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I've got that one covered and it rewards the buyer's broker for his motivation and negotiation skills in getting the buyer the absolute lowest possible price, although I would prefer to call him or her a buyer's representative as he would truly be representing only the financial interests of his client. As it stands today real estate appears to be the only industry where a client's interest is at cross purposes with his agent's and the agent is actually disincentivized for getting his client a better price.
A base asking price is determined, probably the lowest offered price within the previous six or twelve months unless substantial changes have been made during that period which must be addressed individually.
Using the same $800,000 listing price as the base price in an area where 6% total commission is the norm: Contract between buyer and buyer's agent pays 1 1/2% of sales price plus 30% of difference between base price and a lower selling price. If house sells for $750,000 pay is $11,250 plus $15,000 for total of $26,250, an increase over the $22,500 a straight 3% would yield. Contract with buyer's agent would state that all commission payments required by listing agreement would be deducted from the formula payment.
In this scenario, the buyer gets a $50,000 discount; his agent gets an additional $3750 and buyer's additional compensation to his agent is the same $3750, presumably vastly offset by the savings garnered by the agent's diligence and skills.
Variations could include a 1% fee plus 40% on the savings or 2% and 20% on the savings.
Start the howling now...
So in a hot market with multiple offers the buyer is going to make sure that their agent doesn't get paid well to help them get a house?
You don't think the above scenario is well paid? just how much more would you require to feel it was enough in the above scenario?
I'm looking for actual numbers not the reasoning behind it.
Numbers like that don't matter for buyers agents in hot markets because the sellers have the advantage. So, you are a buyer agent. Your buyers are stacking up because there is so much competition for homes that it takes 4-5 offers to win a house for a client. You are working harder and making less per hour in seller's markets when representing buyers.
So a consumer comes up to you and wants you to agree to that payment plan. You know that you have to go over list price to have any kind of shot of getting that buyer a house. So, you choose to not work with that consumer because you can make more money with a buyer using a traditional system of payment.
The math will come out in the buyer agents favor in hot markets.
OP's scenario
Using the same $800,000 listing price as the base price in an area where 6% total commission is the norm: Contract between buyer and buyer's agent pays 1 1/2% of sales price plus 30% of difference between base price and a lower selling price. If house sells for $750,000 pay is $11,250 plus $15,000 for total of $26,250, an increase over the $22,500 a straight 3% would yield. Contract with buyer's agent would state that all commission payments required by listing agreement would be deducted from the formula payment.
Hot market scenario
Using the same $800,000 listing price as the base price in an area where 6% total commission is the norm: The house sells for $900,000 in multiple offers. So instead of making $27,000, the buyer agent gets nothing because the buyer is working off a scenario based on savings rather than market realities. How long do you think that math will hold out for a buyer agent?
The median home price in the US is $188,900. So for ease of math, let's say the base price is $185,000 using the OP's payment system...
The house is listed at the median of $188,900 and sells for $185,000 because there is a lot of competition in the affordable house price range so there is less negotiating room. So the agent makes $2775 from their 1.5%. The difference is $3900 so they make an additional $1170 saving the buyer $2730. So they make a total of $3945 with the OP's payment system. Let's say they are on a 70/30 split with their brokerage so they get to take home, pre-tax, pre-expense, $2761.50. It took the agent three months to get that client a house from first meeting to close of escrow. So that agent made $920.5 a month.
With the current system, they would make $5550 pre-split. That is $3885 post split, pre-expense, pretax. They would make $1123.50 more. So if it took an agent three months to get that client from first meeting to close of escrow that would mean they earned pre-taxes and expenses $1295 a month.
The problem with using such large numbers is that most markets aren't that high priced. Using scenarios that are more realistic is a better way to look at real estate markets and compensation, IMO.
My opinion stands. In a hot market or even neutral markets, there is no incentive to work with that compensation plan as a buyer agent.
Determining that base price would be a bear as well, too subjective.
Where are the previous offered prices available to the buyer and buyer's agent?
Quote:
Originally Posted by SVTLightning
You don't think the above scenario is well paid? just how much more would you require to feel it was enough in the above scenario?
I'm looking for actual numbers not the reasoning behind it.
Yep. I'm looking for actual numbers, too.
Where does one get the previous offer amounts? If that is the baseline contemplated to calculate a compensation, shouldn't those figures be available?
Where are they?
I sold a listing recently with 4-5 offers. No one knows what the losers offered, only what the buyer paid, which may or may not be what he offered. No one knows how many offers there were.
And, no one knows the full terms of sale, which often trump offer amount.
Pegging compensation to list price is a green rookie idea.
List price is not pegged to anything but mood or strategy, and often is below market value to engender multiple offers.
