Helen Babcock – Room to negotiate

When it comes to real estate commissions, what you see isn’t always what you get.

Where once the majority of real estate transactions involved a 6 percent commission split evenly between agents, nowadays 4 and 5 percent commissions are becoming more common. And to complicate matters more, the commissions are not always split equally and are open to negotiation.

A recent survey of homes for sale featured on the Multiple Listing Service-Property Information Network, a company that bills itself as New England’s largest listing service, revealed that many companies offered much less, or sometimes nothing at all, to buyer’s agents while offering a larger share of the total commission to subagents. But, according to local real estate practitioners, even the commission offered to subagents on MLS often does not represent an equal split, or even the full percentage an agent and his or her firm ultimately may be willing to share. A firm earning a 6 percent commission, for example, may offer only 2.5 percent to cooperating brokers – at least on paper. But everything, agents say, is negotiable.

According to Massachusetts Realtors interviewed by Banker & Tradesman, some brokers are willing to let their sales agents negotiate commissions while other firms refuse to bend the in-house rules. That flexibility may apply to the total commission that the seller will pay or to the percentage of the commission that a buyer’s broker or subagent would earn.

There’s always room for negotiation with commissions, said Gerry Mahoney, a 23-year veteran of the industry who manages Century 21 North Shore/Melanson in Peabody. They are not set. The industry does not allow us to set them. We can set them within an office, but we certainly can’t ever talk to anyone outside and say, ‘You know we are charging five apples. Are you charging five apples?’

In many circumstances, brokers use the commissions as a way to encourage or discourage certain agents from bringing a prospective buyer to view a property.

If you’re a member MLS, you have to cooperate. You must show your property even if they’re [the agent working with the buyer] not in the MLS. If someone knows about them [houses for sale] and calls to see them, you must cooperate, Mahoney said. However, you are not obliged to compensate [that agent].

Mahoney and other Realtors interviewed said they believe commissions should be split equally between agents but acknowledged that some agents don’t practice that way.

If we lived in a perfect world, everybody would offer to split their commissions with everybody evenly, Mahoney said. Each company sets their own standard on what they do. But I think more and more people are coming to accept that there are other ways of doing business.

Some agents are willing to adjust commission splits if they’ve worked with another agent or that agent’s firm before, according to real estate professionals.

If I come up with a client – or a customer, if I’m a subagent – when I call to set that appointment I have accepted the terms [of the commission split] that you have put out on MLS. However, at that point, before I’ve ever seen the property or brought anybody in … I can say to you, ‘Hey, I noticed you’re offering two apples. Gee, would you consider paying me two-and-a-half apples?’ said Mahoney.

And [you] can say, ‘Well, two apples is all I have to split.’ Or [you] can say, ‘Well, you know something, we work well together. I know you do your work and you’re going to hold up on that end. Sure, you come on in [and share an even split of the commission],’ she said.

But there are some circumstances when a listing agent might refuse to budge on the commission.

If an agent or a particular firm didn’t offer to split a commission evenly in other transactions, a listing agent might be reluctant to share an evenly split commission with that particular agent or company.

Put simply, What goes around, comes around, according to Mahoney.

There may also be cases when an agent doesn’t think a subagent is doing his or her job.

If I have consistently worked with this person and I found out that they weren’t doing anything, then maybe I don’t want to share with them because I’m doing 75 percent of the work and they’re only doing 25 percent, she said.

Almost all of the transactions Ayre Real Estate in Agawam handles involve equal commission splits, according to Cynthia E. Ayre.

‘The Bottom Line’
However, Ayre, who is president of the Greater Springfield Association of Realtors, said there are cases involving a third-party referral fee, when a company might be reluctant to offer equal commission splits.

For the most part, I believe everyone has their own right to set whatever rate they want, Ayre said.

Helen Babcock, president of the Greater Boston Association of Realtors, said an agent might also be inflexible about a commission rate when it comes to a home with an inflated price that an owner refuses to reduce. Usually, a house with an unreasonably high price will stay on the market longer, creating more work for a listing agent who must spend months advertising and showing the property, Babcock said. In those cases, the listing agent might want to keep as much of the commission as possible because of the extra work involved in the sale.

While some in the business readily recognize that commissions are negotiable, others are completely in the dark.

Mahoney, who teaches orientation for new agents for the North Shore Association of Realtors, said many agents do not realize that the commissions are negotiable.

A manager who strictly adheres and teaches the Realtor Code of Ethics, Mahoney points to a provision added in 1994 that says that real estate agents may negotiate the commission.

A lot of people in the industry don’t know that the rules have changed, she said.

However, Babcock and Ilona Kuphal, who manages The DeWolfe Cos.’ Back Bay and South End offices, said most of real estate agents they know realize that there is room for negotiation.

Babcock, who manages Carlson GMAC Real Estate in Winchester, said she believes that equal amounts should be given to a co-broker, whether she or he is representing the seller or the buyer.

There is some resistance in the real estate community to accept buyer brokerage, said Babcock. But Babcock predicts that will change in the next few years.

People want to be represented. Sellers have always been represented but buyers haven’t, she said. ‘Buyer beware’ does not hold up in this age. Buyers need to be informed and represented.

Kuphal agrees that buyer agency can be beneficial and that in most cases, a buyer’s agent brings a more qualified buyer to the negotiating table.

Most agents are still offering equal commission splits, according to Kuphal, and they’re sticking with the 6 percent standard, with the listing broker receiving 3 percent and the selling broker receiving the same. But she said there are some sales transactions, particularly involving high-priced properties, when agents reduce the total commission for doing the job to 5 percent or less.

Yes, there are certain negotiations going on, Kuphal said. You work together to have a deal that is satisfactory to the seller and that is satisfactory to buyer.

In addition, agents are more and more competing with companies that offer reduced commission, so-called discount brokerages.

Mahoney said competition and a low housing supply are pushing more offices to offer lower commission rates.

People just feel that they’ll offer their services for less than someone else is offering their services for and so, in many ways, you see commissions come down, Mahoney said.

Full-service offices can’t survive by offering low commissions, argue some Realtors. Bigger offices offering full services have many more expenses than they did years ago, said Mahoney, and cannot afford to provide cut-rate commissions.

The bottom line [profit] in those offices is disappearing, said Mahoney. It’s really getting bad because five years ago you probably didn’t have to have 10 or 12 computers, two fax machines, two copy machines. You just didn’t need all that.

Home Listing Agents Play the Percentages

by Banker & Tradesman time to read: 5 min