Commission System Ethical?

[wildonion773]

The Ethics of the Current Real Estate Agent Commission System

Traditional Home Sale

Seller wants $200,000 for house. Seller adds 3% commission for seller’s agent, or around $6,000, and another 3% commission for the buyer’s agent, also $6,000. Lowest price seller will accept is $212,000.

Situation 1 - Buyer with an agent offers $212,000

Result

Seller – Happy, got $200,000.
Seller’s Agent – Happy, got his $6,000 commission.
Buyer – Happy, got the house and received help from agent for purchase for $212,000.
Buyer’s Agent – Happy, got his $6,000 commission.

Situation 2 – Buyer, who is an agent and is buying his own house, offers $212,000

Result

Seller – Happy, got $200,000.
Seller’s Agent – Happy, got his $6,000 commission.
Buyer/Agent – Very happy, just got paid $6,000 for buying his own house for a net cost of $206,000.

Situation 3 – Unrepresented buyer offer $212,000

Result

Seller – Happy, got $200,000, but wonders why he agreed to give his agent a double commission. He could have made $206,000.
Seller’s Agent – Falling off his chair happy, got $12,000 by collecting both commissions.
Buyer – Not happy, did the same work as a buyer’s agent, but did not receive a commission. Buyer paid $212,000 compared to the Buyer/Agent who paid only $206,000.

Situation 4 – Unrepresented buyer offers $206,000 to cover seller’s agent commission.

Result

Seller – Not happy, Seller’s Agent tells Seller he must pay him a double commission ($12,000), it is in the listing contract. Seller would only get $194,000. Seller regrets agreeing to a double commission.
Seller’s Agent – Tells Seller to pay $12,000 double commission or do not accept offer.
Buyer – Not happy, Seller forced to refuse offer and buyer does not get house.

For Sale By Owner Sale

Seller wants $200,000 for house. Seller adds 3% commission ($6000) for himself. Seller adds 3% commission ($6,000) for buyer’s agent. Lowest price seller will accept is $212,000.

Situation 5 – Buyer with an agent offers $212,000.

Seller – Very happy, got $206,000 instead of $200,000 by selling house himself.
Buyer – Happy, got the house and received help from agent for purchase.
Buyer’s Agent – Happy, got his $6,000 commission.

Situation 6 – Unrepresented buyer offers $206,000.

Seller – Very happy, got $206,000 instead of $200,000 by selling house himself.
Buyer – Very happy, got house for $206,000 instead of $212,000 by handling the purchase himself.


So what does this show?

The current commission system is ethical except in the case of the double commission (Situations 3 and 4). The double commission pays the agent a bonus for the unrepresented buyer’s time and effort.

What are the options to reform the system?

Sellers should not agree to a double commission in the listing contracts. The only thing it does is reduce the seller’s profit and ability to negotiate with an unrepresented buyer.

Another option is to pass a legal requirement that Sellers pay their agents and Buyers pay their agents. It would be much more difficult to convince a Seller to pay a double commission in this case.

[Silverplum]

You again, huh?

[Zigner]

Wildonion -

No one here is interested in your rants any longer. Please stop or I will remove your post.

[wildonion773]

Zigner,

Nope, not ranting, I just want to explore the ethics of the commission system in an open forum. If people find my posts uninteresting, they are free to ignore them.

[nextwife]

Originally Posted by wildonion773

The Ethics of the Current Real Estate Agent Commission System

Traditional Home Sale

Seller wants $200,000 for house. Seller adds 3% commission for seller’s agent, or around $6,000, and another 3% commission for the buyer’s agent, also $6,000. Lowest price seller will accept is $212,000.

Your whole argument is starting from a false premise.

Seller DOES NOT "add" for commission.

If the seller contracts to have a professional market and sell their property, they DEDUCT the agreed percentage from their sales price to pay the listing agent the total agreed listing commission. If the company does not co-broke, they keep the entire agreed listing commission. If the listing company co-brokes, they provide the selling brokerage a split of THEIR listing commission. Not necessarilly 3%, either.

