For those of you who think a seller's listing agent places a sign in the
front yard, sets out flyer box, holds an open house then collects a fat
check at closing a few weeks later, I feel horrible that's the impression
your previous agent left you with. They were either really terrible at
their job or the transaction went so smoothly, they made it seem too
easy. My goal here is not to make you feel better about the work that
takes place behind the scenes to justify whatever commission you may
have paid, its intended to educate in the event you misunderstood the
process or had expectations that were misaligned or never communicated
with your listing broker/agent/Realtor, therefore leaving you feeling blindsided and
less than satisfied. Maybe it was a combination of both, but I hope you
stick around to learn more.
Those who know me, understand I simply cannot keep anything short because
when something that impacts people's financial lives is at stake, you
have to be ready, willing and able to transparently tell a story and
there's no way to do it without providing additional context - especially
for a real estate transaction where there are so many layers in the
onion to peel back. Like any profession or industry that's constantly under attack by a society
where everyone is uber-critical of someone or something and therefore it
becomes opportunistic to blame them for whatever ails you at the moment.
Google, Wikipedia and AI have done an exceptional job of creating experts in
every subject matter known to mankind after a minimal investment of time online. Those experts rush
to their online social media sanctuaries and start parroting what they just read
while co-mingling their opinions in order to feel important or credible
and sell it as the truth which in turn gets others whipped into a
frenzy. Unfortunately, real estate is certainly no different and not
immune from misinformation. It's an easy target
because people see home prices skyrocketing and start feeling like the
"American Dream" is becoming less attainable while at the same time they
tune into their favorite "Selling My City" shows
where agents are bragging about the insane amounts of money in
"potential commissions" for their million-dollar listings. Honestly,
it's a huge turn off because in addition to not being the reality for
99% of the real estate agents in the United States, the flex is
completely unnecessary. Consumers who see this don't appreciate the
commissions being rubbed in their faces and reinforcing the feeling of
never being able to afford a home because of "those greedy real estate
agents". I get it.
Let's start this conversation by dispelling the headlines that a
"standard commission" exists or has
ever existed. Like many things in life, listing commissions have
always been negotiable. Any report that says otherwise is patently
false. When we have conversations with potential clients, most will ask
what we charge to list the house. Some sellers are only focused on
hiring the cheapest agent in order to "save on commissions", in which
case, sometimes its best to wish them well and thank them for the
opportunity to discuss things. Educated sellers want to know that you
bring a certain level of marketing & negotiation expertise to the table
that they're confident will result in the best possible financial
outcome for them. Some sellers (with no intent of hiring an agent) will invite you into
their kitchen table in order to siphon your market expertise - then turn
around and list "For Sale By Owner". These initial consultations are
always FREE of charge because agents never know who is serious about
listing with us or who is just using us for intel. That's the cost of
doing business - we don't dwell on it.
Imagine if you went on an interview and the hiring manager picked your
brain for two to three hours and asked you to bring supporting
documentation on how to solve a specific complex issue. You willingly
provided a comprehensive analysis, proven strategies and market
expertise learned over the last two decades plus the
additional number of hours to prepare a presentation and
they calls back and thank you for the valuable info, but they're
taking everything you and the three other experts shared with them and plan
to do the job themselves in order to avoid paying someone. Would you be shocked
to find out this happens all the time? Additionally, most people are
simply unaware that real estate agents are independent contractors -
which means they do not get paid by anyone until they successfully help a buyer or seller get to the closing table. Many also have no
idea that even though an agent hangs their real estate license with a RE/MAX,
Keller Williams or Compass office (for example), that means the agent pays them
a monthly and annual fee in exchange for permission to use their
corporate branding in all of their marketing, but brokerage firms do not pay
real estate agents because we are not their employees. Confused yet?
Oh, we haven't even remotely scratched the surface. ;)
I will attempt to separate this page into two
sections. First, I'll provide a 30,000-foot level view with bullet
points and maybe mixing in a few FAQ's explaining how real estate agents
are compensated for their professional services in the State of
Colorado. Secondly, I'll do a deep dive into the compensation structure
so you can gain an understanding of "how the sausage is made". These are my personal thoughts and are not
representative of RE/MAX, LLC or RE/MAX Alliance.
