Commission payout disclosure:
How commissions are split:
It's important to know how commissions are split between the listing agency and the agency representing the buyer. The commission that’s offered to the buyer’s agent, or “payout”, is disclosed in the Listing Agreement and is "coded" on the listing sheet.
The MLSs use codes like "CC 3" which would mean Commission Code 3% or "BA 2.5" stands for Buyers Agent gets 2 1/2% or "3% 100K/2 BAL" translates to 3% payout on the first $100,000 and 2% is paid on the "balance" of the selling price above 100,000. The listing agency percentage is not disclosed.
Ask agents how the commission will be divided. If the split is uneven, the larger share should always go to the agents that represent the buyers. This is a common and logical arrangement to entice agents to show your house.
The payout should always be spelled out on the listing agreement. The actual dollar amounts going to each agency will be shown on the closing statement.
In general, avoid offering less than the "going rate" to the buyers’ agents unless, 1) you’re in a strong seller’s market with more buyers than homes for sale, 2) your home is in a price range that has very few competing homes for buyers to choose from or 3) your home is a desirable cream puff.
Some homes are real gems that any buyer would want and make an easy sale for the buyers’ agents. They make a strong case for offering a payout that is less than the traditional amount.
Of course if this is the case, then the home could be a candidate to sell by-owner.
Don’t be hurt by a discount:
Suppose 3% is the standard payout in your area. When an agent offers a 4½% commission, consider maintaining the 3% amount for the buyers’ agents. Of course, if your home is a real cream puff and/or it's a hot market, a payout that's less than 3% is acceptable. Thus, even a 4% total commission could be split 2 1/2% payout and 1 1/2% listing commission.
With these rates, commissions start to make sense. During the mid 2000s before the economy tanked, the average commission rate nationwide was reported to be down to 5.1%.
A payout that’s only a half a percent lower than the going rate shouldn’t be a problem. Besides, buyers have access to the homes on the market through the internet and will demand to see them–or they will get a different buyer's agent. Agents who are not showing your home because of the lower commission payout are not representing the best interests of their buyer clients and could face a lawsuit or face disciplinary action that could put their license in jeopardy.
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