This is a stupid subject. This is a necessary subject. There are a lot of different viewpoints on this subject. A lot of the viewpoints that seem to matter came from lawyers, court decisions (judges who are also lawyers), and other people who are also wrong.
Back in the days when it was sub-agency only and I took my sister, Diane out to find her a house to buy I was representing each and every one of the home sellers whose property I showed to my sister. I was not legally representing my sister, Diane – I was legally representing various random strangers (most of whom I never even met). Did it make sense back then to have it be required by law for me to disclose my relationship with my buyer to “my seller”? Yes. Today, agents are still required to disclose their relationship to the buyer? Why? Who is now being protected by this disclosure? If I take a listing now to sell Diane’s house am I going to give her “better agency” than I do my other clients? But I still have to put in the listing my relationship with Diane. Same deal if I were to sell her a house today. But today she would be my “client”, either as a buyer or as a seller. Who we represent is already a disclosure issue. This is just one example of the nonsense that passes for “important agency issues”.
The seller used to pay all the commissions directly. The listing signed by the seller via the listing broker required the seller to pay them – but that payment went directly (in a legal sense) from the seller to the respective agents (via their brokers). This was changed here in Arizona some years back to having the listing broker being made responsible for paying the selling (cooperating agent) bringing the buyer to closing. This was designed to prevent the seller (and / or buyer) from including the agents commission amounts as part of their offers or counter offers.
So I list a house and the seller agrees to pay me “X” amount of dollars. Say, for example, I charge the seller 6% and in my listing agreement provide that I will pay 3% (I’ll use these particular numbers as they are what I charge and pay).
Now, I owe the other agent the 3% – not the seller. I do think this is better, as it actually protects my seller from an agent “bringing a ready, willing and able buyer” with an offer that my seller chooses not to accept. As the commission is now “owed by me” – and NAR rules (now, they didn’t used to) protect me, in that I only owe commission on a transaction that actually closes.
But I am still paying the commission with the seller’s money. Anyone who thinks the buyer pays the commission is simply wrong. That group may be half the people reading this – oh well. If the buyer was factually paying the commission then the amount of the commission would be shown on the HUD 1 in the buyer’s column and there would be an allowance made for the commission amount in Fannie Mae and Freddie Mac appraisals. I would think that the Marshall & Swift appraisal handbook would also include a break out showing the amount of weight being given to the commission.
FSBO sellers can get their home appraised for the same amount as a seller who is paying an agent a commission. It makes no difference if the seller pays a broker $500 for doing the paperwork or 8% for listing and selling his property. So it is still the seller who hires an agent and pays the agent(s). Buyers (at least this is true in residential sales) do not “pay commissions”. Sellers pay commissions directly to or via listing brokers. It really is beside the point, “how it ought to be” and how terribly unfair it is that buyers should be able to hire their own agent and set a commission amount with that agent, blah blah blah. It isn’t the way it is and I don’t expect it to become the way it is going to be anytime soon.
Commissions are paid by sellers directly to or via listing brokers. This the way the world works. And it is the way the world is going to continue working for a long time to come. Even if the “we need one big national MLS” morons were to succeed in their pointless goal (pointless and precisely of NO benefit to the working Realtor) and set it up so the MLS could be “nationalized” or taken over in some federal court. If you think what happened to AT&T (for all young people – we used to have ONE phone company in the United States) could not happen to Realtors in reverse (get it unified and then get the federal government to “open it up to everyone”) – nothing would change. Sellers would still be paying commissions and (don’t worry, fellow Realtors) all the smart brokers would withdraw from the “big national MLS” and form their own MLS and once again, offer co-broke commissions to buyer agents who brought them an acceptable offer.
Just an aside on the national MLS issue – and then I will get right back to the most important issue ever, in the history of the world, AGENCY.
There are now over 900 different MLS systems that send their data 3 – 5 times a day to Realtor.com. Realtor.com is able to inflow all of these different MLS versions (different forms, different customs in different areas) and manages to produce pages that look consistent for every area of the country. I’m not saying we do, but if Realtors needed a “national MLS” – we already have one in Realtor.com. The people pushing the “national MLS” are either intending to sell the hardware / software, the service itself or want to get the government to “open it up to everyone”. Yes, what we have is like trying to herd cats, but the current system – flawed as it may be – is our best defense.
