The Big Illusion About Real Estate Commissions: Buyers, Not Sellers, Are Footing the Bill

You’ve decided that you want to buy a house, so you do what nearly every person does in the age of technology – you get online. Once you’ve done some browsing and have ideas about what you want, you begin your search for the right buyer’s agent. Of course, one question you ask is, “How much will it cost me to have you represent me as a buyer’s agent?” The answer you will hear is, “It won’t cost you a thing. The seller pays my commission.”

So, you choose an agent you like, find a new home, and live happily ever after.

Except, that the answer you were given is not the truth! Whether you realize it or not, and whether your agent understands it or not, you, not the seller, will pay your realtor’s commission. Even more importantly, you will also be footing the bill for the seller’s agent’s commission as well.

How Can This Be?

Most initial reactions to this last paragraph are similar. Incredulous. Disbelief. Dismissive. A combination of all of these and more. That’s because for years and years, as long as most people can remember real estate transactions, we’ve been told that the seller pays the fees. Even the seller feels this is true, so it isn’t surprising that most people think this claim of the buyer paying the commissions is off-base when they first hear it. However, once the statement is made, many wonder how the claim can be made and how it might pertain to them.

To really understand, let’s look at one very important question that will get your mind thinking in the right direction. The question has a simple answer, but can offer a profound realization:

Who is the only person at the closing that brings any money to the table?

This first question leads directly to a very important second question:

If the buyer is the only person with money, how can the seller be footing the bill?

Walking You Through the Logic

Jane sells a house using a traditional realtor who charges a percentage-based commission. Jane and her realtor sign a listing agreement. This agreement states that Jane will list her home for $400,000, her agent will receive a 3% commission, and the buyer’s agent will receive a 3% commission.

Note here, that this agreement is between the seller and their agent and no one else.

Now, when Jane’s realtor puts her house on the Multiple Listing Service (MLS), the agent will state in the private remarks that the buyer’s agent will get 3%. In essence, the agent has now “contracted” with his fellow agents that if they bring him a buyer, he will pay them a 3% commission.

A buyer’s agent shows the home to a prospective buyer who makes a full-price offer on the home, and Jane happily accepts the offer.

Keep in mind that the buyer had no say in how much their agent earned to show them the house. Although a buyer can negotiate to use a portion of their agent’s commission as a credit towards their down payment, most don’t know they can and few ever do.

But let’s look a bit closer at the selling price of the house. When Jane and her agent established the asking price of the house, they included the $24,000 in agent fees as part of that price. They both knew that of the $400,000 price, Jane would put $376,000 in her pocket and that the agents would put $24,000 in theirs.

At closing, the buyer will bring $400,000 to the table. The seller will take home $376,000 and the agents will split the $24,000. The buyer has paid for the entire deal. To add insult to injury, if the buyer financed their purchase, they are going to pay interest on a portion of the $24,000 commission over the course of the loan, despite being told that they wouldn’t pay a dime.

The truth is that buyers, not sellers, pay the commission and never get a say in the matter about how much either realtor is worth! The contract defining payment terms is never seen or agreed upon by the buyer. Nonetheless, the buyer gets stuck with the terms.

A New Real Estate Model

That’s why Recadia has begun using the new flat fee, full service model of real estate while educating both buyers and sellers about fees and who actually pays them. By doing so, sellers can make more money, buyers can save more money, and everyone walks away knowing the truth about the fees while feeling good about the services received.

When it comes to real estate, the brokers at Recadia understand the true nature of real estate contracts and are willing to share that information with you. In fact, they hope you’ll share it with others because they feel it is important for everyone to understand who is really footing the bill.

To learn more about the flat fee, full service real estate model at Recadia, call us at (214) 281-8500. We’re ready to help you save thousands on the purchase of a home.

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