I'll be putting mine on the market, FSBO, in the coming weeks. I'm pricing it to sell, but my only reason to want to sell is I no longer wish to live in Alabama. If it doesn't sell, then i stay longer. I'm motivated, but not THAT motivated.
My plan is to let sellers agents know that I will not speak with them. A buyer agent is welcome, and be negotiable. If they put in the leg work to bring me potential buyers and make some arrangements, I"ll be glad to give them a reasonable cut, no more than 2%. And that is LESS bargaining power their buyer will have.
I'm pricing it PLENTY high enough for the number I want, but less than comps, and only showing an appreciation rate of 5% since I bought 11 years ago. Pitiful, but it's the state of affairs we have.
Paint is dry, carpet is installed. Got some landscaping/curb appeal stuff to do, and we are on the market.
Good for you! It is way past time to bring the commission greed under control and only pay a reasonable fee. But why would you pay the buyer's agent when it is buyer who employes them?
It is laughable that a comparison is made to a Christie's auction as I think most people see the average commissioned sales work along the lines of a used car salesperson. Education requirements are more similar. Also, who gives a hoot who the sales people chose to split their commissions with? It is just a tired old excuse to they claim they aren't getting paid enough. No one forced them into commissioned sales so how is it anyone else's problem?
Our equity belongs to us and we decide who, if anyone, we will share it with. Why would anyone want to give away what is equivalent to, for some people, a year's pay to fill out a form? This especially true for people near retirement as no one knows what the future will bring.
Good for you! It is way past time to bring the commission greed under control and only pay a reasonable fee. But why would you pay the buyer's agent when it is buyer who employes them?
It is laughable that a comparison is made to a Christie's auction as I think most people see the average commissioned sales work along the lines of a used car salesperson. Education requirements are more similar. Also, who gives a hoot who the sales people chose to split their commissions with? It is just a tired old excuse to they claim they aren't getting paid enough. No one forced them into commissioned sales so how is it anyone else's problem?
Our equity belongs to us and we decide who, if anyone, we will share it with. Why would anyone want to give away what is equivalent to, for some people, a year's pay to fill out a form? This especially true for people near retirement as no one knows what the future will bring.
Exactly. I dont care that these agents have heartbleeding stories about how long it takes them to close on a house and how many bills they have to pay. They chose to go into this line of work and they merely provide a convenience factor. What other industry asks you to ditch out $10k+ for a convenience factor??? Ive owned my home for 2 years now and have paid in about 15k of equity, but guess what...if I were told to relocate for work Id have to sell my home and lose all equity....to the realtors. Im sorry if you guys think you provide some magical service but with the increasing tech around us you may want to start looking for a new line of work...
Numbers like that don't matter for buyers agents in hot markets because the sellers have the advantage. So, you are a buyer agent. Your buyers are stacking up because there is so much competition for homes that it takes 4-5 offers to win a house for a client. You are working harder and making less per hour in seller's markets when representing buyers.
So a consumer comes up to you and wants you to agree to that payment plan. You know that you have to go over list price to have any kind of shot of getting that buyer a house. So, you choose to not work with that consumer because you can make more money with a buyer using a traditional system of payment.
The math will come out in the buyer agents favor in hot markets.
OP's scenario
Using the same $800,000 listing price as the base price in an area where 6% total commission is the norm: Contract between buyer and buyer's agent pays 1 1/2% of sales price plus 30% of difference between base price and a lower selling price. If house sells for $750,000 pay is $11,250 plus $15,000 for total of $26,250, an increase over the $22,500 a straight 3% would yield. Contract with buyer's agent would state that all commission payments required by listing agreement would be deducted from the formula payment.
Hot market scenario
Using the same $800,000 listing price as the base price in an area where 6% total commission is the norm: The house sells for $900,000 in multiple offers. So instead of making $27,000, the buyer agent gets nothing because the buyer is working off a scenario based on savings rather than market realities. How long do you think that math will hold out for a buyer agent?
The median home price in the US is $188,900. So for ease of math, let's say the base price is $185,000 using the OP's payment system...
The house is listed at the median of $188,900 and sells for $185,000 because there is a lot of competition in the affordable house price range so there is less negotiating room. So the agent makes $2775 from their 1.5%. The difference is $3900 so they make an additional $1170 saving the buyer $2730. So they make a total of $3945 with the OP's payment system. Let's say they are on a 70/30 split with their brokerage so they get to take home, pre-tax, pre-expense, $2761.50. It took the agent three months to get that client a house from first meeting to close of escrow. So that agent made $920.5 a month.
