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Commissions
What are your
needs and requirements? How do you expect these to be met, in what time frame,
and what are your circumstances? What level of expertise and service are
you expecting?
Please talk to me about my philosophy on commissions. They are negotiable, and depend upon
type and level of services that you require, market conditions and other
circumstances. Please call me at 661.645.5556 or
mailto:Pia@PiaSoper.com
Frequently
asked questions Types of
Listing Agreements Discounting
Misconceptions Concerning
Commissions
Click here
to view my "seller services"
Commissions paid in compensation for services
rendered are NOT set by any law and it is strictly illegal and against the law
for brokers/agents to "agree" amongst themselves that they will set
commissions at a particular amount or rate as a group. This constitutes
"price fixing". It is against both California and Federal law. The
amount or rate of the commission that may be charged is a matter of contract
between the parties involved, and may be any amount agreed upon.
Frequently asked questions
When should I ask
about what an agent charges?
At the time of the agent interview. Know exactly what you are paying the agent to do.
DO NOT ASSUME
full service means the same for every agent.
The topic of commission payments made to
brokers/agents at the close of escrow is, and has been, a highly charged
subject. What does, or what did the agent do for me? What value
will, or did the agent add to the transaction? Was, or is the agent paid
too much? Was, or is the agent paid too little? No matter whether
you are a member of the paying public or a member of the agent group, there
are opinions for and against on both sides. While the topic is discussed at length
within either the agent
group or the paying public group, my experience in listening to many disgruntled
members of the public is that very little, or certainly not enough, is
discussed between the prospective client and the prospective agent at the
appropriate time - when a seller or a buyer signs a contract with their agent.
All too often Seller's sign a contract
(listing agreement) to pay a particular commission, whether it is a fixed sum or
percentage of the sales price, and never properly ask, nor do they properly
receive, a written or itemized list of what the broker/agent intends to do for
that commission. Commissions, Services to be
Provided,
Agency Relationships,
and Fiduciary Responsibility, should
all be discussed fully during the agent
interview.
Each one has a bearing on the other.
Professionals know what their services are worth when well
executed, and understand the responsibilities they undertake on behalf of their
clients, and can clearly state what their services entail. Within the
listing contract, the service to be provided is "to sell your property" and
compensation will be provided. It is the "how" that is rarely fully stated
and even more rarely, in writing. It is the "how", that leads to
dissatisfaction and misunderstandings.
A Real Estate Professional
will explain fully her/his services and will itemize such services. Please
click here for "My Seller Services"
A client should expect a high degree of
responsibility from a professional. A Real Estate Professional should
expect to be paid well for those fiduciary services,
because she/he has a maximum level of legal responsibility and high level
of responsibility on the whole, on behalf of the client.
She/he should also expect to be paid for
functionary services performed. How value is placed on each of these
services, and whether the agent or the client is going to perform them, is
something discussed between prospective client and agent. It will vary
from client to client, house to house, situation to situation.
Misconceptions Concerning Commissions
In order to better understand how
commissions or fees are determined let's look first at what seem to be fairly popular
misconceptions
concerning commissions.
Listing Contracts
A listing is a
contract of employment between a principal and an agent. And
the interviewing of an agent should be looked upon in the same way as if you
were interviewing the agent for a job. It is a job.
Most importantly, the agent under contract (in this case holding the listing) is bound by the rules of law applying to the
Agency Relationship, and as such, owes certain
obligations to you, the principal.
It is essential that the contract,
whatever its designation, be complete in all of its terms. It
must have all the essential elements of a valid contract: competent parties, a
lawful object, a meeting of the minds, a sufficient consideration
(compensation), and a proper description of the property involved.
Consent to a contract must be free, mutual,
and communicated. In order to be assured that a seller understands what
they are signing, the terms must be carefully set forth and explained. It is
NOT a case of "just sign here", or "I'll send you a copy of the
contract, just sign where I've marked in yellow".
Types of Listing Agreements
Not all listing contracts are the same. There are many kinds of listing agreements possible.
