the need(?) for a real estate agent?

General Real Estate Investing
21

Robb,

Here is the way I see it.

It is well understood that there is a difference of opinion on who pays the realtors commission, so let’s look at the numbers.

Seller wants $100K for his house and lists with a realtor. The realtor says his commission will be 6%, thus the house will be listed for $106K.

Buyer buys house and pays $106K. Seller pays realtor their $6K commission out of the total amount the house sold for from the buyer’s funds.

Agreed the seller does pay the commission, however since realtors are held to a higher standard, if they were to tell a seller the buyer pays the commission this would be a half truth unless they fully disclose that the commission came from the buyers funds so the seller can pay the commission.

If someone can show us that this is not the way it happens, please show us how it is done based on the figures above?

John $Cash$ Locke

22

I still believe it is a “contract issue”:

Who has the contract to pay the Realtor? SELLER

Who gets hauled into court if the Realtor doesn’t get paid? SELLER

Who does the Realtor have a fiduciary liability to: SELLER

Whose side of the HUD-1 does the commission show up on: SELLER

Seems relatively simple to me still…

Keith

23

Keith,

It is not who paid for the Kool Aid, it is who payed for the ingredients in the mix.

John $Cash$ Locke

24

Well, drink up, then!!!

Hope it’s grape…that’s our favorite!!!

Keith

25

LOL…

John $Cash$ Locke

26

Sorry Keith I respectfully disagree. I appreciate that you are generalizing, but in many markets buyers can and often do pay realtor commissions. When an exclusive buyer agency is created the agent’s feduciary responsibility is with the buyer. It’s contractual. It is also possible for the agent to collect ONLY a consulting fee. Irregardless of who pays the commish, buying a property is a negotiation and its result is generally equitable to both parties. Sometimes we trip over nickels to get to dollars. You know, you probably shouldn’t drink the kool aid.
keep the peace.
-h

27

The long-running discussion over “who pays the commission” is in deed, generally speaking. If a seller contracts with a Realtor/Broker to sell his/her house, it is their responsibility to pay the commission or to see that the commission is paid…

I understand the “buyer’s broker” side fully…

The “Kool-Aid” reference is kind of an inside joke with the Moderators…

Keith

BTW - if you do a ‘spell check’ of “irregardless” you will find that it is not really a word (one of my wife’s pet peeves!)! :wink:

28

I’ve used this example many times over regarding this kind of logic;

If we try to follow John & Robb’s reasoning…seller’s of any commodity don’t pay any expenses because, “without a buyer there is no sale.”

Any accountant (heck bookkeeper for that matter) can tell you that’s foolishness.

“I appreciate that you are generalizing, but in many markets buyers can and often do pay realtor commissions.”

I’ll contest that contention.

Many markets? Buyer’s often pay Agents commissions?

I’m not debating the fact the buyer’s can & do pay Agents commission, however, it’s rare in every market I’m familiar with.

I’m sure there’d be some statistics somewhere on this issue, and I’m confident you’d find that buyer’s who pay Agents commissions (via exclusive buyer agency) would be expressed as a VERY SMALL percentage relatively speaking.

“If someone can show us that this is not the way it happens, please show us how it is done based on the figures above?”

That’s easy!!!

FSBO wants $100k for their house.

After research…they arrive at a FMV of $106k (either via appraisal, CMA’s, their own analysis, or a combination of all or some of the above).

Do they list @ $100k? Not if they’re like most Sellers! They’d list @ $106k, or perhaps even reduce their asking price slightly, but Sellers DO NOT walk away from 6 grand simply because, they’re not using the services of an Agent!

FMV factors in all expenses…including an Agents commissions (since that’s the norm in the marketplace).

-Info

29

Infowell,

Not really simple as I used the example of a transaction involving an agent not a FSBO.

So let’s look at this as a sales objection question for learning purposes.

Buyer: Who pays the commission if I purchase this house.

Agent: The seller pays the commission.

Buyer: Then does the price of the house contain your commission and do these funds come out of what I am paying for it or does the seller pay this personally above the listed price of the house out of his pocket?

Since the agent said the seller pays the commission without further comment, how would you answer this question and be honest with the buyer?

John $Cash$ Locke

30

Now we’re getting somewhere!

The price of the house contains my commission.

Q: “…how would you answer this question and be honest with the buyer?”

A: The seller pays my commission.

As most homes in the marketplace sell with the assistance of a Real Estate Agent–FMV includes Agents commissions.

Moreover, most sellers don’t sell their homes the way you described in your previous example. They don’t want say, “$100,000 for their home”…they want to know “what’s my home’s value.”

FMV includes Agents commissions. Thus if a seller decides to go it alone (FSBO)…they’re not typically going to ask for $100,000…knowing FMV is $106,000.

I’ve only had one buyer try to negotiate my commission–I told him straight-away my commission’s non-negotiable & dumped him immediately (I can afford to do so). If a buyer wants to negotiate the Agents commisson…I’m confident they can find any number of struggling Agents who’d be willing to talk to them.

-Info

31

As with any product or service, increases in costs associated with bringing that product or service to market are passed on to the consumer.

