My cousin recently sold her family’s home in Southern California with the help of a real estate agent. She negotiated a -1.5% reduction of the commission to 4.5% of the sale price rather than the “standard” 6% commission prior to listing the property with the agent. The agent agreed. The property was sold within 10 days of “going public.”
More and more, consumers are approaching prospective agents to reduce their “standard” commissions, particularly in light of the fact that some iBuyers are reducing their commissions to just 1% of the property’s sale price. Other consumers are approaching prospective agents to charge hourly rates for their services rendered…and agents are agreeing to do so.
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One such agent, Jon Boyd with the Home Buyer’s Agent in Ann Arbor MI, agreed to represent a buyer for a fee of $120/hour. That $120/hour fee arrangement added up to a nearly $7,000 in reduced commission fees that he passed along to his client while still paying Boyd for his time.
Another way buyers can save money on agent commission fees is to work with buyers’ agents who offer their clients buyer agent commission rebates. Legal in some 40 states such as Michigan, Texas, New York, California and Florida, the antitrust division of the Department of Justice has long encouraged such agent competition via commission rebates.
Yoreevo, considered to be a “rebate” disruptor founded by James McGrath in New York City, offers its clients buyer agent commission rebates that are subject to a $5,000. minimum retained by Yoreevo. That rebate is calculated as the lesser of either 2/3 of the buying broker’s commission or the buying broker’s collected commission less $5,000. Additionally,buyer agent rebates are not considered to be taxable income. Rather, they are considered to be property price reductions.
How can buying agents afford to “give up” their commissions? McGrath said, “Lower commissions allow agents and brokers to get more clients…and the more clients agents have allow agents to get away with lower commissions and still make money.”
Do lower commissions through rebates make any sense for agents if those agents have more buying clients? Actually yes, when one looks at the average number of deals an agent closes on an annual basis. An annual report released by the Vector Group indicated that of the 2,773 agents associated with Douglas Elliman Real Estate who closed 5,979 transactions in 2018, each agent averaged only two deals per year. And those two deals per year did not make those agents rich. According to the Bureau of Labor Statistics, the median agent earned $48,690 in 2018.
So…more clients for buying agents and more money for both buying agents and buying clients vis a vis buying agent commission rebates? We’ll see how it goes for all involved.
Thanks to Justin Wolfers, a professor of economics and public policy with the University of Michigan writing for the New York Times, for source data.