And if the seller dies not use professional services, and successfully sells on their own, they don't DEDUCT any commission.

[PghREA]

Poster - do you think it is ethical that you collect a paycheck for what ever it is that you do for a living?

When you buy groceries, clothing, utilities etc., the cost of paying the people who work for those companies is built into the price you pay for the product.

I think you should stop worrying about Realtor's commissions and concentrate on finding a cure for some disease or global warming.

[OnceUponATime]

OP, you are forgetting the fact that you must be licensed to collect a residential real estate commission (most, if not all states I believe). An unlicensed person normally does NOT perform all the work....how did they gain access to the home? Where did they get all the correct applicable forms and contracts? A buyer not using an agent results in more work on the seller or the seller's agent or both, period. If you choose to not use an agent, that is your choice; but implying that any unlicensed person can perform the duties of a licensed agent is just not true nor appropriate.
Would you go into court pro se, and then sue for attorney expenses because of the work you did? Not that an agent is anywhere near compared to an attorney, but the logic is the same.

[VeronicaLodge]

they house is worth whatever its worth, buyer can offer whatever he wants and when not accepted can counter or move on, he is free to buy or not to buy at whatever price. seller can set the price at whatever he wants, he will either get offers or not, he can either accept offers or counter, he can choose to never sell below his asking price if he doesnt want to. there is nothing unethical about this.

just reread all the posts in your other threads, the answers remain the same no matter how many different ways you try to pose the question.

[HomeGuru]

Originally Posted by wildonion773

Zigner,

Nope, not ranting, I just want to explore the ethics of the commission system in an open forum. If people find my posts uninteresting, they are free to ignore them.

**A: wildidiot strikes again.

[wildonion773]

Nextwife,

You can look at the commission as an addition or subtraction. It does not change the question of the ethics.

Onceuponatime,

I think buyers are quite capable of buying a house without an agent, but I recommend they use an attorney for the paperwork involved (that applies even if they use an agent). The internet has fundamentally changed the home buying process. Much more information is now available to buyers than in the past.

I'm not against the seller's agent collecting the seller's agent fee, I just do not think it is ethical that the agent collect both commissions. Obviously the agent is not going to go broke if he only collects the seller's agent fee. And he does not need to spend any extra time with an unrepresented buyer. If a buyer expects services from the seller's agent, the agent should tell the buyer to hire an agent.

I understand agents wanting to protect the current commission system. Historically, there was only one agent, the listing agent, and one commission. Both the buyer and the seller used the listing agent and the listing agent collected the commission. But now most states require a buyer's agent (some allow dual agency) in order to protect the buyer by having their own agent provide unbiased advice. This required splitting the commission so each agent was rewarded for the work they did. I simply believe an unrepresented home buyer should also be rewarded with a lower, more affordable, home price and the seller given a better chance to sell their home.

Regarding the attorney comparison in your post, you can always represent yourself in court. It is at your own risk and you may or may not benefit from the result (just as when buying a home). At least you have the choice whether to pay for legal services. More importantly, you do not have to pay the other person's attorney, which is the way the current commission system works.

Separate agents is a good step in protecting buyers in the home buying process. Now the commissions need to be separated as well.



Homeguru,

Your name calling is not appropriate, and you should be banned from this web site. I would expect better from a "senior member". Very childish.

[Wyldrush]

I am not aware of any relators that write a contract where they recieve both fees. It states in contract how much they recieve. I am an investor so have listed many homes. I list my homes with sellers agent recieving 2.5% commission and not require them to be at all showing since this can cause a buyer to not see the home with scheduling conflicts and I pay the buyers agent 3.5% since a higher commission will lead to more viewings.

If the selling agent brings in the buyer, then they are considered the buyers agent and would recieve the 3.5% commission instead.

Also keep in mind, unless they own the brokerage or working on a flat rate desk fee which few realtors do, they have to split than commission. A $6000 commission may only be about $3000 total income after they pay their fees and taxes on the commission.

Also it works same way for rental contractors with realtors.