Now, back to our regularly scheduled program!
I think I may have mentioned that sellers are the people who actually pay commissions. When a seller hires me to sell their home what they want me to do is (stand by for a big surprise) SELL THEIR HOME. Sellers will hire an agent who they think “has a lot of contacts” or does a lot of effective marketing. My seller WANTS ME TO SELL THEIR HOME TO A BUYER I ALREADY HAVE – this is THE very thing they are hiring us to do. When we tell them we have over 4,000 potential buyers on our new properties email list they never ask “well how will agency work if you already are working with the buyer?”
This is THE reason sellers pick their broker in the first place. Skip all the crap about agency – sellers want their home sold for the highest possible price. Sellers don’t “feel betrayed” if we tell them that our buyer is a past client of ours. In fact my sellers are thrilled as we charge them less commission if there is no co-broke fee being paid. Instead of my client paying 6% they are now going to pay 4%, if we can find the buyer.
Article 1 of the Code of Ethics – fully enforced, regardless of “agency relationship” is all that is really needed.
Article 1
When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors? pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve Realtors? of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, Realtors? remain obligated to treat all parties honestly.
Jonathan Dalton says:
Well stated, Russell, on everything from the pointless quest for a National MLS to who pays the commissions to dual agency being a viable option in some transactions.
Couldn’t have said it better myself, although I certainly have tried.
November 18, 2006 — 6:05 am
John K says:
Hello.
Thanks for the post, it was helpful.
Sort of off-topic, how does it work in your office when it goes from co-broke at 6% to in-house at 4%?
What would be the effect on the agent’s final split?
Say your company had to do a co-broke, you you as seller’s brokerage ended up with 3%. Assume the agent who sold the home was on a 50% split – so the agent would end up with 1.5%.
Now, if you do a direct sale, the total commission goes down to 4%. If you are on a 50% split, will the agent end up with 2%?
That make sense, just wanted to make sure that’s the way it is.
John
November 18, 2006 — 11:59 am
Doug Quance says:
Although you make some good points, Russell… I’m not yet sold.
Does Arizona not have Designated Agency?
Do the agents on your team not specialize in sellers and buyers, respectively?
In Georgia, I can list a home… and another agent in our brokerage can represent the buyer – and true Dual Agency does not exist (well, it does in the strictest sense… at the Designated Broker level).
This way, the Buyer’s Agent does not possess the intimate knowledge of the Seller… and the Listing Agent does not possess intimate knowledge of the Buyer.
The goals and objectives of Buyers and Sellers are not occasionally at odds with each other – they are often consistently at odds with each other. The Buyer wants to purchase a property at the lowest price – and the Seller wants to sell at the highest price.
A single agent representing the interests of both of these parties can not, by definition, do so to the fullest extent. They can only do so to a limited extent.
Dual agency is like being charged with a crime… and allowing the Prosecutor to represent you.
November 18, 2006 — 5:26 pm
Jeff Brown says:
Russell – I read your post to my wife and she chuckled all the way through it. She’s now a big time fan, as am I.
Keep callin’ ’em the way you see ’em. I don’t feel like the lone voice in the wilderness any more.
Dual agency just isn’t a big issue.
November 18, 2006 — 7:25 pm
Jonathan Dalton says:
I can answer, Doug … still working through the above posts so Russell may have done so on a subsequent post.
>In Georgia, I can list a home… and another agent in our brokerage can represent the buyer – and true Dual Agency does not exist (well, it does in the strictest sense… at the Designated Broker level).
Everything’s still at the brokerage level, so this still would be dual agency and the two agents would be very much limited in what they’re able to recommend. Even if the agents have never met, don’t even know the other exists until a house is show, we’re not able to make a recommendation on price or any other factor since both buyer and seller are represented by the same broker.
November 19, 2006 — 5:23 pm