Some, as
you will see are
impractical for the most part. The most widely used ones are
Exclusive Agency Listing,
Exclusive Right to Sell Listing,
Multiple Listing and
Buyer Representation Listing.
(1) Exclusive Right to Sell Listing -
This is the most
common form of listing agreement because it is often seen by both parties as
being the most equitable to all parties involved and the most time efficient way to sell a home.
The Exclusive Right to Sell Listing not
only makes the broker the sole agent of the owner for the sale of the property,
but provides that the broker will receive a commission if the property is sold
by the named broker, by the seller, or by anyone else within the prescribed
period of time.
In this case, the broker has incentive to put
time, money and effort into getting your property exposed as much as possible by
whatever means available to the agent, and get your property sold for the
best price.
In most cases, this type of
listing will cost more since more services are rendered. If you do not
have all the time in the world to sell your property, this seems to be a more
sensible approach to selling.
(2) Exclusive Agency Listing
- The seller agrees to
be represented by an "exclusive" agent. The broker named in the listing is
entitled to a commission when the broker/agent sells the property or when the property is sold by another broker.
However, since such a listing refers only to sales by "agents", the owner may
sell the property himself without being liable for payment of a commission.
This is a contract under which an agent works to get your home sold with the possibility that she/he may not
be paid for any effort put into selling the home. How much time, money and
effort will that agent be prepared to spend on your behalf without being
reimbursed? Help-U-Sell, Assist-To-Sell usually use this type of listing
agreement. The reasons for the differences in commission or fee charged as
compared with the following type of listing agreement is self evident.
The exclusive listing may initially seem attractive, BUT how
much exposure will your home get? Who will know it is on the market and
how? How different is this kind of listing from a FSBO ("For
Sale By Owner")? All too often, after months on the market, this
listing type as also many FSBO's, is abandoned for lack of results and changed
over to an "Exclusive Right to Sell" listing agreement.
The agent has had a foot in the door, so to
speak. But your home did not sell for months. Is that the best for
you? Perhaps it is, if you have a lot of time to wait for your home to
sell or have only small amounts of equity in your home. The listing type
fills the need when necessary. It is a choice you can make.
Both the Exclusive Right
to Sell listing and the Exclusive Agency listing, MUST contain a
specified date of termination. If the contract does not provide for
a definite termination date, the broker is subject to a penalty of
revocation or suspension of his license.
(3) Multiple Listing
- A Multiple Listing is the
name applied to a service by realty boards to their members.
A Multiple
Listing Service (MLS) is defined as an organized real estate listing service
conducted by a group of brokers, usually members of a real estate board.
The brokers pool their exclusive right to sell listings by furnishing such
listings to the multiple listing organization, which distributes the listing to
all members of the group who then have an equal opportunity to sell the listed
properties.
It is obvious that immediately this opens up a huge pool
of possible buyers of your property. There are over
8000 agents working for you when your home is listed in our local MLS,
each one with a possible buyer. ( Add to that the
Web presence of your agent and the
Internet opens your home to the world.)
In the process of listing your home with
the MLS, there needs to be an arrangement made to pay the broker/agent that
brings the buyer. This is agreed to in advance by you and your agent.
This of course increases the cost to you BUT there is a huge increase in the
possibility of the sale of your home as long as it is priced right, in a
reasonable time frame.
The listing broker is responsible for the truth of all
statements in the listing of which he had knowledge or reasonably should have
had knowledge. In the event of a sale, the brokerage commission is divided
in agreed proportions between the listing broker and the member of the board who
effected the sale.
If the listing broker sells the property, she/he is
entitled to the commission in its entirety unless otherwise specified in writing
in the listing contract.
It would almost seem that because of the extensive
exposure a given property would have by being placed on the MLS, a broker could
be held in breach of
fiduciary duty
not to do so in many instances unless, the seller specifically agreed to the
contrary.
