What to Do When They Cut Your Buyer-Side Commission
Summary
What do you do when the listing agent wants to cut your buyer side commission?
- Get more listings. When you focus on working with sellers, you prevent being in this dilemma because you control the market, the inventory, and your commission.
- Get into a Buyer Representation Agreement. During the Buyer Consultation, address the issue on commission upfront and then get a Buyer-Broker Agreement signed.
- Check the MLS for the selling agent commission. Do your research on the published commission rates even before you show the property.
- Address it with the listing agent before showing. Talk to the listing agent about any issues on commission before showing the property.
- Add the commission to the offer. If necessary, increase the offer price to cover the commission gap between your standard commission as a buyer’s agent and what the seller is offering.
Full Transcript
If you are a buyer’s agent or you are working with buyers in this market, I know, I know it’s getting incredibly frustrating, but today I got some help for you on what to do when the listing or the listing agent is trying to cut your buyer side commission.
And so I got a question from an agent: “I made an offer on a property that was offering 2% commission to the buyer’s agent. And I sent the offer asking for the commission to increase it to two and a half percent and she didn’t want to do it. The agent didn’t want to do it or whatever it is. We’re making an above list price offer. We’re giving the seller a free month living in the house after closing, but she’s being stubborn and she only wants to do 2%, even though it’s a great offer.”
Okay. So what do you do in that case? And this is a dilemma that we’re running into more and more in this market. And this is a dilemma that comes in a sellers market, and it comes at a time when buyer agency is under assault.
A Bad Time to Be a Buyer’s Agent
Now you’ve got to understand the buyer’s agency right now is under assault. You got standing lawsuits, you got Zillow that is working very hard to basically eliminate buyer’s agents from the picture so that buyers are coming directly to them. And then they can use their people. You got listing agents who are trying to get rid of you by cutting your commissions.
And more and more buyers are coming directly to the listing agent. Plus just the fact the nature of the market and the pressures of the market right now is that there’s low inventory. And so I don’t need to make the listing attractive to the buyer’s agent because it’s the only game in town. And I know we’re going to have multiple offers and some agent is going to be willing to take that and so forth. So this is just the problem that is more and more pressing right now on the buyer’s agent. If you’re working with a lot of buyers, you are feeling this.
What to Do When They Want to Cut Your Buyer-Side Commission
Okay. What to do about it. Part of its prevention, and then part of it is cure. All right. So first prevention, how do I deal with this whenever the listing agent or the seller are wanting to cut the buyer side commission?
GET MORE LISTINGS
Now this is where I built my business and this is what I’ve been coaching my entire career is when you have listings, you control the market, you control the inventory, you have control. And if you don’t, then you are at the mercy of others. Okay. There’s a whole lot of reasons that getting listings is more powerful than having buyers, but for this conversation, just understand that the easiest fix or the most powerful fix is to get the listings. And then you’re in control of the commission. You negotiate with the seller, and then whatever you make, whatever you pay to the buyer, it’s up to you. Alright. Or up to you and the buyer.
So number one, get more listings. That’s preventative of how do you stay out of the situation?
HAVE A BUYER REPRESENTATION AGREEMENT
Number two, let’s say, okay, I have listings, but I also am working with this buyer. What do I do? Because that’s not helpful if I have a buyer. Well, here’s what’s helpful.
Number two, so first step with buyer is make sure you are in a buyer representation agreement with the commission for the selling site, for working with the buyer, with the commission, both addressed and agreed, which means when you sit down with a buyer, you should always do a buyer consultation. And you should always be in a buyer, broker or buyer representation agreement. And the commission has got to be talked about. So here’s the commission. It’s 3%, two and a half percent, whatever it is that you charge. I have coaching members that literally charge start at 3% and if it’s a smaller price point, they’ll go to three and a half percent and even 4%.
Now they do that because one, they have a great level of skill and two, because they choose who they work with and they don’t work with everybody. So they don’t work with every buyer. And if the buyer doesn’t see the value in them and their buyer consultation, they’re able to demonstrate value. So don’t go into this mind talk. That says, well, they’re not going to do this. No, they will do it, but you have to be good enough to know how to negotiate and get it. So you have to be willing to have this conversation with a buyer before you start working with them. Get a buyer, broker agreement signed. And the commission is addressed and agreed to.
Now, let’s just say it’s 3%, that you agree it’s 3%. And you let them know. The good news is for you, it typically costs you nothing because the seller normally pays the commission to the selling agent, which is me. So typically it’s not going to cost you anything. Now, occasionally you have a seller who’s not willing to pay the full commission. And so in that case, you’re going to pick up the gap. You’ll be responsible for that. And we’ll make sure that we’re able to negotiate that and get that done at closing so there’s no money out of your pocket, except out of your closing costs that it takes to make the deal done. And you can also negotiate it in the offer. We’ll get to that in a second.
So number two, you’ve got to address this conversation up front with your buyer so that they understand, and you’ll let them know. I will let you know, whenever we’re looking at homes, I’ll let you know if there’s a house we’re going to look at where the commission is substandard.
CHECK THE MLS FOR THE SELLING AGENT COMMISSION
Number three, to do that, you always check the MLS for the selling agent commission in the MLS. Because it’s always published. How much is going to be paid to the buyer’s agent? Okay. You always want to look. And notice upfront before I go show the property, before I even give the property to the buyer, I want to know what the issues are upfront. So the more due diligence you do for yourself and what’s going on, I look at it and I’m looking at all the listings. Before I even send it to the buyer, I’m like, okay, I’m looking at what’s the commission?. Okay. As I’m looking at all the property information and what’s the showing instructions and all that, I also notice, hey, that’s 3% good, 3% good, 3%, two and a half percent, ugh, 2%, 1%. Okay. We have an issue. Right.
