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Do real estate brokers get a commission when they are buying a house themselves?
March 20, 2012 6:07 AM   Subscribe

Do real estate brokers get "discounts" on homes they purchase?

My understanding is that the standard commission on homes listed for sale with a real estate brokerage in my area is 6%, and that a listing broker generally splits this 6% in half with any outside real estate salesperson who finds a buyer.

My question is whether brokers, in effect, get a 3% discount on homes they purchase, because they get to "keep" their half of the commission?

Example: Sally is a independent broker. She makes an accepted offer for $200,000 for a house listed by Tom, a real estate salesperson in another brokerage. Usually, if Sally were representing a buyer, she would get $6,000 for the trouble (half of the 6% commission). Since she is representing herself instead, does she still get the $6,000?

I am using an independent broker as a potential purchaser to make the question simpler. I'm in Wisconsin.

Gracias, Mefifos.
posted by letahl to Work & Money (19 answers total) 1 user marked this as a favorite
 
In your example, Tom is the one due the commission. He is the listing agent. Sally, acting as a buyer's broker, would be paid separately be the buyer. But, buyer's agents are very rare. Pretty much, every realtor that you deal with is an agent of the seller.

Realtors should not get any discounts. Since nearly all realtors are agents of the seller, they have a ficuciary duty to get the highest price.

However, that is not the way it really works in reality. Realtors often help each other as a professional courtesy. They might tell a realtor what the lowest number that the seller will accept is. They might allow a colleague to look at the property, and make an offer, before the general public has a chance. And, yes, realtors will waive their commission when dealing with co-workers.

Being inside the industry gives you a huge advantage over other buyers.
posted by Flood at 6:23 AM on March 20, 2012 [1 favorite]


Flood: when we used a buyer's agent, he was paid out of the listing agent's cut.
posted by ROU_Xenophobe at 6:58 AM on March 20, 2012 [5 favorites]


Mmm, actually sometimes yes, absolutely. This varies significantly market-to-market however.

And this also happens with rentals, in markets where there are brokers representing both sides. For instance, I know of someone who was selected among competing tenants for an apartment, because the tenant was a broker and was representing himself, and therefore saved the landlord a commission. (This happened in a market where landlord paid all fees, unlike NYC, where tenants pay their own broker).

In residential purchases, a broker-tenant will often make an offer to the seller's broker that includes a discount in price to reflect the fee saved by being "unrepresented." Sometimes of course that doesn't work.
posted by RJ Reynolds at 7:03 AM on March 20, 2012


I had the same experience as ROU_Xenophobe when I bought my condo -- I didn't pay my agent but he was paid for his work.

That said, I think it's probably pretty variable and would depend on (1) how the paperwork's actually filled out and (2) the existing relationship between the seller's agent and the purchaser, which would impact the shared interpretation of this gray area.
posted by cranberry_nut at 7:08 AM on March 20, 2012


ROU_Xenophobe: Are you sure he was a buyer's agent?
Did you sign an agreement making him a buyer's agent?

Or, did you go into a real estate office, talk to a salesperson, they found something listed in the multiple listing, you and your salesperson went to check it out - you made an offer through your salesperson, and bought the home. This is what most people experience. And it often seems like the salesperson is representing you - but, they are not. They are still agents of the seller.

Cranberry: It is not a gray area. Unless you signed an agreement, before looking at any homes, making the agent a buyer's agent - then that salesperson is NOT your agent, and does not owe you a fiduciary duty.

The gray area is that real estate salespeople often present themselves as the buyer's best friend, when in reality, they are agents of the seller.
posted by Flood at 7:21 AM on March 20, 2012


There is a difference between a broker and a real estate agent. Most front-line real estate agents take their 3% commission (or whatever) and have to give a percentage of that to the broker they work under. Since there are more fingers in the pie, not all who benefit from a smaller commission, it really does depend. In your scenario, as Sally is an independent broker she is top of the food chain. There is a Code of Ethics that Realtors follow (as well as laws). I know when I have dealt with property that the realtor has a personal financial interest in it has been disclosed to me. (In this US this is actually the very first Article of the Code of Ethics).

This is my experience, in Canada. I am not sure if it is exactly the same in Wisconsin.
posted by saucysault at 7:23 AM on March 20, 2012


Yes, Flood, I signed an agreement making my agent my agent.
posted by cranberry_nut at 7:27 AM on March 20, 2012 [1 favorite]


@ Flood- we just bought a house using a buyers agent, with a contract. She assured us that we wouldn't pay her anything even if we bought a foreclosure or a short sale... she was paid by the sellers. We looked at numerous houses, none of which were ones that she listed. And when we closed, we paid her nothing.
posted by kimdog at 7:30 AM on March 20, 2012 [1 favorite]


when we used a buyer's agent, he was paid out of the listing agent's cut.

I had the same experience as ROU_Xenophobe when I bought my condo -- I didn't pay my agent but he was paid for his work.

we just bought a house using a buyers agent, with a contract. She assured us that we wouldn't pay her anything even if we bought a foreclosure or a short sale... she was paid by the sellers.