Both the Exclusive Agency listing and the
Exclusive Right to Sell listing can be used in conjunction with the MLS. With an addition to the multiple
listing, there must be an offering to pay a commission to the prospective
selling agent. The amount of commission to be split with the office representing the buyer must be agreed to
by, and disclosed to the seller in writing, in the listing agreement.
(4) Buyer Listing - There are a growing number
brokers/agents who obtain written listings with buyers and solely represent
buyers and do not typically take listings - an "exclusive buyer's agent.
The buyer's broker (a
broker working with a buyer under written contract that provides compensation)
must be sure to disclose to the seller's agent and his principal that the broker
is solely representing the buyer even though he may receive a portion or all of
his/her commission from the seller.
This listing can be signed prior to the buyer
even looking at property with the agent, but it is most commonly done prior to
writing an offer. However, in the case of there being a situation in which
the buyer has agreed to pay the agents commission, the commission paid to the
broker providing services to the buyer should be agreed upon in the initial
interview prior to seeing property or writing an offer. If the agent
expects to be paid by the seller, this should also be discussed in the initial
interview. See Buyer Representation Agreements.
In most cases you
will be dealing with agents that will
represent either buyers or sellers; however, increasingly, you may be asked to sign a buyers
contract prior to being shown property.
Other types of listings are: Open Listing, Net Listing,
Option Listing, and Oral (or pocket) Listing.
(5) Open Listing - An Open Listing is a written
agreement signed by the party to be charged - in most cases the seller of the
property - authorizing the broker to act as agent for the sale of designated
property.
Usually there is no time limit to the
employment. By the use of an open listing, the seller may employ a number
of brokers, each of whom will have an equal opportunity or equal opportunity not
to earn a commission.
Under such a listing,
a commission is only payable to the broker who first procures a buyer who is
ready, willing, and able to buy, pursuant to the terms of the listing or
pursuant to other terms acceptable to the seller.
The sale of the property by any one of the
brokers, or by the seller, terminates the open listing of all other brokers.
The open questions is: how much effort will each of those
agents/brokers devote to advertising and marketing your property if there is a
possibility that someone else will sell it without advertising it at all?
(6) Net Listing - In this type of listing the
compensation to the broker is not definitely stated.
Such a listing
entitles the broker to receive as compensation all proceeds acquired from the
sale in excess of the selling price fixed by the seller.
If the property sells for less, the broker does
not receive any compensation. If the property sells for more than the
price fixed by the seller, the broker is entitled to retain the surplus.
Although net listings are legal and have been held
enforceable, their use is generally frowned upon, as they often give rise to
abuse.
The law does provide that the broker must
disclose the amount of his compensation before the principal binds himself to
the deal.
(7) Option Listing
- This listing gives the broker
himself an option to purchase the property. When exercising the option,
the broker is in a fiduciary position and must make disclosure of all
outstanding offers and other material information in his possession.
(8) Oral (or Pocket) Listing - These listings are
unenforceable by law under the Statute of Frauds. They are unprofessional,
although many licensees continue to use them.
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6% of the sales price is the amount
that an agent/broker is compensated for services performed.
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This is wrong! There is no specified dollar
amount or percentage figure that is
set as an industry standard! There may be a predominant figure or rate
generally quoted and/or used in different areas but MOST IMPORTANTLY....
Commission paid in compensation for SERVICES are NOT set by any law and it is
strictly illegal and against the law for brokers/agents to "agree" to price
fixing. The amount of compensation paid to
brokers/agents involved in a transaction is negotiated. It is
determined between a seller and his/her agent
or a buyer and his/her agent. It will be
negotiated on the basis of what kind of listing the seller selects,
which also determines in many ways the services and
types of marketing the broker/agent will provide and perform for
the client. It will also be determined greatly
by the dynamics of the market place (is it a buyer's market or a
seller's market), property condition,
pricing of the property and other confidential
circumstances. No contract can be
applied to every situation equally.
- "I'm not signing a contract that pays
you 6%!" - That's OK. Even though
it happens less than thought, the listing agent
sometimes also brings the
buyer. Commission paid to a listing agent that also brings the buyer
should be negotiated during the time the listing agreement is signed.
