Should I Pay Buyer's Agent Commission? | Pros & Cons
Are you thinking about whether to pay a buyer's agent commission? The National Association of Realtors (NAR) commission settlement has sparked discussions on this matter. The proposed changes could potentially shift the landscape, affecting how buyer compensation is advertised and offered. As you weigh your options, it's crucial to consider both the pros and cons. Our exploration dives into the implications of offering buyer agent commissions, shedding light on factors like market exposure, sales speed, and the impact on your bottom line. Whether you're a seasoned seller or new to the market, understanding these dynamics can help you make a more informed decision when buying or selling a home in Huntsville, Alabama.
NAR Settlement Rule Changes
You've likely come across the headlines discussing the National Association of Realtors (NAR) commission settlement. Perhaps you're weighing the advantages and disadvantages of a seller offering a buyer commission.
Under the proposed settlement, which is still pending approval, a significant change involves the relocation of buyer compensation from the MLS to external platforms for advertising. While this compensation could be featured on brokers' websites, it won't be promoted in the MLS as before. Given this shift and the accompanying rule adjustments, you might wonder how many sellers will offer a buyer broker commission.
We have a little bit of insight into this with the northwest MLS experiment. They ran this for about two and a half years between October 2019 and March of 2022. From this experiment, they found two things. Number one is 99.3% of sellers still offered a buyer broker commission even when they did not have to offer that through their MLS. Number two is 94.5%, or about 19 out of 20 sellers, still offered a co-op commission that was above 2% commission to that buyer broker.
Cons of Offering Buyer Agent Commission as a Seller
Let's start by looking at the cons. The primary downside revolves around the investment required from the seller's perspective. Offering a buyer broker commission entails a significant financial commitment. A concern that arises among some agents or sellers is that many local agents, both here in Huntsville and nationwide, lack sufficient experience to justify the compensation being offered. To illustrate, I recently gathered some statistics from our local board. It's worth noting that over 46%, which equates to more than 2,300 out of over 5,000 local agents, have sold between 0 to 1 homes in the past 12 months. This raises the question: is offering buyer compensation worthwhile for someone who has only sold 0 to 1 homes in the last year?
Pros of Offering Buyer Agent Commission as a Seller
Let's dive into the pros. Imagine a hypothetical conversation where the seller expresses reluctance to offer buyer compensation, preferring to maximize their profits from the home sale.
Pro #1
The dialogue could unfold like this: The seller says, "Hey, Agent, I'm hesitant to pay compensation for selling my home." To which the agent responds, "I understand your concern. Let's consider the costs associated with showcasing and selling your home. Are you willing to cover expenses for an open house?" The seller might reply, "No, I prefer not to cover that." The agent continues, "And what about compensating an agent who brings in a buyer?" Again, the seller hesitates, "I'd rather not pay for that either." The agent then asks about covering costs for drafting offers and handling other details. The seller might respond, "I'd rather avoid those expenses too." At this point, the agent proposes an alternative: "What if we only compensate the agent who successfully brings a buyer to purchase your home?" This suggestion resonates with the seller, who approves, saying, "That sounds great." In essence, this system mirrors the one we currently operate under.
Most sellers prefer not to pay piecemeal for various services like open houses, showings, offer drafting, and inspections. The commission model offers an efficient solution because sellers only pay if the agent successfully secures a buyer. It's a win-win situation for all parties involved.
As someone who frequently engages in both buying and selling real estate, I'm often in the seller's position. My aim is to receive offers from every potential buyer, regardless of their agent's experience level. Even considering the potential downside of dealing with agents who have limited sales experience or are entirely new to the field, my priority remains maximizing the sale price and minimizing the time on the market. Achieving this hinges on maximizing exposure to all potential buyers and their agents.
The primary role of the listing agent is to effectively market the property, determine its proper pricing, and provide guidance throughout the selling process. If the home isn't attracting offers, they offer advice on adjustments to marketing, pricing, or home updates.
However, adopting an a la carte system could lead to several drawbacks. Firstly, it might significantly reduce the pool of potential buyers, potentially resulting in similar or even higher costs for the seller while limiting exposure. Secondly, restricting the pool of buyers who can afford to compensate their agent would also shrink the overall number of potential buyers.
As a seller, my goal is to reach the widest possible audience. I want to attract buyers who may not be able to cover their agent's fees, as well as those from my own brokerage and other firms. This strategy allows me to maximize the profit from the sale of my home.
Pro #2
Another benefit of offering buyer agent compensation is the potential for a quicker sale. Increased exposure through more showings typically leads to a faster transaction. This heightened visibility may also spark a bidding war, resulting in multiple offers and increasing the likelihood of a successful sale. Conversely, not offering compensation could mean the difference between selling and not selling at all.
In reality, the number of days a home spends on the market can work against the seller. While this varies depending on the market, lingering on the market can signal issues to potential buyers. In the past, homes on the market for a year raised eyebrows, but nowadays, even 30 days can raise concerns, depending on the price point. The longer a home sits, the lower the eventual selling price tends to be. Therefore, increasing showings and receiving offers more quickly can ultimately lead to a higher net profit for the seller.
In conclusion, while some sellers initially opt for FSBO (for sale by owner), many eventually turn to real estate agents. Similarly, some sellers may experiment with offering a 0% buyer agent commission, resulting in varied outcomes. However, I believe most sellers will ultimately choose to pay a buyer agent commission. Unfortunately, delaying this decision could negatively impact the seller, as prolonged days on the market may lead to a lower selling price.
Posted by Matt Curtis on
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