But this is the problem. Most agents referred to as "buyer's agents" are still paid on commission, as a percentage of the sale price, which means they have financial incentives to negotiate a sale at the highest possible price. Even with a real buyer's agent contract, the incentives still skew to the benefit of the seller.
posted by jon1270 at 7:33 AM on March 20, 2012


The seller and buyer agents split the 6% equally. I know this is true in Texas and Oklahoma being that I have sold houses in both of those states.
posted by LeanGreen at 7:43 AM on March 20, 2012


when we used a buyer's agent, he was paid out of the listing agent's cut.

This has been my experience too in every property transaction. Seller pays both agents, for the buyer this is part of the property price, not an extra fee. Buyer's and seller's agents in my market both have to sign agreements to become the legal agent. It's quite clear when it happens.

Most agents referred to as "buyer's agents" are still paid on commission, as a percentage of the sale price, which means they have financial incentives to negotiate a sale at the highest possible price.

IME, again, what agents actually want is rapid turn-over. If they can do 4 sales a month at a 10% below market, they'll take that over 1 sale at 10% above. When fast sale is the object, the pressure is often on the seller to reduce prices/take the first offer they get. Buyer's agents are the same, the faster they can clear clients, the more often they get paid.
posted by bonehead at 7:54 AM on March 20, 2012


ROU_Xenophobe: Are you sure he was a buyer's agent?

Yes.

Did you sign an agreement making him a buyer's agent?

Yup.
posted by ROU_Xenophobe at 7:55 AM on March 20, 2012 [1 favorite]


In your situation, I don't see why a realtor representing themselves would/should get an automatic 3% discount on your list price, just because they will not "profit" on the sale. You are listing your price for what you think it is worth, not what you think it is worth + all the fees required during a sale. Just because the fees went down because you will not be paying her 3%, it doesn't mean the house price goes down.

The contact that I signed when selling my house said the rate would be 4.5% if the buy didn't have a realtor. So *I* would be getting a discount and my realtor would have to cover both parties.
posted by LeanGreen at 7:59 AM on March 20, 2012


Most agents referred to as "buyer's agents" are still paid on commission, as a percentage of the sale price, which means they have financial incentives to negotiate a sale at the highest possible price. Even with a real buyer's agent contract, the incentives still skew to the benefit of the seller.

Although intuative, that is not actually true. The incentive for both the buyer and the seller's agents is to turn over the property as fast as possible. An extra 10k is nothing compared to churning through an extra house a month because you fast-track the seller into accepting a lower price than they otherwise might (ditto for buyers paying more than they otherwise might).

This has been proven - when RE agents (including seller's agents) sell their own homes, they are on the market for longer and sell for higher than those of their customers. I believe this is discussed in Freakonomics.
posted by lohmannn at 8:15 AM on March 20, 2012


When we sold our home to a real estate agent, we only paid 3% commission -- to our agent -- instead of the full 6%. It didn't lower the overall price for the buyer, though -- we just didn't have to pay out the additional 3% from the proceeds of the sale. (This was in Texas.)
posted by devinemissk at 8:30 AM on March 20, 2012


Most agents referred to as "buyer's agents" are still paid on commission, as a percentage of the sale price, which means they have financial incentives to negotiate a sale at the highest possible price.

An extra 10k is nothing compared to churning through an extra house a month because you fast-track the seller into accepting a lower price than they otherwise might

The truths of these two statements are not mutually exclusive. You're right that agents can increase their income more easily by selling more houses they can by driving up the price of any one house, but both agents still benefit when the price is kept high. The point I was trying to make, and which I initially thought Flood was getting at, is that the 'buyer's agent' contract / relationship really doesn't do much because the incentives remain the same.
posted by jon1270 at 8:30 AM on March 20, 2012


I have bought two houses, once in Maryland and once in Missouri, and both times I signed a contract with a buyer's agent who showed me houses and worked specifically for me.
I have had my current house on the market for nearly 10 months and had dozens of showings in that time. Only once has my listing agent (my seller's agent) shown the house to buyers. Every other time it was a buyer's agent. (I am not including open houses, obviously.)

When I was working with a buyer's agent in Maryland, we saw a house where the listing agent was working some bizarre game where the sellers were only contracted to pay a total 3% commission, which would go to the seller's agent. My buyer's agent made it clear that we were expected to pay her 3% commission if we'd bought that house. It's been years so I don't remember exactly what that deal was, but I haven't seen it again.
posted by aabbbiee at 8:42 AM on March 20, 2012


I'm drifting a little off-topic but I'm always surprised to hear people say things like this: I had the same experience as ROU_Xenophobe when I bought my condo -- I didn't pay my agent but he was paid for his work.

You didn't write the agent a check, but you certainly paid some portion of what the agent got. If the total commission paid were 3% instead of 6%, all things being equal, you could have paid 1.5% less for your condo and the buyer could have gotten 1.5% more and you would both be better off. Money lost is the same as money paid. Saying that the buyer doesn't pay the agent is like saying that you don't pay the sales tax because its included in the price.
posted by RandlePatrickMcMurphy at 12:03 PM on March 20, 2012 [1 favorite]


Well, I dug this up from the Wisconsin Realtors Association (scroll to Personal Purchases). It says, essentially, a broker can't get an agency commission for representing oneself, but brokers are in a position to negotiate buyer's incentives (which can effectively act as a discount).
posted by letahl at 2:25 PM on March 20, 2012


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