Inside look at 'divorcing commissions'
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By Inman News, Tuesday, September 9, 2008.Compensation models are one of the more popular topics up for discussion around the real estate industry at any given time. Percentages, flat-fee, a la carte, the list goes on. One topic sometimes overlooked, however, is the origin of compensation -- namely, that the seller pays both the buyer's broker and the seller's broker. Many have argued that this issue needs to be addressed before any other. One such person emphasizing the idea of "divorcing commissions" is blogger and Phoenix real estate broker Greg Swann. Swann recently released an e-book on the topic. The book covers the current compensation structure, its origins, and what could be done to change it -- an interesting read, to be sure.
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Submitted by Jack Spangler on September 10, 2008 - 4:15am.
I believe the business model changes with the area one is working. I do believe we are in a changing time of commissions and no set rule continues to work and the divorcing of commission is something my company is trying to implement with little success as a pioneer.
Submitted by Stephen Graham on September 10, 2008 - 5:25am.
Unless buyers are willing to pay their brokers upfront and out-of-pocket, then the current commission structure will remain. I can't imagine that buyers would be willing to do this on any grand scale.
Finally, if you remove the incentive of a commission, then what motivation is there for the buyer's broker to actually find a house and close it out?
Submitted by Ruthmarie Hicks on September 10, 2008 - 10:11am.
It's an interesting issue. Divorcing the two sides would help buyer's agents get their fair share. I am primarily a buyer's agent and I have been finding that listing agents, when pressured to reduce commissions tend to reduce the coop to the buyer's agent - which is NOT in the seller's best interests. They get away with it because most seller's don't understand that the split between the brokerages doesn't necessarily have to be 50:50. Now, listing agents have more up-front risk, but buyer's agents have far more legwork and time into each deal. With the coops I'm seeing right now that is becoming a BIG problem. The margins are just too skinny. I'm fighting back by demanding "X" and then negotiating that into the deal. I don't know what kind of conversation this results in between the listing agent and the seller, but if it forces them to confess that they kept the lion's share for themselves - I'm glad.
But here's the problem:
Buyer's have it built into their DNA that their side is "free." You also have buyers who are selling a property to buy another. These people don't want to hear that even though they are paying a buyer's agent for the sale of their own home that now they have to fork up to have a buyer's agent represent them when they buy. That means they are paying for a buyer's agent TWICE! As long as some brokerages are doing it the "old fashioned way" its going to be like pulling teeth to change the way things are done.
In the end, the money is available at the closing table. So no matter how the pie is sliced, the result is the same. If buyer's pay independently for representation, it will lower the sale price appropriately. The whole thing becomes a zero sum game.
Submitted by Commercial Mortgage Loans - Privately Funded - MasterPlan Capital LLC on September 10, 2008 - 11:30am.
It's way to hard to collect any kind of commission (mortgage or RE)outside of the close.
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Submitted by Dan Connolly on October 19, 2008 - 9:10pm.
The idea that the Seller pays the commission is kind of short sighted when you stop and consider the fact that the Buyer brings ALL OF THE MONEY to the closing table. So in a way they are both paying the commission, with the current model. That is why, in my opinion, we don't need to change anything.
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