Who establishes real estate commission rates?

Answer 1

In the traditional and dated way of selling a home with a real estate listing agent the seller signs into an agreement with a list agent and the seller typically agrees to pay 5-6% of the sales price to the list agent. The list agent then advertises the property in the MLS and typically offers 2.5%-3% to buyer's agents (essentially splitting the commission). This attractive offer usually entices buyer agents to show the property. Keep in mind that the buyer's agent (and list agent in this example) only get paid ifthe seller accepts the offer and the property closes.

Again, with homevana - a modifed way of For Sale By Owner, there is never any list agent commission or fee's and seller's are free to choose a commission to offer to buyer's agents. Keep in mind again that seller will only be required to pay a buyer agent commission if the offer is accepted and when the property closes.

With homevana (new FSBO) seller's are free to negotiate with any and/or multiple potential buyers - meaning a seller can reject, counter or accept any offer they like using our online negotiation tool. Seller's that offer a reasonable commission to buyer's agent will likely have more agents showing their clients the home and the law of large numbers would imply that more showings should potentially lead to more offers. Although sellers only need one buyer, having multiple offers may yield to a higher final sales price and more money for the seller.

Back to the debate on commissions: If a seller offers a low amount of commission or no commission at all to buyer's agents what could happen is that agents simply will not show or present the home to clients at all (most people won't work for free). No showings may lead to no offers. No offers means nothing to negotiate. Keep in mind that paying a commission is just simple mathematics - it doesn't necessarily mean you are getting less money. For example, lets say a house is listed at $100,000. Two offers come in, one from a buyer directly with no agent/no commission for $90,000 and another offer from a buyer with an agent/commission to be paid if accepted for $105,000, each offer equivalent in other terms. The offer of $105,000 less the buyer agent commission of lets say 2.5% is still much greater than the offer of $90K (105,000 X 0.975 = $102,375). Logic/mathematics would say go with the better offer!

Lets do another example with the same property listed at $100,000: Offer comes in from a buyer with an agent at $97,000, no other offers. With homevana the seller is free to accept or reject or counter any offer. Going back to simple mathematics if $97,000 less the commission of say 2.5% is just not acceptable then a counter offer may be a great option. If the offer is countered at say $103,000 then the seller would be getting more than their asking price essentially having the buyer pay the commission via an increased price (103,000 X 0.975 = 100,425).

In today's world when a property is posted on MLS the MLS system then automatically syndicates the property out to several if not hundreds of consumer sites such as zillow, trulia, realtor.com, Redfin, Ziprealty, Yahoo Real Estate, MSN and many others. These sites are where most consumers, as opposed to buyer agents, are likely going to find properties for sale. Upwards of 90% of buyers are now finding their homes online. Even though 90% of homebuyers are finding their homes online without the help of an agent, Ninety-one percent of home buyers who used the Internet to search for a home purchased through a real estate agent.