The Battle Over Real Estate Commissions & Fees
I received an email from Dianne, a woman who recently listed her condominium for sale in Montgomery County PA. She was online researching settlement services costs, which already struck me as odd because the buyer typically chooses the settlement company because they pay for the title insurance, not the seller.
When I received her email, I called her immediately to get more specifics as to her situation. It turns out she listed with one of the “big box” regional players, and is paying them a 6% sales commission. She was calling around because her agent asked her to sign an agreement where she would pay additional $495 (over and above the 6%) for her office to perform conveyancing services once she signed an agreement with a qualified buyer.
She further explained that her agent informed her that if she didn’t want to pay the $495 she could either find another company to provide the service, or do it herself. Seller conveyancing services typically include reviewing and clearing items on the title report, ordering tax and other municipal certifications, mortgage payoffs and any necessary Certificates of Use/Occupancy, providing closing cost estimates and confirming buyer's monies are in escrow.
I don’t recall that we’ve ever had anyone call us for these services independently when their house was listed with a real estate broker and they didn’t even have a buyer yet, but I was happy that Dianne found us and we’re always happy to share our expertise when it comes to real estate.
I explained to Dianne that ALT normally charges $150 for the seller conveyancing services she inquired about, but she shouldn’t pay us for that! Since she is working with a real estate agent who will receive a 6% sales commission, I suggested that she should ask her agent to have her company handle the seller conveyancing and waive the fee. Dianne would still have to reimburse them for the cost of the certifications, but that should be it.
Dianne thought that was great advice. After all she was paying in the neighborhood of $11,000 in sales commission to sell her house, you would think that this service would already be included?
I always chuckle when I get these calls and emails from consumers that are essentially asking me, "am I getting screwed?" You see, NAR (National Association of Realtors) has spent tens of millions of dollars trying to keep banks out of the retail real estate business. Their argument over the years has been that if the banks move in, it will create an unfair advantage and ultimately cost consumers more money to buy and sell real estate because the lenders will control the entire transaction. I’m not sure how buying and selling real estate could be any more expensive than it is under the current system which “stacks the deck” in the real estate broker’s favor, but I guess anything is possible.
Under the current system of selling real estate the seller pays a sales commission, typically 5%-6% for among other things MLS (multiple listing service) exposure. The MLS is owned and operated by the real estate brokers. Many brokers, especially the “big box” marketing organizations will whack the seller and/or buyer with an additional fee referred to as a flat fee commission, marketing fee, broker’s services fee or conveyancing fee. These fees typically range anywhere from $225 to $750.
Most real estate brokers and some agents also have an ownership interest in the in-house mortgage company, so they’re getting a slice of that. They have an in-house title insurance company to handle your closing, so they’re most likely pocketing up to 50% of the title premium that you pay at closing. And if you use the in-house homeowner’s insurance agent or if you purchase a home warranty, they get paid on those as well.
Lucky for you though, they’re spending part of your money to keep the banks out of the game so you don’t get ripped off. More importantly to you the consumer, commissions and fees are negotiable and federal law gives you the right to shop for your own ancillary services, so the agent/broker cannot force you to use their in-house companies and services.
Now look, I get it… the industry will argue that the commission is split between the listing agent and the buyer’s agent, so the listing agent isn’t pocketing the entire $11,000. If I have my consumer hat on, I don’t care. I just know that I’m paying a lot of money to sell my house. If the broker is having a difficult time making a profit because of a less than desirable commission split with their agent, that shouldn’t be my problem. I’ve already agreed to pay you more than $11,000.
Furthermore, if I’m buying another house and using the same agent/broker that I’m paying to sell my current house, they’re also cashing a check on that end too. Not to mention that I’ve hired them to market my house, so chances are that they may pick up another prospective buyer or two when they receive inquiries about my property.
When it comes to real estate and automobiles don’t try to distract me with percentages and monthly payment amounts. If you’re selling your $300,000 house, 6% doesn’t sound as expensive as $18,000. As a consumer I want to speak in actual dollars and I don’t want to pay you a penny more than I have to for your services.
When you’re negotiating real estate commissions and fees I always say be fair; everyone is entitled to make a living. However, if you’re already paying a generous sales commission you shouldn’t get bombarded with a slew of additional “junk fees.”
In the end, it’s your right to negotiate a deal that’s fair and to refuse to pay fees that are unreasonable, or overpay for services that you have the right to shop for.
Rest assured that the person that you’re negotiating with probably didn’t offer to pay “sticker price” when purchasing their last car and plays both Comcast and Verizon against each other to get the best deal on their cable and internet service.
As they say, it’s just business… and your money.
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