When selecting a Realtor© or real estate agent, people frequently ask the question; "What is the standard real estate agent fee?
The correct answer is; "There is no standard fee". By law, in California all agent fees in a real estate transaction are negotiable. The fee you decide to pay to your listing agent is whatever amount you and your agent agree to. This is a negotiation, and you do have a choice. This article is written to help inform you about how real estate agent fees typically work.
The seller of a property hires a Realtor© or real estate agent (called the “Listing Agent”) to market their property. The seller agrees to pay the listing agent a fee to do this. The listing agent will normally list the property on the MLS (Multiple Listing Service) and offer a percentage of their total commission (typically half, sometimes more) to any California licensed real estate agent who can find a suitable buyer for the property. This fee offered by the listing agent to pay another agent with a suitable buyer, is called the “cooperating broker” fee, or sometimes simply “Co-broke” fee. It is this “Co-broke” fee that pays the buyer’s agent for their work.
The listing agent will normally have a conversation with the seller to decide on an appropriate co-broke amount. When selling a home in the Santa Rosa Ca, or Windsor area, if your agent does not have this conversation with you, you need to be sure and bring it up. This is because it is very important that the amount of the co-broke fee is competitive with the fees that other sellers are offering in your marketplace. This should not be true, but it is. Some real estate agents decide what houses to show their buyer-clients based (at least partially) on the amount of the co-broke fee offered on the property. If your co-broke amount is lower than other sellers in the area, it is entirely possible you will get less buyer-traffic through your house. In an unusually strong sellers market, this may not be such a big deal because there's no shortage of buyers looking to purchase properties. In a normal or buyers market, it could be a big problem. In my opinion the amount of co-broke offered to a buyer's-agent should have absolutely nothing to do with their enthusiasm for showing the property to their client.
A good agent will show their client properties that most closely meet the clients needs regardless of the co-broke amount. Unfortunately, not every real estate agent thinks this way and you have to plan for it accordingly, so make sure the co-broke you offer is competitive with other sellers in your market.
The buyer-side of the equation is somewhat more complicated. It begins with an agreement between the buyer and their agent regarding the agent’s fees. The buyer describes what kind of services they are interested in receiving, and the agent negotiates a fee to provide those services. Depending on the services the Buyer wants, in many buyer-agent relationships in the Santa Rosa and Windsor area, the buyer’s agent agrees to have their entire commission paid by the seller’s broker.
These complications arise, because for some Buyers, this doesn’t work.
Remember that in the above scenario the agent agreed to be paid 100% by the Seller. What if the seller is offering ZERO commission to the agent? This is true in some For Sale By Owner (FSBO) Properties. They don’t want to pay your agent, therefore your agent is NOT going to drive you around looking at these For Sale By Owner properties. They can’t afford to pay their bills if they get ZERO from the transaction. A good Realtors© or real estate agent will tell you this right up-front, but not all will.
The good news is that very few properties fall into this category. The National Association of Realtors© (NAR) statistics show that 93% of all open-market real estate transactions use a real estate agent, so you are only missing a very small percentage of the homes for sale. If you want to see these homes as well, you could agree to pay your buyer-agent a commission if you actually buy one of these FSBO (For Sale By Owner) homes. In many cases, this would still be a pretty good deal, because you would have the protection of using an agent to help you through the paperwork and discovery process. The point is, when you begin working with a Realtor© or real estate agent, be sure to understand ANY limitations your agent may put on the houses they show to you, and why.
In the strong Buyers Market we have now in the Santa Rosa and Windsor area some sellers are now offering a buyer-agent commission that is MORE than your agent may require. So how does THIS work? The Answer; It all depends on your agreement. Many real estate agents will simply keep the additional, higher commission and be pretty happy about it. There is nothing un-ethical about this, unless it violates your agreement with the agent. With some real estate agents, however, it does tend to make them drag you to houses which are offering a higher commission, even if the house does not match your needs. “Hey, there is always a chance you might by it”. This of course, is a waste of your time.
Personally, I think the best commission agreements are where the agent has a specific commission and if the house that you buy is offering a HIGHER commission, you should get to keep the difference. Your agent might simply rebate the difference back to you. If the commission offered is LOWER, you pay the difference. As long as the rate that your agent is asking for is typical to what sellers in your market are offering, it will work out fine. YOU will have removed any motivation on the part of your agent to “filter” the houses they show you, and YOU will be in position to decide on a house-by-house basis what you want to do. You see all the houses that match your needs. You are in control.
