A real estate licensee or person who has a controlling interest in a real estate business shall not, directly or indirectly, give any fee, kickback, payment, or other thing of value to any other real estate licensee as an inducement, reward for placing title insurance business, referring title insurance business, or causing title insurance business to be given to a title insurance agent in which the real estate licensee or person having a controlling interest in a real estate business also has a financial interest.Apparently the Deparment of Licensing is going to help the Office of the Insurance Commissioner scrutinize the relationship between the real estate broker/owners and their affiliated title insurance companies. Broker/owners with nothing to fear would surely welcome any increased scrutiny. Consumers reading this blog, a red flag for you to watch for is if a real estate agent or mortgage lender strongly insists on using a specific third party vendor. Ask the following question: “Can you please tell me exactly what you are receiving in exchange for me selecting this vendor?” If the answer is “Nothing,” ask to have that put into writing. Reputable lenders and Realtors select third party vendors because their rates are low and the service is consistently exceptional. Not only does strong-arming raise red flags when it comes to RESPA violations, it’s also a red flag for possible mortgage fraud. I would like to return title insurance to the days where Realtors and lenders selected title and escrow companies because the companies offer great rates, awesome service, and maybe a pen or a notepad. Title companies reading this: That means the money you’re saving by only spending $25 per year per client can be re-allocated towards hiring exceptionally high quality internal staff and less on beautiful hotties to distract the Realtors and lenders from the fact that your internal service is subprime. Well, unless the title rep is really hot. Exceptions must be made in some circumstances.
Realtor: “Jillayne I have nine going on right now and,”
Jillayne: “Wait a sec, did you say NINE short sales?”
Realtor: “Yes, and here’s my question. One of my clients refinanced her Redmond home and took 89,000 cash out. Then she bought another home in another state with that cash. Now she wants to do a short sale on her home here in Redmond. It looks like she’s going to be short about 100,000. The lender on the Redmond home can’t go after her new home out of state, right?”
Jillayne: “Short sales are for homeowners in financial distress with no assets. The lender being shorted will ask your client to sign a new note/deed of trust in the amount of the shortfall and this new deed of trust will be recorded against your client’s new home.”
Realtor: “Yes, but their home is out of state. The shorted lender can’t do that, can they?”
Jillayne: “Yes, the lender can do that.”
Realtor: “But the home is in another state.”
Jillayne: “Your client is going to have to prove that they do not have any other assets. Just because a piece of real property is not located in Washington state doesn’t mean it’s not an asset. Washington state is not that special.”
Readers, why should lenders just randomly “forgive” the shortfall for all homeowners wishing to sell short? Especially homeowners who took cash-out equity loans to buy other real property. Surely there are some hard luck, true financial distress situations going on nationwide, but this is not one of them.
Besides, I thought homes in Redmond were holding their value.
Reminder: Homeowners selling short and/or in foreclosure should always obtain legal counsel. Google your state bar association to get started.
“The first step for distressed homeowners, said Rhonda Porter, a certified mortgage planning specialist and broker in Seattle, is to pull out their loan documents and see what they say.”
Not because the site has been around so long, but because it seems impossible that RCG has brought so many (wonderful) changes to our life in only three years.
While RCG started out as an experiment to cheaply market my wife’s new real estate business, it turned into an epic personal journey that has allowed me to foster a fabulously healthy real estate community, learn a tremendous amount about building and marketing real estate websites, and make a living educating real estate professionals on how to improve their online marketing.
No part of this journey could have been expected or predicted, and yet, my wife, Anna, has been more than up to the challenge every time I choose to pursue another wild idea (such as spending hours each day writing posts on RCG back when we had no readers, moving to Southern California to pursue a new profession, leaving a well-paying executive position to start my own business, etc.) with my usual caffeinated gusto.
And while I normally try to take every opportunity to thank the RCG community for making everything possible (I am truly appreciative!), I want to take this special opportunity to give thanks to Anna for giving me so much support as I continue to chase my passions.
The ride has just begun! The number one thing that everyone can do to clear up the misunderstandings about “The Real Estate Commission” is to
1) STOP looking at the number as ONE commission. This is true for everyone, including agents and brokers.
To do this everyone needs to understand that agents represent people, they do not SELL anything. There is one fee for the person who represents the seller and there is another fee for the person who represents the buyer. STOP adding those together as if they are both all about the seller. They are NOT all about the seller. The seller includes BOTH in the asking price so that both can be financed inside the transaction by the lender. But they are still two separate fees, one for the person who represents the seller and one for the person who represents the buyer. They may or may not be equal amounts.
When a seller puts their home on the market for sale they decide whether or not to hire someone to represent THEM in the sale of their home. They negotiate that commission, usually somewhere between 0 and 3%, with THEIR agent, The Listing Agent aka The Agent for the Seller.
When a seller puts their home on the market they ALSO “set aside” a commission that will be paid to the agent who represents the buyer. Usually 0 to 3% and not necessarily the same fee as the one they are agreeing to pay to their agent, the Listing Agent. Why do sellers set aside an amount to be paid to someone else’s agent who doesn’t represent the seller at all? So that they can be in the MLS “pool” of homes for sale and so that ALL commissions to be paid at the end are INCLUDED in the asking price for financing purposes.
