Is refusing to cut commission worth blowing the deal?

  • There are times where it makes sense to negotiate and even cut your commission, and one of them is when it's a win-win for all parties involved.

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There are times where it makes sense to negotiate your commission. This can be requested by the buyer, seller or their Realtor.

For example, if the buyer and seller are negotiating the price and find themselves $10,000 apart, and the agent’s commission is $30,000 on each side, taking $5,000 off each agent’s commission could save the transaction.

This is a win-win.

The sellers are happy because their home is now in escrow, the buyers are happy because they now have the home they want in escrow, and the Realtors are happy because they now have a $25,000 commission coming to them versus nothing.

I have seen this suggested by sellers, suggested by buyers and sometimes as agents, we suggest it. It is not something we do on a regular basis. We try to let the buyer and seller come to terms without a commission reduction, but when all else fails, it is a great way to save the deal.

Bad feelings and a bad attitude

Unfortunately, I have seen some strong negative feelings from some agents about this.

For example, in one situation the seller suggested he would take the offer if the buyer’s agent would lower the commission to match what we were getting paid. The total commission the seller was offering to the buyer’s agent was $50,000, which in my opinion is a lot of money.

However, the buyer’s agent was so upset at the idea of reducing commission that he threatened to file an ethics claim. After investigating it with some experts, it was determined that what the seller was doing was perfectly acceptable, and there were no ethics issues involved.

The bottom line was we were still in negotiations, and everything could be negotiated, including the commissions.

I was shocked at the buyer’s agent response. Right now, if the average home price in the U.S. is $188,900; at 3 percent, the commission to an agent would be $5,667.

So, to me, an agent being so furious at being offered almost 10 times the average commission was surprising. Had the property cost a lot less they would have ended up with less commission and been 100 percent satisfied, yet the work involved would be roughly the same.

In another situation, the seller negotiated the commission right up front by saying in the MLS he would pay $100,000 to the buyer’s agent for a home listed at $5,450,000.

I was shocked when one agent said that some buyer’s agents might not show the property with this reduced commission. Yes, the commission was substantially less than the standard 3 percent, but $100,000 is a huge commission that I believe most agents would be very happy to receive.

A black eye on our industry

In my opinion, this type of attitude about the commission is a real black eye on our industry. We must be very careful with this attitude too.

In 2005 the National Association of Realtors was sued by the Department of Justice for violating the Sherman Antitrust Act. Here is the settlement summary as displayed on the United States Department of Justice Website.

“Under the Final Judgment, NAR repealed the policies challenged by the United States and replaced those policies with rules that do not discriminate against innovative brokers who use the Internet to provide high-quality, low-priced brokerage services to consumers.”

Mentioning that agents won’t show a property because of a reduced commission seems to go against the spirit of the NAR settlement.

Our Code of Ethics states:

“Standard of Practice 3-2 does not preclude the listing broker and cooperating broker from entering into an agreement to change cooperative compensation.”

So, there you have it. There can be an agreement to change the commission.

Please keep this in mind the next time you have a deal where the seller and buyer are close, but can’t quite reach an agreement on the price. You may want to consider a commission reduction as a winning solution for all parties.

Bryn Kaufman is the creator and principal broker of OahuRe.com. You can follow him on Facebook and Twitter.

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