SELLERS
- There is no "standard commission"
- Listing commissions are negotiable (always have been)
- Sellers understand the value of hiring a competent agent to
protect their best interests
- a % of a listing commission was typically shared with the
buyer's agent
- Brokers are forbidden from advertising
commissions or compensation in the MLS
- Sellers may or may not want to offer a Buyer Broker
compensation (aka "co-op)
- Sellers may consider paying a Buyer
Broker compensation as part of purchase offer
- Listing commissions are used by sellers & builders
to incentivize buyers
In fact, well before I obtained my real estate
license two decades ago, I negotiated the listing commission for the sale of my home
with a listing broker who explained that along with the discount I was seeking,
would be a reduction of services. You see...everything is negotiable!
Everything You Need to Know About Hiring a
Listing Agent
Selling a Home in the Denver
Metro Area : Buyer Agent Compensation : Real Estate Agent Commissions
Contrary to what you're hearing in the news or
on social media, there has never, ever been a "standard commission".
Listing commissions remain negotiable today, just as they've for
many decades. Any articles or click-bait links suggesting buyers and
sellers are going to save thousands of dollars on the sale and
purchase of a property are misleading and require additional context
so you can educate yourself on what's actually happening in the
Sitzer-Burnett
lawsuit. In a nutshell, effective August 17, 2024, every
MLS in the United States will be prohibited from advertising offers
of buyer broker compensation. Also known as a Buyer Broker "co-op"
or "co-broke", it represented the amount a buyer's agent would be
paid (usually a % of the sales price) by the listing agent, seller or home builder if they
successfully represented a buyer who closed on the property.
Moving forward, real estate agents working with a buyer will be
required to enter into a written agreement with the buyer BEFORE
showing them your property. In other words, before an agent can show
your home, they MUST have a written contract with
a buyer that clearly discloses to a buyer that they will be
responsible for compensating their agent (*see
below for additional context specific to Colorado). Buyers can continue to
ask the listing agent, seller or home builder to compensate their
agent (just as its been done for decades), the only difference now
is the broker "co-op" must be negotiated directly into the purchase
offer because there's no guarantee the seller (you) will accept it. In other words, everything is negotiable.
Link to a comprehensive
NAR settlement FAQs
-
Real Estate Commissions : How Are Agents Paid?
Navigating Beyond the Headlines to Understand
"How the Sausage is Made"
Now let's address
the headlines and internet memes announcing "Death of 6% commissions
in Real Estate". Many clients, friends and family members have
reached out asking for opinions on how all of this negative media
coverage will impact my business. In order to fully understand what
all the headlines are about, let’s talk about "how the sausage is
made". A lawsuit filed in 2019 in Missouri (aka the
Sitzer-Burnett case with home sellers alleging they should not have to pay a
buyer's agent commission and that the real estate industry was
colluding to keep commissions high by transparently advertising in
the MLS + every single real estate website in the world (zillow,
redfin, realtor.com, remax, etc…) how much a buyer’s agent would be
paid if they were to cooperate ("co-op") with the listing agent and seller by
bringing a buyer to the closing table. This class-action lawsuit was
immediately followed by copycat suits around the country with the
same claim that the National Association of Realtors (NAR) and real
estate brokerage firms were conspiring to set commissions at 6%,
which violated the Sherman Antitrust Act of 1890. In October 2023,
the case went to a jury and after only a few hours
deliberating, the jury ruled in favor of the plaintiffs (home
sellers). In early 2024, NAR along with several brokerage firms
settled with the plaintiffs for hundred of millions of dollars and
agreed to implement two new rules effective in August 2024:
1) Sellers and listing agents would be prohibited from advertising
a buyer's agent co-op commission in the MLS (Multiple Listing
Service) or any website that receives its data from the
MLS
2)
Buyer Agents are now required to have a Buyer Broker Agreement
signed with a buyer that outlines compensation, duties and both
party's rights and responsibilities (*Colorado has
offered a Brokerage Disclosure to Buyer or Buyer Listing Contract since the 1990’s.
