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| Open to Interpretation: Who Funds Commissions? |
In theory, Buyers are almost never charged a dime for Realtors' commissions when using an agent to buy a home.
But in practice, Buyers almost always are the party who brings the money to fund commissions for both the Sellers real estate agent and the Buyers agent.
Here's the deal:
In almost all transactions where there is a real-estate company sign on the lawn, the Sellers have likely "hired" a Realtor to be their agent and List the home for sale. As part of the Listing Contract with their Listing Agent, the Sellers will most likely agree to pay a commission to the Listing Company when the house sells.
The amount of the commission the Seller pays the Listing Company is completely open to negotiation. By law, there is absolutely No Fixed Rate for real estate commissions. But for a well-tested examples' sake, lets say Seller agrees to pay a 6% commission to the Listing Company/Agent for handling the sale of the house.
So now, when Seller and Listing Agent figure on price, and the amount of money the seller must take away from the deal, this 6% commission essentially becomes a pass-along cost to the buyer. While the settlement sheet may indicate clearly that all commission comes from Sellers' proceeds, there would be no proceeds and no commission if it weren’t for Buyers providing the money.
Since so many - if not a vast majority of home transactions in our area have had the sellers' commission cost applied to the final price for decades – a commission upcharge has become a built-in element that accordingly raises home prices across the region. If comparable sales say a home's market value is $350,000, it is likely that nearly every one of those comparable sales included a commission payment.
Before we summarily blame and execute Realtors for raising home costs, please consider that Realtors offer essential market-making services to both buyers and sellers and can be seen as the lubricant,or critical engine-oil, that allows transactions to process efficiently. I believe there is inherent value in what Realtors bring to the marketplace and the burden our efforts does indeed add to home prices.
But where I find things get interesting is anytime a Seller is not committed to a situation like the one described in the above example, where a 6% Listing commission was negotiated to be due at settlement. If this described Seller instead went FSBO (For Sale By Owner and 0% commission), or else partial FSBO, agreeing only to compensate a buyer’s agent 3%, then this Sellers' total commissions due might be 0% or only 3% . On this FSBO home that hypothetically sold for its market value of $400,000, that’s $24,000 in proceeds to seller, for which buyer can, could or should request get a chunk! Of course, from Sellers’ perspective, Seller has invested energy and risk in bypassing a full-service Listing arrangement and can lay claim to the proceeds.
Just as there are no established rules or guidelines regarding commission percentages between home-sellers and Realtors, there are no presets regarding how proceeds may be shared when savings on commission occur. Whether or not a seller should pocket all commission savings, is a worthy point of negotiation I would urge buyers to pursue (and sellers to defend against! :).
For Legal, Anti-Trust Reasons, R5Realty.com cannot stress strongly enough that there are absolutely no fixed standard rates/practices regarding fees and commissions for Real Estate brokergage services in Pennsylvania. Everything is, legally, 100% open to negotiation and figures cited above are for illustrative and example purposes only. With that said, like any business service or relationship, when you pay less there is oftentimes an appropriate discount in quality and results.
