How Much do you Need to Compensate a Buyer Broker to get Your Home Sold?

Copyright © 2014- 2019  AUTHOR: Paul R. Marino, REALTOR®, e-Pro®

 

On Day One of “How to Make Money as a Real Estate Broker”, everyone is taught that if they control the listings, their financial success is assured. Good news for you, the home Seller, because YOU are definitely in control of YOUR listing. You have wisely chosen to explore the vast array of “new options” out there, to include Flat Fee MLS Services, sometimes referred to as Entry Only MLS Services. If you are unfamiliar with these streamlined business models, I strongly encourage you to visit the following US government web site, and brush up on the latest developments.

 

This article is written for those home Sellers that have the sophistication to know there are better, smarter, and radically less expensive ways of getting into the MLS system, and getting the exposure they need to get their home sold. As I mentioned in my earlier post from 3/8/2014 (in an examination of more than 300 actual transactions taking place in a particular New Hampshire city), the data revealed that a full 72% of homes were sold by a broker other than the Listing Broker. Once again, it is price and MLS exposure that sells houses.

 

As long as the Seller is in MLS, and is offering a competitive rate of compensation to the Buyer Broker, they will come. This is why full service brokers just love listings, because they know that even if they don’t personally find a Buyer (strong likelihood this won’t happen), someone among the hordes of several thousand Buyer Brokers out there will find a Buyer.

 

Be aware however, there is no "free lunch", and anyone that tells you different is spinning tales. I’m here to tell you the truth, the whole truth, and nothing but the truth. You will work to preserve your hard fought home equity, but it’s worth the effort. The money saved could mean the difference between sending your kid off to college or not. It could also mean the difference of whether or not you bring money to a closing (bad thing if you are a Seller), or collecting money at the closing (a far more pleasurable experience).

 

Assuming you have listed and sold your home via the services of a Flat Fee MLS broker, you will have pocketed something on the order of $3K+/- for a home valued in the $100K vicinity, and $14K+/- for a pricier $500K property. Take the mid-point ($300K), and you will be compensated $8K, give or take. (These numbers are realistic approximations based on brokerage fees currently being charged across the United States).

 

If you think back to your days of high school physics, you may recall the Law of Conservation of Energy. As you know, energy is never lost, just transferred. Relating this to the sale of your home, the “energy” typically expended by a Listing Broker in the sale of your home is simply being absorbed by you, the home Seller. The good news is, the work is readily defined, quantifiable, and straightforward. I’m talking measurements, photographs, and some basic data collection. Not exactly quantum physics, but work nonetheless.

 

The amount of money you will be compensated for your “energy” will vary of course, depending upon on a number of decisions that you, and you alone will make, chief among these: “How much should I share with the Buyer Broker?”  Short answer:  “Be as generous as possible, but no need to go overboard.” As you’ve probably concluded, there is only one thing that attracts a Buyer Broker to your home, and we all know what that is. Is that selfish? Of course not, it’s just natural. Let’s say you’re looking for a new job, and you interview for two essentially identical positions. Only difference; one pays $65K…the other $80K.  “Hmm…which one will I pursue the hardest?”

 

Trust me, the Buyer Broker is keenly focused on what “cut of the action” you are offering. Not to say it’s the only thing, but we would all be deluding ourselves if we didn’t admit it is important…very important.

 

In the real world, it’s the Buyer Broker that will be faced with many of  the real challenges out there, like:

 

1] Are the Buyers actually financially qualified?, or

2] Is there any truth to the rumor the plant where the Buyer works might be in trouble? (i.e. he/she might lose their job before the closing), or how about;

3] Are the Buyers just wasting the Buyer Broker’s time, money, and gas, driving them all over town on a wild goose chase? (you know the type - just professional “tire kickers”.)

 

Buyer Brokers work hard…very hard. In order to induce them to bring Buyers through your home, you are going to need to offer competitive compensation. As you are probably aware, real estate commissions are 100% negotiable. Does this mean you can offer a cooperating Buyer Broker ¼ of 1% compensation? (translates to $625 on a home selling for $250,000.) You sure can. But don’t be surprised if all you hear are “crickets”. Can you offer 5%? Sure…go ahead, but why on earth would you?

 

As it is part of my job to know what level of compensation gets someone to “sit up and pay attention”, I can tell you with a high degree of certainty the number generally falls between 2% and 3%.  Not to say I haven’t seen lower (rare), or I haven’t seen higher (also rare). If one examines median data over hundreds and hundreds of transactions, a cooperating fee of 2.5% is generally in the ball park.

 

One final piece of advice. From my experience buying properties at auction (have personally attended hundreds, and successfully bid at many), be very reluctant to squeeze every last dollar out of a transaction. Because when you try to squeeze out that last dollar, you will very often get burned. Offer fair compensation that is competitive in your particular marketplace. Make your profit, and move on.