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Who Earns the Commission?

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What do you think the motivating reason would be for the 5% of all homebuyers who chose not to work with an agent but instead conducted their own home search, contacted the seller, negotiated the contract, located their financing, arranged their inspections and all of the other services provided by REALTORS®? Most people would probably guess the buyers were wanting to do the work themselves and earn the commission in the form a lower purchase price.

Looking at it from the seller’s perspective, what would be the reason for the 8% of all home sellers who chose not to work with an agent but instead did their own research to determine the value of their home, coordinated all of the marketing efforts necessary to have sufficient exposure to the market, negotiate directly with the buyer, and investigate all of the other steps necessary to close the sale? Is it possible and even probable, that they too were trying to earn the commission and net more proceeds from the sale?

If the home sold for fair market value, it would be reasonable to assume that the seller won out over the buyer. If it sold for less than market value, it seems that the seller didn’t realize his full equity in the home. In either case, both buyer and seller engaged in activities that they were less experienced and capable than the real estate professional.

The Profile of Home Buyers and Sellers (Exhibit 8-1) reports that 14% of sales were For-Sale-by-Owners in 2004 compared to just 8% in 2019. The trend shows that agent-assisted sales rose to 89% in 2019 from 82% in 2004.

The three most difficult tasks identified by for-sale-by-owners is getting the price right, preparing or fixing up the home for sale, and selling within the length of time planned.

The time on the market for sale by owners experienced was less than that of agent assisted homes; two weeks compared to three weeks. This could indicate that the home didn’t maximize its potential sales price. According to the previous mentioned survey, for sale by owners typically sell for less than the selling price of other homes.

The reality is that both parties cannot earn the commission. It is earned by providing specific services that are essential to the transaction. The capital asset of a home represents the largest investment most people make. An investment of that importance certainly deserves the consideration of a professional trained and experienced to handle the complexities involved. There is value to having a third-party advocate helping each party to the transaction.

The tasks involved in buying and selling a home exist and must be done. Since nine out of ten transactions involve an agent and therefore, a commission. It comes down to deciding which is more important: time or money. If a buyer or seller values their time more than the commission, they’ll usually work with an agent. If money is more valuable to a buyer or seller, they may try purchasing or selling without an agent. One thing is for sure: there are two parties to the transaction and only one commission.

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