If you are buying or selling a home, take a minute to read the following about the real estate industry and how to make homes more affordable for everyone.
Most people know a home seller can sell their home themselves and save thousands in commissions. Home buyers however, do not have this choice and it is costing them thousands.
The National Association of Realtors has done an excellent job protecting their agent's commissions at the expense of home buyers and sellers. If you think it is time for a change, please write your state and federal representatives.
Consider the following from the U.S. Department of Justice web site (http://www.usdoj.gov/atr/public/real_estate/):
"Buying or selling a home is the largest financial transaction most Americans will ever undertake. The median priced home cost $222,273 in 2007, and the median commission paid to real estate brokers came to $11,558. Overall, Americans paid nearly $80 billion for brokerage services."
That works out to about $40 billion for the seller’s real estate agents, and $40 billion for the buyer’s real estate agents. And yet, as many home buyers have heard repeatedly, Realtors like to say the buyer’s agent is "free". As it states in the National Assocation of Realtors (NAR) Code of Ethics (http://www.realtor.org/MemPolWeb.nsf/pages/COde):
"Standard of Practice 12-2 - Realtors may represent their services as "free" or without cost even if they expect to receive compensation from a source other than their client provided that the potential for the Realtor to obtain a benefit from a third party is clearly disclosed at the same time."
In other words, a Realtor can claim they will work for the buyer for free because after the buyer pays the seller for the house, the seller pays both real estate agent commissions from the funds the buyer provides. Stated another way, the buyer’s offers must include a buyer’s agent commission, a seller’s agent commission, and the seller’s minimum acceptable price.
While it is completely illogical for the seller to pay the buyer’s agent, Realtors do not want to change the system because it could potentially cost them billions. If buyers paid their own agent, they could negotiate a flat fee for some or all real estate services up front. This would free buyers from paying a percent commission based on the cost of the house. It also gives them the freedom to save the entire commission by purchasing the house on their own. The NAR wants to avoid this at all costs.
Realtors do not educate home buyers and sellers about the commission system, and in fact, they do just the opposite. By describing their services as "free" they are attempting to confuse buyers as to the true costs involved. And many agreements require the buyer to pay extra if the commission offered by the seller is not acceptable.
In cases where a buyer does not have an agent, agents will typically claim some or all of the buyer’s agent commission for themselves even when they provide no additional services to the buyer. When writing the listing agreement with the seller, the usual argument is they sold the property themselves, so they deserve both commissions. Sellers typically do not understand they are giving away thousands of dollars and possibly losing a sale because of the double commission cost.
The NAR claims their members work in the best interest of their clients. But the current commission system is unethical and only benefits agent’s wallets. The system limits competition and forces buyers to pay for services they may not use. And sellers may lose a sale due to the cost of a double commission.
The NAR has a long history of attempting to limit competition as can be seen on the U.S. Department of Justice web site. As Realtors are unlikely to support a split commission system, it is up to the States to pass legislation requiring this change. Those who are interested in changing the system should contact their State representatives. The legislation should include the following provisions:
· The commission a seller’s agent receives can not change because a buyer has or does not have an agent.
· The buyer’s agent compensation must be paid solely by the buyer.
· The buyer can add the buyer’s agent commission to the mortgage and receive funds at closing to pay the commission.
To put it simply, home sellers can eliminate the seller’s agent commission costs by selling their homes themselves. Home buyers should have the same option.