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Hmmm. I'm not sure what they are talking about is what you are talking about. The sliding scale you are talking about has a condition that changes the formula with the price of the offer being a condition.
For example, it is common to see in my MLS, the compensation formula (or some variation of such)... 3% on the first $200,000, 2% on the rest. That is a very common sliding scale especially as home prices go up. That is a clear cut formula that doesn't have the final sales price as a condition for the formula. Whether there is a final sales price of $250,000 or $300,000 the formula stays the same.
I don't think offering a 2.5% commission, or whatever, and then dropping the commission a $1 for every $2 drop in price would pass the conditional test rule because the final sales price is a condition for the calculation of the formula. The formula can be anything you want it to be, but it has to be a non-conditional formula.
Now the listing agent can slide their formula anyway they want. There are no restrictions there, but what the agent offers the buyer does have restrictions.
Apologies for necro-posting here (I see that this thread is about seven years old), but it came up in a google search and the topic remains relevant today.
Would love to direct message with @Illtaketwoplease if you're open to that (appears disabled for me here)...
It is unreasonable that the principal-agent model in the real estate industry does not realize the same flexibility in commission structures that are found in other industries. That is, sliding-scale commissions (or tiered commissions) are commonly used in other industries.
While slightly different from what Illtaketwoplease proposed (the ~98% Dollar for Dollar structure), it seems like the following would align a Listing Agent's interests more closely with the Seller:
Seller and Agent agree to a High Target and Low Target sales price, where the former is the price at which the agent is confident he can sell the property, and the latter is the Seller's floor price.
The Listing Agent's commission rate is a function of the sales price, using a low % and high %, for example (Listing Agent shares this with Buying Agent):
- if selling price is at the Low Target: 2% is paid to the Listing Agent
- if selling price is at, or above the High Target: 5% is paid to the Listing Agent
- if selling price is between Low and High: some variable amount between 2%-5%
Clearly, 2% commission is on the low end, motivating the agent to achieve the High Target (perhaps 1% should be used). And, of course, the Listing Agent will likely be forced to offer the Buying Agent a fixed percentage, e.g. 1.7%, meaning the Listing Agent only earns 0.3% if the Low Target is realized, but gets all of the benefit if the High Target is realized.
Seems reasonable, yes?
Of course, the only agents that would accept this structure are young, newly licensed agents that are eager to start their own firms. It seems unlikely that established agents, or firms, would accept this, or allow it to be adopted industry-wide.
Thoughts?
BTW: since the market already expects a Seller's price to accommodate the Seller paying a Listing Agent commission that is shared with the Buying Agent, it's not worth debating the pros and cons of the Buyer paying the Buyer's Agent versus the Seller doing so.
Well Craig it is not reasonable because the seller chooses the offer and the agent has no say in the matter.
There are plenty of flat rate or menu of services vs full service brokerages models to choose from.
I used to be a builders go to realtor, 1% for full service on the listing and I’d get 3% of the base price on the buy. It is not an exaggeration to say I sold dozens of these type of listings every year. Then I started to decline the opportunity when the buy side compensation became lower and lower. Either I am worth it or not.
Since there is no crystal ball, you cannot tell me where in the transaction it will become difficult. Nearly all of them get sticky at some point because you are working with principals with their opposing agenda, service people like appraisers, inspectors, title and lenders that get sick, go on vacation, get let go……
Also the government backed mortgage products do not allow for the financing of buyer agent compensation. So if the buyer cannot pay out of pocket, do they also forego the service?
The buyer doesn't pay commission to the buyer's agent. The buyer's agent is paid a cobroke fee - a share of the Listing Agent's commission...same model that exists now.
The buyer doesn't pay commission to the buyer's agent. The buyer's agent is paid a cobroke fee - a share of the Listing Agent's commission...same model that exists now.
It's a buyer cost, certainly.
"Pay" is a misdirection play.
Not that I have given much thought to it but I believe the commission should have a sliding scale based on sale price. Let us say 6% up to $200K, 5.5% $200K to $250k, 5% $250K to $350K, etc. The higher the sale price, the lower the commission rate.
The sliding scale that you describe doesn't motivate the agent to get the High Target price (the price that the agent communicated, to the seller, that can be confidently achieved).
Why offer a decreasing incremental benefit to the agent as the price increases? Doesn't that demotivate the agent to pursue the highest price?
Last edited by craigm131; 11-07-2021 at 12:13 PM..
Not that I have given much thought to it but I believe the commission should have a sliding scale based on sale price. Let us say 6% up to $200K, 5.5% $200K to $250k, 5% $250K to $350K, etc. The higher the sale price, the lower the commission rate.
I like the part about paying more dollars on a $250,000 transaction than a $260,000 transaction.
Inverse inducement.
All this would be great if agents controlled sales price and got to choose listing price and the contract the seller took. Since we don't, why should an agent be penalized (or rewarded) based on the sellers decisions?
Also, you all still seem to ignore that when the listing is a %, sellers do pay less when the sales price is lower (or more when it's higher).
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