Brokers and agents tell new home buyers that the buyer’s agent commission is “free” to the buyer and that there is no cost for all the help. And most buyers proceed, and continue after that, to purchase residential real estate without questioning the framework ever again. In fact, trope is so common that when buyers become sellers, they also don’t object when presented with a listing agreement inclusive of a buyer’s agent commission— it happened this way before, and it must happen this way again right?
Regardless of the details underlying how it happens, the 3% buyer’s agent commission is baked into most listing prices in every single Multiple Listing Service (MLS) across the U.S. What actually happens at escrow when a buyer purchases a house is that they are the only party to pay for anything, so they pay for everything, including the buyer’s agent commission. Sellers never actually touch the buyer’s agent commission at all.
Understanding how reality differs from the conventional language leads to an earth-shattering conclusion for all home buyers. Buyers can reframe any MLS home purchase to capture the buyer’s agent commission for themselves or to get a lower price-- the insight effectively puts everything on sale by up to 3%! When buyers submit offers that address unused commissions, the seller is never worse off.
On the sell-side, when owners ask questions about ‘non-conforming’ buyers agent commissions, or if they can list without them entirely, traditional agents discourage these discussions abruptly. The standard argument presented is that since brokers already told all the buyers that it was free to buy a house, those other buyers agents won’t tell their clients about a non-conforming listing, leading to fewer offers and a lower prices. This narrative is a classic example of fear, uncertainty, and doubt which also happens to throws shade on the entire profession at the same time.
Those fears may have been justified 30 years ago. Back then, if a buyer wanted to look at homes, they got into a car with an agent who had a proprietary book, which included all the homes that were for sale and listed the commissions. The agent 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, the entire context for buyers has changed dramatically, because buyers find homes directly online and are in control of the process. Just about every buyer starts their search for homes on the Internet, and that means buyers are finding homes on their own, not through an agent.
Because all MLS listings are presented to buyers no matter what the commission amount, agents can’t ‘steer’ buyers away from non-conforming commission listings, and that is because the cars are long gone. Besides, sellers are never worse off by not including commissions up front because all agents know that if their buyer wants to try and finance a commission on a property that doesn’t have one, they can bake it into the offer after a discussion on the topic. Think about it, since the buyer pays for everything, why would they pay more for a house just because it has a higher commission?
Recent academic studies further support the conclusion that buyer’s agent commissions don’t matter in terms of their effect on price. In one peer-reviewed study, The Impact of Commission on Home Sales in Greater Boston, MIT researchers Jia and Pathak found that while it may take a few days longer to sell a home, lower commissions had no bearing on the final sale price.
So how do you list like an insider? List your home in the MLS without a conforming buyers agent commission and save up to 3% in net proceeds, without any trade-offs on the final sales price.