However, more often than not, this statement is made by someone who does not
fully understand how the agent/broker representing the buyer is compensated,
or how the Multiple Listing Service functions. Here again, Agency
Relationship plays a big part. If the agreed to commission was in fact
6% and included a listing in the MLS, some portion of the 6% will go towards
compensating the buyer's agent. Often the split is 3%/3%. If it
happens to be a buyer's market, maybe the split would be 2%/4% or 1/2%/5
1/2% in favor of the buyer's agent to encourage more showings. Fortunately
now, the listing contract also makes the seller aware of how much of the
agreed to commission will be offered in the multiple listing to the buyer's
agent. This was not always the case and at times led to listing agents
offering less to the buyer's agent than was agreed to "verbally" between the
seller and his agent.
- "Agent
Joe S......is only charging me 1/2% and is giving me "full service"
- Maybe. Don't get me wrong here.
There are times when a small commission for services performed can be
arranged. Both the client and the agent need to fully understand the
level of
services that are to be provided and under what circumstances so that
misunderstanding do not develop. However, "full service" for one agent
is not necessarily "full service" to another. Nor does "full service" mean the
same thing to every member of the public. It is not a well defined term,
believe me.
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Discounting in a "hot market" is
widely practiced as everyone knows. What is discounting? It is
usually meant to imply "same service, less cost". Is that really the
case? Do you really believe that is the case?
What
about the
statement "you get what you pay for". For example, what
about e-realty companies on the Internet? Where do their fiduciary
responsibilities lie? Are they truly representing you on a fiduciary
level with knowledge and expertise of your area? Is their counsel sound?
Internet related relationships have not had time to fully evolve as yet.
Ask the following two questions.
(1) Will the agent have time to give
you full service or will the agent rely on the "good graces" of the buyer's
agent to do what your agent says he will do? Very unfair and very
unprofessional, wouldn't you agree? Will a buyer's agent even bother to show the listing, knowing
the other agent will not pull his/her weight? Will a buyer's agent even
know that your home is for sale? Is the "new agent" or "part-time agent"
as knowledgeable as an experienced full time agent?
(2) Does the agent who is not familiar with your
area have the capability to correctly assess (usually without even seeing your
property) what your home is truly worth? Perhaps that is why they are
discounting? Are you going to lose money overall because your home was listed
too low? Are you going to sit on the market and lose money because you
are listed too high?
Is it possible to give "full service" and
not be compensated for it? Perhaps there is a reason so many agents
"drop out" of real estate so quickly - most in their first year. It is
an expensive business to run properly and professionally so that you the
seller and buyer, get the results you require. Don't put your faith in an
unseasoned or "get the listing at all costs" type of agent.
Find out what you are paying for, and who is
supposed to do the work.
Where is the comprehensive list of
services?
When expectations exceed reality, conflicts
occur. What often are categorized as misunderstandings
could develop into
something worse, and could have been avoided right from the
beginning of the agent/client relationship by true and honest dealings between
the two parties.
Will the agent have time to give you full service or will
the agent rely on the "good graces" of the buyer's agent to do what your agent
says he will do? Very unfair and very unprofessional, wouldn't you
agree? Will the buyer's agent even bother to show the listing, knowing
the other agent will not pull his/her weight? Will a buyer's agent even
know that your home is for sale? Is the "new agent" or "part-time agent"
as knowledgeable as an experienced full time agent?
Please click
The Internet and You or "what the agent brings to the transaction".
In the meantime, often the
public suffers. And agents who truly believe in carrying out their
fiduciary duty in a
responsible
manner also suffer the indignity of being categorized as "being paid too
much". An agent is only paid too much when what was promised and agreed
to was not
delivered!
What are your needs and your
requirements, and how do you expect those needs to be satisfied?
That is the ultimate question that has to be
answered. Please discuss them with me by calling me at 661.645.5556 or
mailto:Pia@PiaSoper.com. Click here
to view my "My Seller Services".
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