the buyer's. Then it just gets deducted. Sellers aren't cutting checks.
Thursday, January 18, 2007 6:06:57 PM
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'nuff said. Here endiththe lesson.
Every once in awhile a see a home for sale by owner. Is selling a home so complicated that only realty clerks can do it? Why not just find a title company and let them process the docs for there fee and skip the commission? Anyone can hire an inspector or other repair services.
If we have a data base where we can list our homes I don't think we need realty clerks at 6%.
I'll admit, I sold in oct/06 and I would'nt get away with that today.
Anonymous said...
Every once in awhile a see a home for sale by owner. Is selling a home so complicated that only realty clerks can do it? Why not just find a title company and let them process the docs for there fee and skip the commission? Anyone can hire an inspector or other repair services.
If we have a data base where we can list our homes I don't think we need realty clerks at 6%.
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Why are there not more FSBOs which would be a more efficient/less costly transaction?
ILLEGAL MONOPOLY POWER AND TRADE PRACTICES
One benefit that may come out of this bubble bursting is that homedebtors who bought into the bubble and are forced to sell with but in a a negative equity situation will by shear need to survive finacially will be the force necessary to overcome the monopoly power of realtors and break the back of this illegal monopoly.
The statement "The seller pays the commission" is incorrect and anyone who says that is lying.
The seller has agreed to pay the selling (buyer's) broker a commission for bringing the buyer out of their proceeds. But, the commission is built into the prce of the home so the buyer is actually paying the commission.
And the buyer is paying that that over 30 years (including interest) if they take out a loan to purchase the property.
I always tell my clients that they are technically paying me because the commission is built into the price of the home. They often look at me funny because no one has really told them the truth in the past. Sad...
I have purchased 3 properties over the past 10 years, have sold 1 property and have never PAID a real-estate commission.
Two of the transactions were listed on the MLS and both times I got out of paying anything.
Sound impossible? I tell you how I did it, but first I should let you know that over 10 yrs ago - for less that 1 yr I was a licensed Real-Estate Whore in Ohio.
I hated the business the moment I got my license and hung it with a well known national broker.
O.K. here's how I got out of paying commissions --
The 1st Property I purchased was a vacant condo - already listed almost 10% below market supported area comps.
The lady who owned it outright was facing a lawsuit from the next door neighbor and wanted out fast: Her real-estate agent wanting a fast commission and sensing her desperation talked her into the 10% below market listing price.
I found the property in the first issue of the printed area MLS, contacted the listing agent and made a cash offer at an additional 15% off (a good low-ball offer), made the offer contingent on it being the first of several investment offers that I was making on that day, to be accepted.
In short, I made a HIGH-PRESSURE bid into a desperate seller situation. The Lady accepted the offer within 10 minutes of it be presented to her by her agent.
So, I figure that she paid 100% of the RE commission as I picked up a property that could be instantly flipped for a profit. I kept the property and then sold it later in a private sale to another invester - so on the sale (no RE commission involved).
The 2nd major purchase I made is the home I now live in -paid for/ no mortgage- that I picked up in from a distressed seller at well over 25% below - then current flippable price (if only they would have waited till the spring and not tried to unload during the Ohio winter; they could have gotten an additional $75 to 90K; but their loss is my gain -- so again even though a RE commission was paid -- I consider that it was the seller that paid it and not me.
Good Luck to all!!!
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