FIVE THINGS TO KNOW ABOUT REAL ESTATE SALES COMMISSIONS
By Craig Chambers, Attorney At Law
The Littleton Lawyer
October 31, 2018, Vol 1.83
As a real estate lawyer practicing in Littleton, Roxborough, Ken Caryl, Highlands Ranch, Denver, Lakewood, and the surrounding areas, I often provide real estate transaction services for For Sale By Owners or FSBO’s. Here are 5 things to know about real estate commissions in the current Denver Metro area real estate market.
First, if the property is not listed with a listing broker, or the buyer has not signed an agreement with his or her broker, no real estate commission is owed.
There is no “automatic” commission. In fact, if you find your own buyer (or you are a buyer and find your own property) you may be better of with just hiring a lawyer to do the paperwork and to follow-up with the transaction.
This could result in a considerable savings because a lawyer charges by the hour, not a real estate commission based on a percentage of the selling price.
Second, if there is a commission, it is basically two commissions.
It’s true: there is the total commission paid by the Seller to the Listing Broker as per the listing agreement, which is the listing broker’s portion of the commission. This is typically 2-3% of the purchase price to the listing broker. Then there is the Selling Broker’s commission, typically 2.8% of the purchase price, which is also usually paid by the Seller at the closing for the benefit of the Buyer.
This “Success fee” or “Co-op Fee” is deducted from the total commission and offered by the Listing Broker to other brokers in the Multiple Listing Service (MLS) for bringing the buyer to the transaction.
Third, both of these commissions are negotiable. Yes, there is no set real estate fee. In fact, if real estate companies collude to fix the costs of a real estate sale, that’s against anti-trust laws.
Fourth, these commissions have gone down.
Gone are the days of a 6% or 7% commission. With the home listings now being distributed openly and freely on the internet, the real estate commissions have come down considerably. Aside from the lower fees, some companies offer discounts if you purchase another home through the broker or if the broker brings his own buyer.
On the other hand, some firms add a “transaction fee” to the deal, on top of the commission. All of these commissions and fees need to be disclosed and agreed to in writing.
In addition, while it common to negotiate down the listing broker’s portion of commission, substantially reducing the selling broker’s commission could make the home less marketable on the open market; however, nothing prevents the Selling Broker (who is working with the Buyer) to reduce the 2.8% commission or to pay the broker himself instead of the Seller paying the Buyer’s broker to make the offer more competitive.
Fifth, Companies that claim they offers thousands of dollars in savings from traditional real estate firms are not exactly being honest because they don’t know what the traditional firm charges. That’s up to each individual broker. Real estate companies misrepresent themselves to get your business. The two most important things in a real estate transaction are transparency and trust
Best Advice: a real estate commission through a broker may not be necessary if the property is not listed or if the buyer has not signed an agreement with a broker.
If you are going to use a broker, interview three different real estate brokers before choosing one, thoroughly read the listing agreement, and don’t hesitate to discuss and negotiate the real estate commission.