SCENE: Interior, day. A darkened 8-by-8 room. A bare 60-watt light bulb provides the only illumination (we'll make it an energy-efficient bulb in deference to my rabbi.) In the center of the room, an inquisitor interviews a real-estate agent seated on a metal folding chair.
[INQUISTOR:] "So, Mr. Buyers' Agent ... How much do you charge your buyers?"
[BUYERS AGENT:] (stammering) "I ... I ... " (look of surprise) ... "Wait ... that's the question?"
[INQUISITOR:] (sneering) "Yes, that is the question. HOW MUCH DO YOU CHARGE?"
[BUYERS AGENT:] (laughing) "What a relief. I thought you were going to ask me about mold."
[INQUISTOR:] "This is no laughing matter, sir!"
[BUYERS AGENT:] "Sure it is. There was no need for the theatrics, just as there was no need for you to assume I wouldn't readily provide you the information. I don't make a secret of what I receive for working with a buyer. If you elect to sign a buyer broker agreement, you will see that I personally work for 3% of the sales price or what's offered in the Multiple Listing Service, whichever is greater. The amount is the same even if you don't sign a buyer broker; the main difference is with a buyer broker, it's in writing."
[INQUISITOR:] "A-ha! You said whichever is greater! So you're going to talk your clients into a certain property only because of the commission being offered."
[BUYERS AGENT:] "Don't be ridiculous. Is it possible same agents would? Yes, it's possible. Do I? Absolutely not. My job is to help clients find the homes that best suit them. In the long run, as a profession in a commission-based career, am I going to make more money squeezing an extra 1 percent on one house or by earning the referral business of a client who has been settled into the right house? It's a no-brainer, really."
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There has been a thread permeating the real estate blogosphere of late regarding what buyers agents charge their clients. It even worked its way into print in the Arizona Republic, courtesy of Bloodhound Realty. At its root, the question is meant to expose agents who are leading their clients to homes with higher co-brokerage fee offers in an effort to make a few more bucks. Builders are at the heart of the debate, as these same companies who wouldn't pay an agent a cent a year ago now are offering co-brokerage fees of up to 10%.
But the debate goes beyond the larger co-brokes. It cuts to the idea of buyers negotiating their own fee regardless of what is in the MLS. One of Bloodhound's suggestions is for the co-broke to be credited to the buyer and split according to a previously-negotiated compensation agreement between buyer and buyers' agent.
It seems like a simple solution but the devil is in the details:
1) The commission on a sale is negotiated between listing agent and seller on the Exclusive Right to Sell form. This commisson amount, unless otherwise stated in the agreement, remains the same whether there are one or two agents (i.e., a listing and a selling agent) involved in the transaction. The buyer has no say in the commission debate, at least from this standpoint.
The argument made most often when discussion commissions, particularly from the unrepresented seller crowd, is the list price is inflated by the presence of the commission; if buyers were paid directly in all transactions, or if the seller were agreeing to a lower co-broke and lower overall commission, prices would be lower.
Poppycock.
In a market such as the Phoenix area currently, market averages dictate price. The presence of a commission will impact the seller's bottom line, no doubt, but the lack of a commission will not necessarily cause them to lower their price by 5% to 7%. The price will remain the same (or higher, if they are like most unrepresented sellers) as they grasp at a higher net.
2) Buyers willingly will pay the buyers' agent fee in exchange for representation. The basic fact, right or wrong, is buyers' agency and buyer representation is less an issue to the public than we tend to believe. Problems in the past arose when buyers believed they were being represented in a transaction when all agents in fact were representing the seller. Those days are in the past. Yet it is still extremely common to find buyers calling listing agents off their signs, looking for the best deal on a home. Sometimes they have an agent, most often they do not. There's a common misconception that they can buy a house for less through the listing agent (possible under a variable commission agreement but not automatic, as per point #1) and the idea of representation is less important than the idea of price.
3) Under the current system, imperfect as it may be, buyers are financing the commission because it's wrapped into the sales price. Maybe not the wisest of decisions, but for buyers struggling to find money out-of-pocket to purchase, it's no worse a decision than financing closing costs by offering higher and obtaining a larger loan. Ask these same buyers, or worse yet force these same buyers to pay out-of-pocket for representation and we'll soon have a majority of buyers entering into real-estate transactions unrepresented, just the situation that was supposed to be corrected with the introduction of buyers' agency.
4) What of higher co-brokes? I have no issue with passing along some of the extra commission to a buyer as part of a previously agreed upon employment agreement. I also have no issue with adjusting my commission to consumate a deal, if that's what needs to be done. But I also would expect my buyers, in the case of a co-brokerage offer lower than the minimum I have set for my own business, to pay the difference. This should be a two-way street. It's often not, as evidenced by the below-minimum co-brokers I'e accepted in the past.
The argument's been made that my agency is being bought with a higher co-broke. Personally, this isn't the case. My job is to find the right home for my clients. And I have enough of a long-range view to understand I'll earn a better living in the long run doing what's right and getting my clients into the homes they want. Earning their referral business wil be far more financially rewarding than trying to squeeze an extra percent or two on a one-time deal.
5) Lastly, there are the sellers. Most have little issue with paying a buyers' agent to bring a buyer to their home. The bulk of the sellers I've worked with, however, would balk at handing additional cash to a buyer - particularly in this market, where below-list offers and closing-cost assistance has become the norm. Obtaining the buy-in of sellers to post these co-broke credits to the buyers isn't impossible, but it's far from automatic.
(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes
Tags: Buyer Agency Compensation | 
