The Contrarian’s Guide to Real Estate / Real Estate Landscape / Buyer's Agent Commission Don't Matter

image7.png

Buy side commissions no longer affect sales prices

Understand how it works and save 3%

The Multiple Listing Service (MLS) is the best way to get your home in front of buyers and to get a good price. More specifically, it is the defacto way people in the U.S. find, buy, and sell homes and more than 90% of all homes sold around the country start as an MLS listing. And when the MLS was invented more than 100 years ago, it was also a way for brokers to broadcast and share commissions exclusively amongst themselves.

The secret that no one speaks of is that the buyer's agent commissions tied to listings are only visible to other agents. Even though this information is not strictly confidential, public or wholesale disclosure is often restricted and MLS search websites can’t publish the numbers either.

Brokers and agents use language as part of the framework for real estate transactions that glosses over the critical distinctions which impact principals’ net proceeds. As one example, buyers hear that it’s free to buy a house with a buyers agent, but instead the commissions are already baked into the sales price and since buyers are the only party bringing cash to the table, they actually pay for everything.

image2.png

In fact, smart buyers today can reliably purchase homes in the MLS for a discounted price that does not use traditional buyers agent representation and doesn’t cost sellers any money. When buyers submit offers that address unused commissions, the seller is never worse off, and the buyer can pick up the home at a lower price. Few people know that this happens all the time.

image1.png

Sellers on the other hand continue to hear during listing presentations that it’s a terrible idea to not list with a 3% buyers agent commission because it will negatively impact the price. The idea presented often is that other buyers agents won’t tell their clients about the listing. And while that dark fact may have been historically true, it is no longer accurate today, but the costly and disparaging myth to agents perpetuates to this day.

30 years ago, the Internet didn’t exist, and buyer’s found out about what was for sale from their brokers. If a buyer wanted to look at homes, they got into a car with a broker who had a proprietary book, which included all the homes that were for sale and listed the commissions. The brokers had all the influence on which homes to show based on sales price but also based on the commissions. Buyers on tours in cars didn’t know what they didn’t know, and agents took them for a ride that didn’t include all available housing options if they didn’t have the right commission. No wonder the US Department of Justice has investigated the residential real estate industry multiple times in the last few decades!

Now fast forward to today-- the Internet does exist, and buyers find homes directly themselves on the Internet. In fact, it’s been shown that just about every buyer starts their search for homes on the Internet. So what does that mean to you, the home seller? Well, for starters, there is no more “steering” since the cars tours have been replaced with MLS search websites and 3D tours. When the power of the MLS and Internet are combined, the distribution of listing inventory is frictionless, instant, and 100% transparent to all buyers with or without a commission.

So what does that mean for savvy sellers today? Simply put-- you don’t need to pay a conforming buyer’s agent commission when you list your home in the MLS to find a buyer. Not only that, but you don’t need a conforming buyers agent commission to get a good price. And it goes without saying, higher buyers agent commissions above 3% don’t lead to higher prices either.

image4.png

To shed some final light on the matter of the necessity or benefit of buyer's agent commissions, we can look to peer-reviewed academic research which backs up the assertion that buy-side commissions don’t matter. Using data from the Boston MLS which is the only MLS to publish buyers agent commissions on consumer websites, MIT researchers Jia and Pathak analyzed buyers agent commissions and sold homes in a study entitled “The Impact of Commission on Home Sales in Greater Boston.” They found that while it may take a few days longer to sell a home, it has no bearing on the final price.

In summary, the academic research proves that homes sold without a conforming commission do NOT sell for less. It took a massive social change regarding people using the Internet to buy homes, but the payload is tremendous in terms of the money home sellers can save. Listing a home without a conforming buyers agent commission can save up to 3% of the net proceeds in a home sale while still getting 100% of the marketing and benefits of distribution power that comes with an MLS listing.  

Discuss buyer's agent commissions

Name *
Name
Phone
Phone