Today, I am going to blog about one of the most despised words in the real estate world. Hold on, here it comes: Commission. EEK! Egads! Now, for the few of you that haven’t run out of the room in terror, are you familiar with how a real estate commission works? After all, we only fear what we don’t understand. Let me try to demystify this for you so the c word doesn’t seem so scary anymore!
Now, let’s define the word commission, I always think providing a definition is a solid starting point.
: a group of people who have been given the official job of finding information about something or controlling something
: an amount of money paid to an employee for selling something
: the act of committing a crime
Full Definition of commission
1a: a formal written warrant granting the power to perform various acts or dutiesb: a certificate conferring military rank and authority; also: the rank and authority so conferred
2: an authorization or command to act in a prescribed manner or to perform prescribed acts :charge
3a: authority to act for, in behalf of, or in place of anotherb: a task or matter entrusted to one as an agent for another
4a: a group of persons directed to perform some dutyb: a government agency having administrative, legislative, or judicial powersc: a city council having legislative and executive functions
5: an act of committing something <commission of a crime>
6: a fee paid to an agent or employee for transacting a piece of business or performing a service; especially: a percentage of the money received from a total paid to the agent responsible for the business
7: an act of entrusting or giving authority
1: under the authority of commissioners
So, as you can see in the orange I’ve highlighted the specific definition we’re referring to here. (although I am sure some frustrated buyers and sellers saw the crime definition and applied it to their agent!
A fact of life in the real estate industry is that all real estate agents and Realtors work on 100% Commission. Many buyers and sellers are confused by the commission set up and are not sure how it is set and who controls the commission. The reality here is that the seller is the one who sets the Commission in each transaction. The following picture is from the contract called the exclusive right to buy or right to sell listing contract. This contract is between the buyer or seller and their agent and defines on the listing side how much commission will be paid to both a buyer’s agent, seller’s agent or a transaction broker.
In this contract, the total commission is set at 4%. 2.8% to the buyer’s agent, and 1.2% to the listing agent.
A very important point to remember if you are entering into an exclusive right to buy all right to sell agreement with an agent is that there is no standard commission percentage or amount that the commission must be. If they tell you otherwise they are not being truthful! Commission is always always always negotiable. Commonly in Colorado what you will see is a 2.8 % Commission for both the buying side agent and the listing agent who works for the seller. That means you were looking at a total commission expense of 5.6%. However this is always like I said, negotiable and you can discuss this with your agent about how much you feel is an appropriate payment. I have seen commissions of anywhere from 1%- 4%, with those higher commission rates often on vacant land that has been on the market for quite some time.
Section 7.2 of the Exclusive right to sell listing contract indicates how much of the total commission will be awarded to a buyer’s agent or transaction broker.
While it may be beneficial in your mind to offer a very low commission to a buyer’s agent. you must remember that all agents are working solely on commission. While they should be loyal to their clients via a fiduciary duty, many agents may look at a listing that has an extremely low commission for a buyer’s agent and simply not show it to their clients. I advise sellers to at least offer a decent sum of money for a buyer’s agent so they will work hard to bring a buyer to the table. And on the flip side while you may be able to save some money by having your listing agent take a lower commission you should also keep in mind that marketing a property also takes money. Things such as professional photographs, professional staging of a home, gasoline expenses and time spent for open houses advance and other selling techniques are not free. If you find a Savvy agent who is up to speed with technology then you are much better served than somebody who will merely put the home in the MLS for you and then just hope that somebody comes along to buy it.
Thus, this is the reason that many people choose to do a for sale by owner. They think they will easily be able to save around 6% of their sale price. And while they may save some money, the easy part is never easy. Especially if you’re not familiar with the market you are in or how the home-buying/selling process works. I liken this to somebody who decides to fix the transmission on their car by themselves. Sure, you may be able to do it. However, if you do not have the expertise of a professional, you may find that it is more of a headache and a anxiety-inducing event than you would reckon. A real estate deal gone bad can carry significant legal and financial liabilities (and for this reason real estate agents carry errors and omissions insurance.)
I do my very best to work with clients and come to a point that we can both agree on in my payment when selling a home. I understand that the equity that you may have saved up through living in your home is very important to you and you do not want to see a single dollar of it lost – who would? This is why I work so hard for clients – because I know their money is means a lot to them, and marketing and selling a home is a full-time job in and of itself. Just remember that you can always negotiate the cost of a real estate commission with your agent to something you are comfortable with!
How can I help you with Colorado real estate?
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