How to negotiate real estate agent commissions?

Investment Analysis Clubs Macro Economic Trends and Risks
1

https://www.nytimes.com/2024/08/16/realestate/realtor-commission-fee-rules.html

Realtors Resist Changes in Commissions

Real estate industry insiders say it’s time for agents to face a new reality of discussing fees with buyers and sellers.
(Debra Kamin - The New York Times)

By Debra Kamin, The New York Times, Aug. 16, 2024

When the National Association of Realtors signed a landmark $418 million settlement in March, economists and academics predicted that the deal — which included an agreement to upend key practices concerning how real estate agents are paid — would create the most significant shift to the industry in a century…

The settlement makes it clear that agents can no longer discuss splitting compensation on the online databases, called the multiple listing service or the M.L.S., that they use to list homes. And Michael Ketchmark, the lead lawyer in the successful lawsuit against N.A.R., cautioned that agents who seek to move the commission conversation to other venues would be opening themselves to potential legal fights…

But in a move that some agents say is leading to confusion, the National Association of Realtors has been encouraging its 1.5 million members to maintain the status quo and move compensation talks to another venue…

The data, which covered hundreds of thousands of homes in 34 of the nation’s largest real estate markets, showed that home listings offering low commission to buyers’ agents sat on the market longer and received fewer visitors… [end quote]

I’m not planning to sell my house but I’d like to understand how this works.

Please chime in.
Wendy

4 Likes
2

Minimize the skim. List your home for free on zillow.com, and then offer a buyer’s agent commission at the top the range if you want to sell quickly. You don’t want to be paying a commission to both the buyer’s and seller’s agent.

If I was buying a home, I’d contact the listing agent directly and not involve a buyer’s agent to squire me around looking at properties.

intercst

1 Like
3

I’ve only purchased one home in my life. And I had a realtor because it was part of a relocation package. But I suspect that if the realtor had found us a home, they would have been paid by the seller via their listing agent sharing the 5-6% commission. But in the end, I found my house a different way. I asked around and found out the name of the person who was most active (and headed) the HOA in the development we were looking closest at (we were looking in probably 7 or 8 developments in the area, but after looking around, this one was our favorite). Then I met with this person (my wife was away that week, so it was just me) and asked “Out of the 120 homes in the development, who do you think is most likely to want to sell?” and I was given 3 names. I found the 3 numbers for those names and “cold called” them to ask if they are selling their house. First one said “No way, I’m only selling in a few years when I retire”, second one said “It’s an investment property that I own with my brother, so I have to ask him what he thinks about selling”, and the third one was very flaky and I couldn’t get a straight answer (in the end, the third one did indeed sell a month or two later). Second one called back and said brother is indeed interested in selling. Anyway, a few hours later, that evening I met with the second person, at her home nearby. We discussed prices, I offered, they countered, and we met in the middle and shook hands. Then after I told her that my wife is away for the week, she made dinner and we all ate together (she, her husband, her daughter, and me). The next day I brought one of those one pager memorandum of sale (or letter of intent or whatever form they had at Staples), filled it in, gave her a $10k check, and we each signed the form. Closing was a month or so later once the attorney was ready to do it, and once the mortgage was approved. It was a very smooth process for us. Our realtor had taken us to a few houses in the area, but nothing that we really wanted, and she was paid a general fee by the relocation department. And we’re still in the same house today more than 27 years later (good that I bought a 4 bedroom instead of a 3 bedroom).

5 Likes
4

Yep. That’s the way to do it.

The only problem I see is that if the listing agent on a home you want to buy has a listing contract that allows for a buyer’s commission and they tell you you need to have one of the other agents in the office “write the offer” as an impartial party. Then that second agent would get the buyer’s commission.

But that’s on the seller. It won’t change the price you offer as long as you make it clear in the contract that you won’t pay a buyer’s commission.

When I bought my home in 2012, I contacted the listing broker for one property I was interested in and I met with an agent from the broker’s office to write the offer. The agent presented me with a buyer’s broker agreement. I said, “I’m not signing this. You’ll get your commission from the seller if the offer is accepted and the sales contract survives the contingencies”. The agent looked very disappointed. That evening I got a call from his broker asking why I had a reluctance to sign a “buyer’s broker agreement”. I told him that that’s, the first rule they teach you in real estate class – “Never sign a buyer’s broker agreement”

A few month’s later, I bought an identical unit in the same condo complex, so they lost out on a likely sure sale.

intercst

3 Likes
5

In ct and ma from my connections, the fee structure is now a contact with the buying agent who will give preference to a higher percentage. And separately a contract with the selling agent.

The lower you go with either you lose.

The fee structure is no longer set in stone.

There is a reason for real estate agents. Things going wrong without them.

6

Things go wrong with the title search, home inspection, or escrow. The real estate Broker/Agent is just marketing – and like a financial advisor, isn’t likely to do much for you.

intercst

5 Likes
7

All the more reason to cut out the agents. However, I am pretty sure in most areas the agent is required to submit all qualified offers to the seller.

You can hire a real estate attorney for a fraction of the price of a real estate agent. The MLS is a gate keeper to keep real estate commissions high.

3 Likes
8

Don’t you mean “submit all qualified offers to the SELLER”.?

intercst

9

Yes, thank you.

