Wednesday, January 26, 2005

Real Estate Agents, Brokers, Commissions and YOU

Buying or selling your home can be a stressful and uncertain process for many. One component of the process that seems to cause a great deal of apprehension is the Real Estate Broker, the Agent, and commissions-- because many people, especially buyers are afraid of the costs involved. Who pays what to whom and why?


The Broker may own the real estate company, or he may "act" as a Broker for a non-Realtor owner. The Broker is in charge, and all listings at his agency actually "belong" to him, in spite of the fact that his Agents may have secured those listings, service those listings, advertise them, etc. (They have the direct relationship to the seller and are the "seller's agent"). It is the Broker who offers a "commission" to other Brokers (and their Agents) to sell his listings. This process is done through the Multiple Listing Service (MLS).


No, it was not. Traditionally, Brokers did not cooperate with other Brokers. Each Broker (and his agents) had listings and the public could only deal with the specific Broker who held a listing they wanted to buy. Brokers were exclusively the representatives of sellers. They owed all their loyalty and duty to the seller and NOT to the buyer. Increasingly this was seen as unfair to the buyer, and also to the seller in that the process severely limited the seller's exposure to potential buyers, and buyers had no representation. Independent "buyers Agents" did spring up, and since they were largely left out of the commissions, they did start to charge buyers a fee for representation. This practice still exists; however, with the advent of MLS, it is relatively small.

MLS Benefits Everyone

The Multiple Listing Service (MLS) provided the public with broad abilities to buy and sell homes. MLS Brokers and Agents all pay fairly hefty sums to belong to MLS. Membership allows them to sell each other's listing freely. The public no longer has to come to the office of the Listing Broker-- he may go to any Agency of his choosing, select any listings from many Agencies and have his own personal representation. This gives the buyer a huge inventory of property to choose from rather than as before, just the property the Broker had listed.


It is the Seller who offers a commission to brokers/agents to sell his property. It is most usually a percentage of the final sales price and the commission comes out of the money the seller receives at close of escrow. Does the selling Broker/Agent get all the commission? No. The splits can be numerous with the Broker or Brokers sharing the amount between them and then sharing the remainder after their portion, on down to the agents at his/her commission scale. Your Agent gets a small portion of the commission, his Broker gets the larger share. When two Agencies participate in a sale, the split on the commission will be at LEAST four ways, and maybe more. Many times there will be more than two Agencies involved, perhaps a long-distance referring Agency, also, who will get a portion, too.


In an ideal world, everything would work as it should. But, as always, people devise ways of getting around things-- especially when it comes to money. MLS is no different. Obviously, a Selling Broker/Agent will retain more commission if he has "both sides of the sale"-- both the Buyer and the Seller. The entire commission stays with the Broker. This can be accomplished in a few ways: "Vest-pocketing" a listing-- keeping the listing out of MLS for a period of time and offering it only to buyers who come to that specific Agency; failing to include pictures on MLS-- lessening the possibility that another Agent will send the listing to his buyer; incomplete or scanty property details on the MLS listing "Call Listing Office for full details"; Brokers offering a larger portion of commission to their agents for selling "in-house" listings (bounty). These are just a few ways that the Spirit of MLS of consumer-protection can be short-circuited. So, when as a Buyer or a Seller, you suspect any of the above, you must give some thought about whom you are dealing with and whether they have your best interests in mind.


Sure, many times we will find ourselves representing both the Buyer and the Seller-- some Real Estate professionals find that difficult-- but we do not. We represent both sides fairly and equitably working hard to protect our sellers while representing the buyers fairly, honestly and aggressively. We negotiate for fairness, urging both sides to be considerate, honest, open-minded-- and work very hard to convince each side that they are not in a hostile adversarial situation. We do not "vest-pocket" listings, we do not fail to fully disclose property details/pictures, we disclose everything material we know, AND our Broker does NOT offer a "bounty" for in-house sales. All commissions are the same for anything we sell and there is no incentive for keeping it "in-house". Thus, buyers get to view ANYTHING from ANYONE that fits their needs no matter what the commission may be.

We encourage Buyers and Sellers to think about the process and choose representation very carefully. We encourage you to call us, first!