With the current system, they would make $5550 pre-split. That is $3885 post split, pre-expense, pretax. They would make $1123.50 more. So if it took an agent three months to get that client from first meeting to close of escrow that would mean they earned pre-taxes and expenses $1295 a month.
The problem with using such large numbers is that most markets aren't that high priced. Using scenarios that are more realistic is a better way to look at real estate markets and compensation, IMO.
My opinion stands. In a hot market or even neutral markets, there is no incentive to work with that compensation plan as a buyer agent.
Determining that base price would be a bear as well, too subjective.
Thanks for such a long and informative post that didnt really answer my question. You replied to the other poster that in his scenario the realtor lol wasnt going to be well paid. so again I simply ask using the above scenario what would be well paid in your opinion.
Im just trying to wrap my head araound what realtors lol really think they are worth. If its not a question you dont want to answer I understand that, no one wants to be broadcasting to the forums that they are greedy lol
How much more do you think makes an agent well paid for one transaction.
Yep. I'm looking for actual numbers, too.
Where does one get the previous offer amounts? If that is the baseline contemplated to calculate a compensation, shouldn't those figures be available?
Where are they?
I sold a listing recently with 4-5 offers. No one knows what the losers offered, only what the buyer paid, which may or may not be what he offered. No one knows how many offers there were.
And, no one knows the full terms of sale, which often trump offer amount.
Pegging compensation to list price is a green rookie idea.
List price is not pegged to anything but mood or strategy, and often is below market value to engender multiple offers.
Lowest price offered for sale; the lowest listing price. Previous buyers' offers are irrelevant as they can be all over the board. Sorry for the confusion.
Numbers like that don't matter for buyers agents in hot markets because the sellers have the advantage. So, you are a buyer agent. Your buyers are stacking up because there is so much competition for homes that it takes 4-5 offers to win a house for a client. You are working harder and making less per hour in seller's markets when representing buyers.
So a consumer comes up to you and wants you to agree to that payment plan. You know that you have to go over list price to have any kind of shot of getting that buyer a house. So, you choose to not work with that consumer because you can make more money with a buyer using a traditional system of payment.
The math will come out in the buyer agents favor in hot markets.
OP's scenario
Using the same $800,000 listing price as the base price in an area where 6% total commission is the norm: Contract between buyer and buyer's agent pays 1 1/2% of sales price plus 30% of difference between base price and a lower selling price. If house sells for $750,000 pay is $11,250 plus $15,000 for total of $26,250, an increase over the $22,500 a straight 3% would yield. Contract with buyer's agent would state that all commission payments required by listing agreement would be deducted from the formula payment.
Hot market scenario
Using the same $800,000 listing price as the base price in an area where 6% total commission is the norm: The house sells for $900,000 in multiple offers. So instead of making $27,000, the buyer agent gets nothing because the buyer is working off a scenario based on savings rather than market realities. How long do you think that math will hold out for a buyer agent?
The median home price in the US is $188,900. So for ease of math, let's say the base price is $185,000 using the OP's payment system...
The house is listed at the median of $188,900 and sells for $185,000 because there is a lot of competition in the affordable house price range so there is less negotiating room. So the agent makes $2775 from their 1.5%. The difference is $3900 so they make an additional $1170 saving the buyer $2730. So they make a total of $3945 with the OP's payment system. Let's say they are on a 70/30 split with their brokerage so they get to take home, pre-tax, pre-expense, $2761.50. It took the agent three months to get that client a house from first meeting to close of escrow. So that agent made $920.5 a month.
With the current system, they would make $5550 pre-split. That is $3885 post split, pre-expense, pretax. They would make $1123.50 more. So if it took an agent three months to get that client from first meeting to close of escrow that would mean they earned pre-taxes and expenses $1295 a month.
The problem with using such large numbers is that most markets aren't that high priced. Using scenarios that are more realistic is a better way to look at real estate markets and compensation, IMO.
My opinion stands. In a hot market or even neutral markets, there is no incentive to work with that compensation plan as a buyer agent.
Determining that base price would be a bear as well, too subjective.
It's frequently been said that "all real estate is local." That would certainly need to be taken into consideration when a fee schedule is determined, that's why I had listed three possible scenarios as examples, not as the only possible plans that would reward a good agent for actually saving his/her client money. Unanswered once again is why should an agent be paid more of a commission when their client must pay more for a given property - that's opposite the way business is conducted in every other industry.
Confident, capable negotiators deserve to be rewarded for their success rather than hiding behind a meaningless average monthly income calculation. Resistance to change is not a valid reason for maintaining the status quo; the worst reason to continue a process is "because that's the way we've always done it."
1-Agents are optional, not necessary.
2-Agents aren't evil.
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