Or whatever it is that makes it an issue for you. Two and a half percent may be an issue for you. Okay. Whatever it is that’s an issue for you you want to know earlier rather than later so you can address it up front so you know.
So number one, address commission with the buyer and the buyer, broker agreement. Number two, always check the MLS for the commission amount that is being offered to the buyer’s agent.
ADDRESS IT WITH THE LISTING AGENT BEFORE SHOWING
And then number three, if it is reduced, address it with the listing agent before you show the property. Okay. One, you should always talk to the listing agent before you show a property.
Now I know that sometimes listing agents, they’re not good communicators. They don’t want to talk. You just text them and say, hey, I’ve got a buyer that’s interested in a property. Before I show it, I need to make sure, I want to make sure it’s still available and find out what’s up with it. So I always call them. I call them. If they don’t answer, then I send them that text. Please give me a call so I can know all this information before I show it.
Basically implies, if you don’t respond to me, we’re not going to look at the property. So they will get back with you. All right. And they should always get back with you. It’s just good ethics, good etiquette. So, and if they don’t text them and go to higher levels of, I got to get in touch with this person. So I’m going to call them and say, hey, I just want to make sure the property is still available.
Find out if you have any offers on it. If so, what’s happening?
“Where are you in the process? How many offers do you have?” And so forth. And I also noticed, and I want to be in a live conversation with them, is “I noticed that the commission that is offered, being offered to the buyer’s agent here is only 2%. So tell me about that.” That this is the script. So tell me about that. Because what I want to listen to, I want to hear what the listing agent’s perspective is on this. If it’s the listing agent who is basically cutting my commission and they go, I’m charging 6% to the seller and I’m going to only give 2% to the buyer’s agent, I’m going to keep 4% for myself. Well, then it’s the listing agent that is probably my adversary here.
Or it may be, they go, like, I know, I know. I mean, my seller, they’re just cheap and I’m only getting 4%. And so I’m having to give 2% to the buyer’s agent so that I can get 2% for me. And it’s just, blah, blah, blah. So I want to know what is the other agent, is the listing agent on my side, or they not on my side. I want to know where this conversation needs to go. And now I’m going to address it based on that. So you always address it before a showing.
Now, this is where you decide what is your policy, or what is your standard when you do this? So look, here’s the deal. My buyers know that in the buyer broker agreement, I’m getting paid 3% commission.
And they know that if the seller is not willing to pay at all, then they’re going to pay the gap. The problem for you and me is that means my buyer is less likely to want to make an offer on this property. And because they’ve got to be paying an extra 1% to me. Does that make sense? And they’re going, yeah, that makes sense. Now I’m going to listen. What’s the listing agent going to say? I want to know, because this is all negotiation my friend. This is where you win in real estate, is your ability to negotiate, your ability to negotiate this conversation, this transaction. Alright. So then if let’s just say they go like, I know, I know, and I just can’t get them to pay more.
So let me ask you this. If we bring an offer and the offer is strong enough, what I’m going to do is I’m going to, and I’ll have my conversation with the buyers. If we bring in an offer that’s an extra 1% above what we would otherwise negotiate and stipulate, that 1% additional commission goes to the selling broker, which means we’re getting 3% instead of the 2%. Do you think your seller would be willing to do it that way? Basically, we’re saying we’ll raise the sales price to cover that extra 1%. Now, why would we do that? Well, it’s easier for your buyer. Typically buyers, if a buyer has to pay you the commission, any amount of the commission, they’re having to pay it out of pocket. A seller is not having to pay out of pocket. They’re paying out of the proceeds of the sale. So it’s typically less painful emotionally for the seller to pay it than it is for the buyer to actually see that I am taking money out of my bank account, adding money into my closing costs.
My hard costs out of pocket are increased by 1% of the sales price, which can be significant on a $1 million house. You’re talking an extra $10,000. On a $500,000 house, you’re talking an extra $5,000. It’s a significant amount of money.
ADD THE COMMISSION TO THE OFFER
And so then number five is, if the seller’s not willing to just pay it outright, then add it to the offer. Meaning the seller pays it and we’ll increase that we stipulated in the agreement, check with your broker or your attorney on where in your contract and the offer you stipulate that the selling agent commission is going to be 3% of the sales price. And if necessary, then you’re going to increase the price, the offer price to cover that extra 1% of the commission or one and a half or whatever the gap is, between what your standard commission that you take is as a buyer’s agent and what the seller is offering.
Guys, here’s the deal. The stronger you get at negotiating period, the stronger you are at negotiating for your own client, the stronger you are at negotiating for your own value.
And when you do that, it’s ethical. What I’m telling you to do is a way that is ethical, it’s honest, it’s fair, it’s appropriate, it’s professional because you have value when you know what you are doing. And you’re actually able to represent your buyer and get them a better result to help them get better terms and prices because you know how to negotiate, how to present, and how to get an offer accepted. And in this market… that, my friend is gold.
So what are you doing? How are you addressing this issue? Please put a comment below. If you’ve got other ideas or things you’re doing that’s working, that is helping you get more commission or get your full commission, please post it down below. Thanks. And I’ll see you on the next video.