Plus additional characters.

10

if you did that job you would not think commissions were high.

Anyone can kick the next guy.

11

I’m not saying that being a real estate agent isn’t a difficult, stressful job, but it’s a sales job. And if I already know what I want, and don’t need a sales pitch, why am I talking to a real estate agent?

intercst

4 Likes
12

For investing, absolutely. Prices of stocks and bonds are non-negotiable. The price is the price, plus the skim.

Houses are different. The final price is the result of negotiation. Everyone thinks they’re a great negotiater. They’re not. Half are below average. A talented negotiator can make a big difference in buying and selling real estate. Most realtors are not expert negotiators, but if you find one, they can be well worth the skim.

13

In “Freakonomics” Levitt did a big study where he showed realtors negotiated lower prices but faster sales for their clients then they do for themselves. The reason is the marginal gains for negotiating a higher price is less than closing the deal quickly and moving onto the next commission.

So they are more motivated to get the deal done quickly rather than get the highest price for their clients.

8 Likes
14

I have bought 5 homes along the way, and because most were corporate moves I used a realtor. I find they provide value in a couple of different ways.

They know the market, they know what will sell and at what price. Using “comps” from Zillow or elsewhere is fraught. Sure, you might come up with the right price, but you also might overprice and not sell, or worse, underprice and leave tens of thousands of dollars on the table.

Further, they know what presents well and what doesn’t. Your idea of decoration 15 years ago isn’t necessarily what the next generation of home owners is looking for. Realtors are forced to keep up with tastes and trends, which is not to say they are all good little designers, but their advice is often pretty good (I have found.)

Finally it’s after the handshake but before the close that I find the most value. I simply don’t know all the labyrinthian nonsense that goes on with closing: title searches and inspections and documents and wire transfers and whatnot. No, I am not saying that’s worth 6% of a half-million dollar sale, but it’s surely worth something.

And, of course, there are good realtors and bad ones. When leaving Chicago I interviewed 5, and got listing prices that varied by more than $100,000 - but if I knocked off the wildly high top and the lowball “it’ll sell quickly”, the middle three were surprisingly close to each other. (The “high bid” is a strategy, I am told, to get the listing. Everybody wants to sell for more. Once they have the listing they sit for a couple weeks, then say “let’s move the price down”. It’s a very “used car dealer” type move but apparently common, according to friends who are realtors.)

Realtors may have to show 50 houses to get a sale, or the client may take the very first one they see. This is pretty different from putting a product on a shelf for consumers to walk past, or even selling a car where the customers come to your place of business.

None of that is to justify the “we don’t negotiate commission” attitude, an there will be a period of adjustment for both agents and customers, but that’s the way it goes, I guess.

2 Likes
15

I don’t doubt that’s true. But like with actively managed mutual funds, only 4% beat the S&P 500 after fees, and ther’s really no way to identify the 1 in 25 that will out perform ahead of time.

When I bought my home in 2012, I used a realtor, but of course at that time the seller paid both commissions. But there were no negotiations. Either the home met the price returned by my rent vs. buy calculation or I walked away. I’m happy to be a renter if that’s what the calculation tells me.

intercst

16

Of course, as long as the company is paying for it and it’s “free”, why not? Hopefully they were paying your closing costs and mortgage origination fee, too.

But if I’m paying a 3% fee for a Buyer’s Agent out of pocket, it’s a much sharper calculation.

intercst

2 Likes
17

It’s not that hard to buy title insurance, find an escrow agent, and hire a home inspector on your own. It’s certainly not worth $30,000 to have someone do it for you, unless you’re making like $2,000 to $3,000/hour – and then you’d probably have more than $500,000 home.

intercst

18

Westinghouse took very good care of its transferred executives. Yes they covered all that, and even gave a “cost of living” adjustment to salary (over and above any negotiation for the new job) based on differences between cities. Moving from Pittsburgh to Chicago I did very well. The COLA only lasts 18 months, but by then you’re pretty well settled in.

1 Like
19

Two issues

Fast exposure to the market, ie you want a 3 family house. You know two areas with those. An agent in this hypothetical knows 4 such areas.

Next, facilitating the sale, ie sellers taking comments personally. An objective realtor helps.

20

When I bought my home in 2012, I’d lived in the neighborhood for 6 years and had thoroughly researched what was available on zillow, realtor.com, etc. I’m sure I knew more about the neighborhood than the realtor, and bought a home less than a 1/2 mile from the place I was renting.

Like any professional service, you evaluate your own knowledge and skill level and make a judgement if the professional brings enough to the game to justify the fee.

I agree that hiring a professional may make the process easier, but at what cost? Transaction costs are so high in real estate that there’s plenty of fluff you can cut out of the equation if you’re paying cash. My closing costs were less than 0.50% of the purchase price (i.e., half the escrow fee, $75 to record the deed, and $100 to change tumblers in the locks.) As a Register Professional Engineer, I was competent enough to do my own inspection, and didn’t need an appraisal since there was no mortgage.

Minimizing the Skim – the key to retiring early

Goofy had his employer paying his transaction costs. But if you bought and sold 5 homes with a mortgage over your lifetime, the transaction costs would take half of your equity. {{ LOL }}

intercst

6 Likes