- The Washington Times - Friday, January 4, 2002

One of the least-understood variables of the real estate transaction has to be the commission. Many buyers and sellers with whom I have talked are walking around with the misconception that every agent in the transaction walks away with 6 percent of the sales price as his or her fee for services. If that were the case, there would be a lot of happy agents in the industry.

On a $150,000 house, that would mean every agent would get $9,000. Hey, where do I sign up for that kind of money?

Another misconception is that there is some mysterious standard commission out there that lingers at 6 percent. Actually, that would be against the law and cause a lot of people to get into trouble with the government. Do a lot of companies charge 6 percent? Sure. Is there a set commission rate? No way.

Every company is allowed to set its own rate. ABC Realty may charge 6 percent; XYZ Realty may charge 7 percent; and Smith & Jones may charge 0 percent and offer a menu of services instead.

The managers of ABC can tell their agents that they charge 6 percent and not to accept one penny less. But managers of XYZ and ABC companies cannot discuss commission rates with each other. This is against the law and could be construed as price fixing. In fact, many companies tell their managers that if a manager from another company even moves into that line of discussion, they should excuse themselves and walk away. It's that serious.

Enough about the law. Let's talk about your options as a consumer.

Here's the bottom line: If you hire a real estate company to sell your house, there will be a payment due for those services, which will pay for all the companies involved in the transaction. It may be a percentage of the sales price, a set fee, an hourly rate or a menu of services in which the seller pays for use of various parts of the practitioner's services.

Most consumers choose a full-service company to sell their house. This means they hire a company to solicit agents from other companies to bring in buyers and offer a contract. If they charge 6 percent, on a $150,000 property that would be $9,000.

Usually, half of that commission goes to the buyer company and the other half to the selling company. Then the broker keeps a portion of that money and gives a portion of it to the agent involved in the transaction. The $9,000 might be split up like this: Selling company: $2,250 to the agent, $2,250 to the broker. Buying company: $2,250 to the agent; $2,250 to the broker.

If an agent does this once a month, he can make a whopping $27,000 per year. (That's before any expenses, such as auto, office equipment, dues, property marketing costs, etc.) As a point of information, the average agent does not sell one house per month.

Another way a seller can pay to have his home sold is with a company that offers menu-type services. Fees are paid to the company for the services the seller wants to use, and the seller does a lot of the work to sell the house, negotiate the contract, fulfill the contract, attend inspections, follow up on the financing for the buyer, etc. It all depends on how much work the seller is able to put into selling his own home with limited agent input.

Not many companies have been successful in using the hourly fees like many of their professional counterparts. I have talked with some agents who have tried to offer services to sellers and buyers on an hourly-fee basis, much like an attorney or accountant, but even consumers have a hard time shifting over to this type of compensation. For some reason, consumers want a successful transaction before they want to pay a dime to an agent for doing all the work.

Interestingly, only in real estate does the professional have to be successful before getting paid. Doctors' patients can die, and lawyers' clients can lose, but the professional still gets paid. If a transaction falls apart, an agent may have put in scores of hours but there's no paycheck unless it goes to settlement.

M. Anthony Carr has written about real estate for more than 12 years. Contact him by e-mail ([email protected]).

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