Unlike many parts of the country, Colorado Law does NOT
require buyers to a sign a agreement before touring homes. Any
agent that tells you they are not allowed to show homes until
you sign any document is not being truthful. They're likely just
pressuring you to sign a listing contract - so please be careful).
If you're interested in taking a deep dive
into understanding the History and Background of the Multiple Listing
Service,
please read this informative article. It will literally walk you
through how real estate has evolved since the 1880’s! In a nutshell,
what started
out as town auctions in the 1880’s reaching a few dozen people
changed to agents
having to go to each other’s offices and changed to driving around
town looking for
‘for sale signs’ and changed to the process of printing property listing books in the 1960’s
once or twice a month so agents and prospective buyers who stop by
an office and thumb through a catalog. Then in the mid-1990’s, the
internet was born and changed the entire landscape forever by making it
possible to input a property listing 1x in the local MLS database
which would propagate to thousands of websites and reach millions of
potential buyers around the globe! As exposure
for Seller listings grew, brokerage firms agreed to share the
listing commission paid by their Sellers, thus allowing agents who
weren’t representing the Seller to sell the property. These agents
were known as sub-agents as they were sub-contracted by the listing
brokerage to work with prospective buyers to sell the home. This meant that the sub-agents legally
represented the Seller and owed the seller fiduciary duty even
though they might not have ever met the seller. Agents showing a
Buyer properties had a legal obligation to protect the Seller’s best
interests rather than the Buyer. This led to a lot of confusion and
disenfranchised a lot of Buyers! It proved to be a bad system
because nearly 75% of Buyers believed the agent showing them homes
represented their best interests. Fortunately, the 1990’s ushered in
Buyer Agency – which for the first time meant Agents could actually
represent a Buyers' best interests. Finally, each side had legal
representation in a real estate transaction! That system has worked
flawlessly for decades.
Fast-forwarding to 2019, when the
Sitzer-Burnett lawsuit was
(as mentioned above). The United States Justice Department
got involved to have real estate compensation (formerly known as
commissions) “decoupled” between the listing broker and buyer broker
- thereby ending broker-to-broker "co-op". The DOJ wanted Sellers to know that they
could continue offering compensation to the Buyer’s Broker, but just not make it
publicly known in the MLS because they feared agents might steer
buyers away from listings that offered less compensation. I personally don’t agree with this because in Colorado at least, our
Buyer contracts specifically stated who paid the commission and
buyers were allowed to determine if they wanted to see a property
even if it didn’t pay what they had agreed to with their agent. On
the flip side, I wholehearted like the idea that compensation is
hidden from websites for the very fact that each Buyer Broker is now
forced to demonstrate their professional value because they were no longer guaranteed a
specific % of the sale. In other words, the most seasoned veteran in
the market with decades of experience was previously being
compensated the same % as an agent who literally just
passed the state licensing exam a week ago! Nonetheless, I find it a
bit hypocritical that almost every Seller in the United States seems to
have forgotten that when they purchased a home, the Seller of the property they
purchased, paid their Buyer’s agent a commission (not them). During
the last few years (2019-2024), Buyers have been faced with a market that is heavily weighted against them with historically high home prices, high mortgage
rates, low inventory and in order to compete, were asked to make regrettable decisions
like waiving inspections and other contract contingencies (a very bad idea).
That being said, real estate markets have always been cyclical and
we will soon return to a Buyer’s market.
What if I Don't
Want to Pay a Real Estate Listing Agent?
There's absolutely no requirement to be represented in a real
estate transaction. Homeowners have always been able to fly solo and hope
for the best. It's called 'For Sale By Owner' (fsbo). FSBOs
accounted for 7% of home sales in 2023 and the typical FSBO home
sold for $310,000 compared to $405,000 for agent-assisted home
sales. There are those who believe "I'll just cut out the
agents and deal directly with a prospective buyer to save on
commissions." As long as you understand that 89% of buyers
purchase their homes through a real estate agent, at some point, you
will be asked to pay the buyer's broker compensation on behalf of
the buyer. That broker will be hired to look out for the buyer's best interests (NOT YOURS).