2) Price of home and commission issues DO have a direct relationship.
Pretend you are selling your home right now, whether or not you own a home. Let’s say the homes in your neighborhood generally sell for $500,000 and there are 25 homes just like yours on the market. You might say, I would price my home at $470,000 to beat everyone on price, if I didn’t have to pay any commissions. You might say, I would price my home at $480,000 if I could cut the commission from $30,000 to $10,000. So price of home and commissions to be paid DO have a direct relationship to one another.
The seller may want to save his 0 to 3% by not listing with an agent. The buyer may also want to save their 0 to 3% by not having an agent. By treating the commission as two separate fees from the time the asking price is set, everyone is free to either have representation or not and save accordingly.
The seller should NOT benefit if the buyer chooses to not be represented IF the seller intended to pay a buyer agent at the time the home was priced. If the seller “set aside” 0 to 3% within the original asking price for the buyer to use to pay for their representation, then the seller should not simply keep it if the buyer is not represented, nor should the listing agent just keep it “because they can”.
The only reason the seller agrees to pay the listing brokerage BOTH fees, is because the buyer and the buyer agent are unknown entities at the time the home is priced. Consequently the seller is agreeing to pay the buyer agent fee through the listing agent’s company and the listing company should not simply keep it, but legally the way the contract is currently worded, they can. Someone should change that.
3) The commission as stated at the beginning is not always the commission paid at the end.
Often the buyer and seller are just a bit apart a few times in the transaction.
Sometimes it is at time of offer. Let’s say the Asking Price is $519,000 and the buyer offers $490,000 and the Seller won’t go lower than $510,000 and the buyer won’t go higher than $500,000. They can both be unsuccessful and walk away or the agents, if their commissions were set high enough at the beginning, may share the difference equally creating a positive outcome for both the buyer and the seller.
Sometimes it is at the time of the home inspection. The buyer and seller negotiated OK at the outset, but now there are $7,000 of repairs and the Seller will only give $3,000 toward them and the buyer wants them all done. Again, if the commissions were set high enough at the beginning and the agents did not have to contribute anything or too much at the original price negotiation, the agents may split the difference and the transaction will proceed to close.
Sometimes the costs go sideways at the end. Let’s say the seller agreed to pay $5,000 of the buyer’s closing costs, but the costs are $6,500. The seller won’t pay any more than the $5,000 agreed and the buyer just doesn’t have it. Again, the agents can step in to cause the transaction to close by splitting the amount, or one or the other can pay the whole thing.
This is one of the reasons that people say commissions are 6% but NAR says in final calculations they come out to 5.1% on average. Without any budge room, often the transaction fails as agents who gave at the beginning, will not give again at the normal timeframes in the transaction where budge room is needed. Perhaps this “budge room” should be a set aside that goes back to the seller or the buyer in the event that money is not needed. That may create a better scenario than simply cutting things to the bone up front and leaving everyone without a satisfactory recourse as issues arise while the property is in escrow. Just a thought.
Postscript: In comment #44 of , Q-Diddy asked, “Tim & Ardell-Since I’m obviously in the wrong, If I’m the Seller what are the “traditional” percentages?”
Q-Diddy, hopefully the above sheds some light on the right and wrong of “traditional” percentages. It is true that 6%, that being 3% to the agent who represents the seller and 3% to the agent that represents the buyer, are general start points or guidelines. Then based on price of home, how much the buyer or seller are willing to do on their own, how many print ads and out of pocket costs they expect, how much time it takes for them to find a buyer or a property, and many other factors are considered to determine a final commission.
Will it be more than 3% for the buyer agent offered by the seller? Will the buyer then keep some of that and negotiate a lower amount with their agent? Will it be less than 3% for the seller’s agent because they don’t expect print ads or do their own open houses? It is correct that there is a point from which discussions start. But it is not true that companies that advertise a commission less than that start point are the only ones not charging that price.
It is a rare transaction when the buyer and seller do not disagree on something involving money during the transaction. Smart agents pony up and others dig their heels in and say “don’t look at me”. I think a good answer might be for all agents to negotiate a “set aside” amount within their commission to be used at time of negotiation or time of inspection or the day of closing, and for that money to be returned to their respective clients in the event it is not needed. Problem is, if you tell people they “may” get it back…they will want it back, and then the set aside will become worthless to resolve issues during the transaction.
One could probably write a book on real estate commissions with thousands of anecdotal examples of what worked out well and what didn’t. Personally I find a round number flat fee works best as it is not price driven. But I have to admit then when I cut it to the bone from the get go, I still have to make concessions in order for most transactions to close, as Tim points out and sees at the escrow phase. I don’t think anyone has all the answers yet, but I do know that there is no such thing as 6%…or at least there shouldn’t be. No one should be paying that to one agent, just because they are the only agent in the room.
How much an agent will charge, often depends on how much they have to pay to their broker. So before negotiating a commission with an agent, ask that question. How much do you pay your broker from what I pay to you? Often you can negotiate a better price from an agent who pays the least amount to their broker. Yet almost no one asks that question.