Real Estate Commissions Explained Continued...

This usually happens on the MLS.  The numbers I usually saw broke down like this if it was a 7% listing fee.  The listing company will keep 4.3 - 4.6% of the total and the selling (the company that found a buyer and wrote the purchase agreement) will take 2.4 – 2.7%.  Total those numbers and you get 7%.  If a listing company wants to build some incentive into the deal, they will offer 3% or greater to the company who finds the buyer.  By the way, the total commission is never published, I am making assumptions based on industry knowledge.  On a $200,000 listing, there is $14,000 in fees paid out for a 7% listing.  If you’re a buyer, you should get $4800 to $5400 worth of satisfaction.  I mean that with sincerity too, because that money would be paid out at closing.

Couple notes: 1) it is illegal for companies to fix a selling rate.  Doing so would violate anti-trust laws.  So there is never a set rate, but as far as agents are concerned, more is better.  Over time, 7% has been the gold standard.  That is why my examples use that number. 2) It is illegal for companies to list and sell a property without first getting the permission of both the buyer and seller.  That is dual agency and illegal in MN unless all parties agree to it.  The kicker is if you agree to a dual agency, the listing company has to take a neutral position on the deal.  So they cannot try to get a better deal for either the buyer or seller.  They essentially are  filling out paperwork and seeing the deal to completion.  They cannot advise you on what price to pay (unless it is full price) or anything of the sort.  It violates fiduciary responsibilities.

The ticket then in real estate is to secure as many listings as possible because you get paid more to represent the seller and you get FOR SURE get paid when it sells.  An agent representing the buyer only gets paid when the buyer actually buys.  There is an old saying in sales that states “buyers are liars”.  Many agents who represent buyers get frustrated because they think they found what a buyer wants, only to have the buyer change their minds.  Agents find it risky/expensive to spend a lot of time driving around locating properties only to have someone decide they are going to hold off for a year or two.  My point is agents usually want to work with sellers.  Buyers are often an afterthought unless they know it is a sure thing. The only risk agents working with sellers take on is to spend advertising money on an overpriced listing.  Even then, the overpriced lisitngs can be negotiated and might eventually sell.

This is why I want to work cooperatively with buyers.  You do the Internet searching or search at the database of FSBOs, county sales, etc, send me the properties of interest and I will do the due diligence on the property.  If you think it looks good, you go out to look on your own.  I can get you maps and directions.  If you find something you like, I will help you through the buying process.  I will work out a commission rate on an individual basis with each buyer that will cap at a certain amount.  That way, you know what you are paying for and getting in return.

Remember, I want to work with buyers.  Not sellers.  I just want to know all the FSBOs that are out there so buyers have to opportunity to see the entire market and not just what is listed on the MLS.  There is much more property for sale than what is listed on the MLS.  There are county land sales, non-MLS listings, FSBOs, Paper company properties and more.  It is a matter of collecting all that information so you get to choose from a complete market.