They can not
help you negotiate against their buyer. When
issues arise that require advise or counseling, you're on your
own. Competent representation and advocacy
is essential and like you, real estate agents don't work for FREE.
Remember, while compensation is no longer displayed on the internet,
buyer's will now be including their Broker fees as part of their
offers - so nothing much will have changed - only the way things are
communicated. You can refuse refuse to negotiate the requested
compensation, but be
prepared for lower offers or for the buyer to just move on to the
next property and a seller that is willing to work with them. Proceed with caution and have a great
real estate attorney on speed dial.
Selling Real Estate is Easy
If you’ve ever had a real estate transaction that seemed “easy” –
thank your REALTOR! That means they did everything possible to ensure
a smooth transaction and insulated you from 100 things that may have
been going sideways behind the scenes. You see, we protect you from
the drama and nonsense that sometimes takes place between parties
(including agents) because let’s face it, buyers, sellers & agents
can sometimes allow their egos and emotions to interfere with things. They dig
their heels in on the dumbest things that would otherwise completely
blow up a real estate transaction and it’s completely avoidable.
That's why I often refer to myself as a firefighter because just like our
local heroes, we’re busy using our respective expertise mitigating
life-changing disasters and we don’t get caught up in the nonsensical
things that would otherwise interfere with us doing our jobs. Surely everyone
knows there’s A LOT more than just dousing a structure with water to
extinguish the flames, but regardless of whether the buyer or
homeowner understands “how the sausage is made” or not – we take
pride knowing what it took to ensure the best possible outcome.
In the age of Google and recent emergence of artificial
intelligence (AI), many would-be buyers and sellers question how
complicated real estate really is. Truth is, I can train any monkey
to set up client searches in the MLS or drive around town opening
doors (which is what many people thing that's all we do), but do you really know
"how the
sausage is made"? If you believe you can successfully navigate Title
companies, Home Inspection companies, Lenders, Appraisers, HOAs/CC&Rs,
Non-warrantable units, Metro Districts, Local municipality rules &
regulations, Solar Leases, Water & Mineral Rights, Insurance
companies, Structural Engineers plus dealing with inspection-related issues? Do you have
expertise in assessing property values and negotiating the right
price and terms? Do you have knowledge to effectively execute a
Listing Contract or Contract to Buy & Sell? By simply checking
the wrong box (or failing to) and/or using legal
clauses in the additional provisions section that can mitigate
any potential ambiguities which may otherwise cost you tens of
thousands of dollars (or more) in a future lawsuit? If the answer is
yes, then by all means you are probably skilled enough to pursue
this journey unrepresented. But if you're not 100% certain about what
it takes to avoid future litigation, then you might want to consider
hiring a trusted (full-time) real estate professional. If not me,
chose someone who comes highly recommended by family or friends
and/or has a stellar reputation on realtor.com.
I realize this is a massive amount of info to digest, so please
bookmark this page and refer to it to remind yourself that real
estate agents are not paid a penny until they can successfully
demonstrate their value and get you to the closing table. We are self-employed small business owners
who don’t earn a salary; receive no benefits; no 401k plan; no
medical, dental or vision insurance; no vacation days or PTO; no
reimbursement for vehicles, mileage, repairs or insurance. Nada.
Additionally, we pay our respective brokerage firms 10-40% of
everything we make (it comes right off the top). Real estate is a performance-based career, so if we cannot get you
to the finish line, we do not get paid – even after months of work
in many cases.
Having said all of that, you (as buyer or seller) are empowered to
determine if the person you are considering hiring to represent your
interests brings value to this massive financial and sometimes
life-changing decision. I encourage you to talk about everything
from your service expectations to compensation and remember, no question should
be off-limits! If your agent cannot expertly and effectively
communicate their value and they quickly pivot the conversation to
discounting their commission, respectfully walk away. After all, if
the agent doesn’t have confidence in their own expertise and the
backbone to fight for their livelihood, why on earth would you trust
them to fight for yours?
Link to a comprehensive
NAR settlement FAQs
-
