When Agents Foot the Bill
I saw a post on a blog roll the other day entitled, “I Bought a House for My Client.” It made me think about all the times that we’ve bought things for our clients. I’m not talking about promotional materials, lunches, gift cards, houseplants, or the occasional Christmas card. I’m talking about all the times when a real estate agent is asked to contribute a portion of his or her commission in order to close the deal.
For example, you are ready to close, the numbers are tight and a state tax lien for a few grand appears on the title. This tax lien has to be paid in order to get the deal closed. Some agents kick in a little bit of dough in order to help with that. Others watch the deal fry over the missing two grand.
Commission Is Complex
Sometimes homebuyers and home sellers do not understand that the commission is shared between the agent and the brokerage, and that many agents only earn a small percentage of the total commission. Many consumers are unaware that depending upon where the agent hangs his (or her hat) and the experience level of the agent, the brokerage portion may be up to fifty percent, not to mention errors and omissions insurance, and sometimes even franchise fees. Then, on top of that, the real estate agent will have to pay taxes on his or her portion of those earnings
Other times, the homebuyer or home seller perceives that the agent will earn what appears to be a large sum of money. The thing about commission, though, is that it is only paid when the deal closes. Realtors® and real estate agents do a lot of things up front free of charge. They conduct meetings, create contracts, hold open houses, order promotional pieces, post homes on multiple sites across the Internet—all without collecting a dime. And, if the home doesn’t sell or if the buyer decides not to purchase, all of these things have been completed free of charge.
Agent Contributions at Closing
The question remains: should an agent contribute a portion of his commission in order to get a transaction closed? Should he or she pay for the home warranty or settlement fees or even the moving truck?
It’s a really tough call and each transaction and situation is unique. On the one hand, when you cut your commission, you devalue your role—not only for yourself but also for all of the other Realtors®. And, if you are helping a buyer or seller with the most expensive purchase or sale of his or her life, you should be compensated accordingly. But, on the other had, if the transaction is about to close, and it’s a matter of the transaction closing or not, you may opt to earn less versus earning nothing at all.
The key is to always check with your broker with respect to the office policy on reducing commission, and also to set expectations accordingly. If you show the seller or buyer a net sheet so that he or she understands the expenses of the transaction early on and you confirm that these fees are acceptable, you’ll find that this will make for a much smoother real estate transaction.