Most lenders impose limits to the amount of "buyer credits" that are acceptable to the lender. Mortgage brokers, real estate agents, and buyers have historically found creative ways to get around these limits. This is called "mortgage fraud" and it is a federal crime. Mortgage fraud has received a lot of attention from enforcement agencies in the last several years, and as a result, quite a few mortgage brokers, real estate agents, and buyers have found themselves spending time in federal prison. Any excess commission that your agent rebates back to you in the transaction, MUST be shown on the appropriate lender documents. As long as the lender is made aware of these credits, and is ok with them, you have no problem. Be very careful with buyer credits and do not get creative. The FBI is very involved in stopping Mortgage Fraud: http://www.fbi.gov/publications/financial/fcs_report2006/financial_crime_2006.htm#Mortgage
From the above descriptions, it would appear that in the Santa Rosa Ca and Windsor area the seller is paying the buyer’s-agent commission. It sounds like the buyer’s agent is “free” to the buyer. Many agents would like you to think this is true because it makes their services look more appealing. After all, where else do you get “free representation”? Well, in my opinion, it is somewhat deceptive. A more honest perspective is that ALL the funds that drive the real estate transaction come from the buyer. In effect, the buyer is really paying their own agent’s fee through the seller.
I feel this is an important distinction because once the buyer understands they are paying their own agents fee, they begin to ask; “Is my agent worth what I am paying them”? Sometimes the answer is No. To answer this question, a good buyer’s-agent in the Santa Rosa and Windsor area will be working very hard to prove their value to the buyer. When a buyer thinks of the relationship in this way, then unqualified buyer-agents can no longer say; “What are you complaining about, my services are free to you”. I think BOTH buyers and sellers should be evaluating their agent’s performance every step of the way and if performance is lower than expected, a conversation with the agent is in order.
Many people are under the misconception that the Realtors© or real estate agent’s commission has not been earned unless the property actually closes escrow. This is not always the case. Many listing agreement used in California are written such that, in certain circumstances, the agent is due a commission regardless of whether or not the property actually closes escrow. An example of this for a listing agent might be if the seller removes the property from the market, without the agent's permission and prior to expiration of the listing agreement. Another example could include a situation where the agent has produced a "ready, willing and able" buyer, but the seller changes their mind afterwards and defaults on the escrow. This can also happen with a buyer’s-agent if the buyer submits an offer on a property, the offer is accepted, and the buyer then changes their mind and defaults on the escrow. The important point to all this, is that it is important for you to read the agency-agreement before you sign, and understand what your duties and responsibilities are under the terms of this agreement. I have a great article written just for Buyers detailing the common agreement types used in Sonoma County, you can read it here.
Never select a Realtor© or real estate agent simply because their fee structure appears less than what other agents are charging. There is usually a good reason for the lower fee. Remember, you are not looking for the lowest price, you are looking for the highest value. With most real estate agents in the Santa Rosa and Windsor area, a reduced fee also includes a reduction in the services performed by the agent. When talking to a Realtor© or real estate agent about possible fees, make absolutely certain that you understand the kind of services you will get with each of the different fee structures, and get it in writing.
For example, I've had conversations with people who were very disappointed in the services their agent provided them. At the time they hired the agent, they really did not know what to expect in the way of specific things the agent would do for them. The agent simply said "I will list your home and help you sell it". From a beginner perspective, that sounded pretty good. What more would be involved? What the agent did not tell them was the very long list of services that were not included in their fee. Services which may be critical to the successful outcome of buying or selling real estate. The customer did not find out what was missing until their house sat un-sold for a long time.
Simply "listing a home" is a very small fraction of the work that a good listing agent will do for their client. When shopping for an agent, you should have a long and detailed list of tasks the agent will perform for you. You should discuss each of these with any potential agent. With some agents, the reduced services are not worth the fee the agent is charging. By the time they whittle-down their fee (and services), a competent person could do just as well on their own. Be careful and make sure you understand exactly what you are getting from your agent, and get it in writing.
The point to all of this, is how important it is to have a conversation with your agent in the very beginning so that both of you are on the same page with regards to the amount of the commission, how the commission will be paid and any restrictions that may be placed on it. Not only is the dollar amount of the commission negotiable with your agent, but so is every other aspect of your relationship as well.