Who Ultimately Pays the Commission to the Listing Broker and Buyer Broker? (Debunked)
The most expensive fee(s) that are notably charged when a home is sold or purchased are the commission fees (both listing and buyer broker fees). However, there is a misconception between a lot of sellers and buyers on who ultimately pays the commission fees.
The listing broker and buyer broker fees vary considerably from one for sale home to another. Each seller, or buyer, has a belief on who has to ultimately pay the commission rate. Some sellers believe that they are the ones who will have to pay on the agreed upon commission rate for both his/her listing broker and buyer's broker. In contrast, some buyers believe that both the buyer and seller will have to pay the agreed upon/set commission rate, to their respective brokers. Ultimately, the buyer(s) are the ones who typically pay the commission rate for their own broker and listing broker.
How is this so?
A great analogy to understand this concept is: The last time you, or someone you knew, who purchased an item(s) from a high-end retail store or purchased a car from a dealership, who do you think paid that employee's commission fees? The buyer paid! Although some of these employees have a base salary, these employees, of such establishments, are incentivized and rewarded to sell you their company's product(s). The same concept applies to residential real estate sales; however, majority of all Realtors® are 100% commission-based and do not have a base-salary.
The homes that you see listed for sale, whom there is a Realtor® representing his/her seller(s), often-times the commission rate is built into the listed price of the home. In a hypothetical example, a home that is listed for $500,000, with a 6% commission payout rate (3% for the listing broker, and 3% for the buyer's broker), the payout to the seller (in a vacuum scenario - where there is no mortgage balance or any additional fees) will be $470K (94% of $500k) and the remaining $30K (6% of $500k) will be to pay for both the listing and buyer's broker fees.
Why Is The Commission Fee Built In? If you are a prospective seller, when you choose a Realtor® to represent you to sell your home, you will want to make sure, amongst many other factors, that you hire someone that will be able to provide you the highest net return (most important figure to a seller) that you can potentially earn when you do decide to sell your home. Specifically, a Realtor® who is successful in achieving your needs is someone who can earn you the net return that you are seeking from the sale of your home in addition to covering the agreed upon commission fee that you set forth in your agreement between you and your Realtor®. Mind you, sellers who list their homes for an overpriced amount will have significant difficulty in selling his/her home when a prospective buyer can purchase a similar home for a lesser price. In turn, by deflecting your fee(s) to the buyer, you will be able to achieve your desired result. Thus, in most cases, sellers set the commission rate; but, the buyers are the one's who ultimately pay for it.
If you would like to know more about how to select a well-qualified Realtor® to represent you and your needs, please visit our previous blog titled, "How to Choose the Best Realtor® for Your Needs" so you may be able to weed out the not-so-efficient Realtors® from the goal oriented ones, or by clicking on the provided link:
How Can You Avoid This?
If you are a buyer, the decision of choosing an exceptional Realtor®, as such as from one of our own at Moaddab Realty, who are well-versed in negotiating, will be imperative to your success in decreasing the purchase price to your new home. Your Realtor® should be equipped with the skill-set of knowing how and when to negotiate; such that, prior to you closing escrow, your purchase price can be lowered.
If you are a seller, you can try to sell your home on your own, as a "For Sale By Owner" (FSBO). However, in doing so, you are limiting yourself by only exposing your home to the amount of website links and newspaper ads that you are capable of advertising to. Whereas, if you list your home with a professional Realtor®, as such as one of own at Moaddab Realty, we can list your home to over 100 major real estate websites and to 130 countries, in 24 to 72 hours! In turn, you will be able to potentially earn a higher value for your home as your home will be marketed across more websites and countries for people to view and to submit an offer. The higher demand your home creates in the real estate marketplace, the more you can be able to negotiate a higher selling price.
If you still decide to sell your home on your own, some other important information that you should be aware of are, amongst many other factors:
1. You might not have access to the proper paperwork/resources that you will need for you to be able to disclose to protect yourself if you are able sell your home on your own.
2. Buyer's brokers typically try to avoid FSBO's as the broker is generally not incentivized to bring his/her buyer to your home - as your home is not listed on the MLS disclosing such information.
3. Why do you think Real Estate Developers (people who build and sell real estate for a living) use Realtors® to sell their developments? - Amongst many of the reasons, one of them are: developers are aware that they are not the ones who will have to pay the commission fee to his/her Realtor® - the buyers are often times the ones whom have to pay the commission fee. Hence, as a seller, we recommend that you position yourself in a manner where you do not have to deal with the nitty-gritty details that go in a real estate transaction, as you might miss a step and it can cost you more than what you're trying to ultimately save. Moreover, would you not go to your Physician if you were ill, your Dentist if you had a cavity, or your Attorney if you were sued? Same concept applies to when you are ready to sell or buy your home. In such cases, choosing a Professional in that field will save you both significant time and money.
If your Realtor® was not able to deflect your commission costs (if you are a seller) to the buyer, or lower the purchase price (if you are a buyer), then other factors should be reflected upon to see where he/she was not able to succeed in the objective of saving you money. In the end, it is a cost that you would have to pay, as a seller or buyer, respectively; but, hopefully your Realtor has tried his/her best in trying to save you that money.
As a seller or buyer, we, at Moaddab Realty, would like you to know that when you choose one of our Realtors® to represent you to sell or buy your home, respectively, that for us it is more than just selling or buying one's home and calling it a day. We are continuously learning, growing, and differentiating ourselves from other Realtors® so you can have peace of mind knowing that when you decide to choose one of our own Realtors® to represent you in your real estate needs, you have chosen one of the best Realty Companies in the entire nation! We want to be remembered as a Realty Company that delivered on the promised results.
If you are interested in our services, contact us via phone at: (949) 424-7282 or email: Info@MoaddabReatly.com