The debate goes something like this -- if the average commission is 6 percent and the average US house is $215,000, (many markets it is much higher at an average of $500,000) then what's wrong with consumers getting a piece of the action as a rebate? Some states don't allow it, contending that the only people to benefit from the real estate business are licensed real estate agents -- not consumers. One of the latest consumer-oriented real estate benefits getting press these days is the commission rebate to buyers.
In essence, a buyer purchases a house and receives a 1 percent (or some derivative of the sales price) rebate back at settlement. On a $215,000 house (national average) that's $2,150 back to the buyer. This practice has caused a lot of debate among practitioners. In states where rebates are allowed, it causes many agents to ante up to buyers who want to work with agents that will hand over part of their compensation. Meanwhile, agents who believe they should keep what they earn of the commission contend it's an unfair advantage for those who cut their fees in this manner.
A challenge agents have in debating this practice in an open forum is that federal law prohibits agents discussing commissions with each other (unless they work for the same company), without violating the RICO anti-trust legislation. When you consider that the commission standing alone does sound like a lot of money, why wouldn't it be in the consumer's best interest to get back a rebate? Especially when high-priced markets such as Washington, D.C., Los Angeles, New York, etc., are taken into account, the commission seems huge where the average sales price lingers more around the $500,000 mark. At 6 percent, that's $30,000. It is a lot -- until you start divvying it up between the companies and their agents. First you have to split it in two -- half to the listing company, half to the selling company -- so the gross commission per company is now $15,000.
Then the agent has to split that with the company. At 50 percent, the agent makes $7,500 on the transaction. If the consumer takes a third off the top (1 percent), then the agent makes $4,950 per transaction. Agents face stiff competition from their colleagues. In Northern Virginia, for instance, the region has about 15,000 agents chasing a $20 billion market. Sounds like a lot -- but if each agent sold an equal share -- it would be only $1.3 million in sales, resulting in about $20,000 in income. You can see why full time agents get frustrated when a consumer wants part of their income with those odds against them.
Tips for consumers: Discuss your agent's fee and what services you're going to receive in exchange for the money you pay. Is it of value to you? There are various ways to get cash back in the transaction -- not just the commission. Be sure to find an agent who is good at negotiating. In a normal to soft market, sellers are very willing to offer up cash assistance to the buyer. Many loan programs allow up to 3 percent assistance from seller subsidies. Be sure you have an agent who knows how to negotiate on your behalf. |