This argument is similar to arguing if passengers for American Airlines should care that jet fuel prices have gone up. “Why should we care, the airline buys the fuel, we don’t?”. Even though the increased fuel cost is passed on to the customer (although, not 100% of the cost typically is). The bottom line is as costs associated with selling a home increase, so does the price of the home.

It is true that most real estate is sold with the assitance of a real estate broker. It is also true that determining FMV would include the sales commissions. But it is ALSO true that if the commissions are included in the price of the home, based on FMV, that the BUYER is paying those costs. You cannot in one breath say that the price of the home includes the commissions and in the next breath say the buyer doesn’t pay them. The buyer is the one paying the price of the home.

Now, since this a REI board, lets consider this example. You offer your investment property up as FSBO. Two buyers put offers on your house. One, who is represented by an agent, and another who is not. We’ll assume for this example that, since it is customary for the ‘seller to pay the commission’, the buyer represented by an agent is to be paid 3% commission out of your proceeds. If buyer A (represented by an agent) offers 100,000 and buyer B offers 98,000 which offer are you taking? That’s right folks, if given identical terms other than price, you’re taking the 98,000 offer. The only way that buyer A is getting the house is to offer at least 101,000 (rounded for the sake fo discussion). So, who paid the commission again? Because according to this math, the buyer represented JUST PAID 3,000 more for the house. Looks to me like buyer A paid the commission.

32

In the example, if I sell FSBO, I am taking the $100K offer because I have not agreed to pay any commission. That $3K is not coming out of my proceeds.

33

Well in that case the buyer is paying the agent’s commission. Either way, the buyer is paying it.

34

Would you agree that only one person pays the commission?

The answer has to be yes, otherwise the agent would get twice the commission, right?

Now if the commission check comes from the sellers proceeds, can you honestly say that the seller did not pay the commission?

Of course he did. And there is not a court in this country that would not believe that the seller paid the commission. ;D

35

There comes a time when you have to wonder if those in the “Buyers pay real estate commissions” camp truly believe in their contention, or if they’ve other motivations for pushing this viewpoint ???

“…there is not a court in this country that would not believe that the seller paid the commission.”

36

Would you agree that the sales price includes the sales commissions paid?

Would you agree that the buyer is the one that pays the sales price?

Now if the commission check is paid out the the sales price, and the buyer pays the sales price, can you honestly say the buyer didn’t pay the commission?

37

“Now if the commission check is paid out the the sales price, and the buyer pays the sales price, can you honestly say the buyer didn’t pay the commission?”

Under that presumption;

The buyer pays EVERYTHING! Seller pays NOTHING! You’re saying the buyer pays…

  • Seller’s Real Estate Commissions

  • Seller’s Title

  • Seller’s half of Escrow

  • Seller’s Excise Tax

As an Underwriter you know better than that (or you certainly should)…so why continue pushing this nonsense?

-Info

38

…oh yeah, and who does the IRS believes to pay the commission? SELLER

Keith

39

I’m more playing Devil’s Advocate than anything else.

I think there is a time and a place for real estate agents. Unfortunately the industry makes getting into that profession entirely too easy. There are some exceptional real estate agents out there who certainly are worth the price charged. The majority of the agents that I’ve come in contact with are not worth the price charged for their services. It’s a shame that we lump them all together on this board, but people lump together car salesmen together too, and I’m sure that’s probably unfair to many of them as well.

All too often these discussions are one liner discussions so we all jab at each other, criticize grammar / spelling, get tied up in semantics etc. The real questions should be asked of us as to what ‘benefits’ SHOULD be provided by agents or under what circumstances certain financial programs make sense. The questions should be more of the ‘why’ things make sense instead of people asking ‘any millionaires on this board’. That lends itself to what amounts to a giant p*ssing contest. Moreover, we can’t validate anyone’s claims anyway so it’s just silly.

We rarely debate anything here, we argue. Debate is helpful because the point of it is not who is right or who is wrong, it’s to see both sides of the coin and THEN make up your own mind.

Are real estate agents worth the cost? Sometimes. Is there a real ‘cost’ to the buyers, my contention is that despite the fact that it’s customary for certain expenses to be part of real estate costs, it doesn’t mean that the costs aren’t built into the price. You know, if the general public knew how to negotiate and do business on their own, alot of these discussions would be moot anyway.

40

“I think there is a time and a place for real estate agents. Unfortunately the industry makes getting into that profession entirely too easy.”

I disagree!

However, even after managing to obtain one’s Real Estate License…the industry is anything but kind.

It’s a very difficult business to succeed at. In my state…19% of those who obtain their license go on to renew that license after their first two year requirement period. Of those 19%…only an estimated 20% make enough to feed a family.

So how do you find an experienced, qualified real estate agent? Look for those with staying power & years of experience. But keep in mind, even the fledglings are mentored by the more experienced, and when they go out on their own…they’ve a number of Managers they can draw experience from.

“You know, if the general public knew how to negotiate and do business on their own, alot of these discussions would be moot anyway.”

But the general public doesn’t know how to negotiate and do business on their own.

They may THINK they do, but they really don’t. Yet others may not respect an Agents expertise, education & knowledge or value their profession, but it’s what the general public doesn’t know or realize that can cost them a fortune.

-Info