I remember many years ago, long before I got into real estate, talking to a listing agent in another city about how I should be able to get the real estate commission on a purchase because I wasn't going to use a real estate agent. Wow! She looked at me like I was from another planet. What in the heck was I talking about? I HAD to use a real estate agent and there was no way an ordinary person could get a commission that was earmarked for the anointed. I was dumbfounded by her reaction, which just confirmed that the real estate industry was messed up.
That was probably 20 years ago and if you try what I tried today you probably wouldn't get quite the same reaction that I did but you might very well discover that saving the commission is not quite as easy as you think. We've actually gotten quite a few calls over the past few months from home buyers that are running into obstacles trying to do this.
Why is it so hard for a home buyer to receive the commission on a purchase? Well, in theory it shouldn't be and often home buyers can pull it off. But you can also run into a lot of hurdles along the way and it can get unbelievably complicated. For example:
The Listing Agent May Decide They Are Entitled To Both Sides Of The Commission
This is probably the most common problem that we see all the time. When a buyer represents him or her self the listing agent is absolutely going to do more work. The listing agent might have to show up for showings they would not otherwise have attended. They will have to answer more questions. They will have to do additional paperwork. They will have to do more hand holding. Given the choice between working with an unrepresented buyer and a represented buyer almost all agents, myself included, would choose to work with a represented buyer. This phenomenon is so real that when we sold my parents' home in Dallas earlier this year I offered the listing agent a higher commission for unrepresented buyers (but lower than the total commission with 2 agents involved).
Anyway, because of this dynamic many listing agents will refuse to give up any commission to an unrepresented buyer and this can get really sticky. For instance, they can make a very credible claim that they are the procuring cause of the buyer finding the home and therefore they are the only agent entitled to the buy side commission. Even if the buyer later brings in their own real estate agent the listing agent can refuse to pay them anything or the whole amount. In fact, in the Chicago suburbs it's not unusual to see a listing with a variation of this note: "If listing agent shows property, buyer's agent must pay 50% referral." I suspect that note is there to prevent a buyer's agent from swooping in at the last minute to collect a big fat commission.
The Listing Agent May Decide To Keep Both Sides Of The Commission Just Because They Can
This is actually a subtle variation of the previous issue often encountered. Technically the listing agent is entitled to the entire commission and they decide how to share it with a buyer's agent. If there is no buyer's agent they can keep both sides - even if they don't really do any additional work. Many listing agents will decide to exercise this right. They might even tell you that they are foregoing a portion of the commission but then still pocket the whole thing. You won't ever really know if they did - until perhaps closing.
The Listing Agent Might Insist That You Get Your Own Agent
This actually happened to some buyers who consequently became our clients. The listing agent was concerned about the buyers not having their own agent. Either it was an integrity issue for the listing agent or she wanted to avoid the difficulties of dealing with unrepresented buyers. In either case she told the buyers to get their own agent.
The Listing Agent May Believe That A Buyer Can't Receive The Commission
When I was taking one of the required Illinois real estate classes several years ago the instructor was actually the woman who wrote the book. She has been in the business since 1975 and has been teaching real estate classes since 1989. She has worked with the state and local real estate organizations on educational materials. Yet, when I told her that my business model involved a commission rebate to the buyer she insisted that I could not do this because it was illegal. I knew she was wrong so I just dropped it. But there are a lot of realtors out there that believe that buyers can not receive the commission.
How Exactly Do You Get The Commission And How Should It Be Documented?
There are actually 3 different ways that you can get the economic benefit of the commission. You could get a price reduction. You could get a credit on the closing statement. You could receive a check after closing. And there are a variety of documentation alternatives for these. The listing agent, the seller, the two attorneys, and most importantly your lender all have opinions on this. In fact, if not handled properly your lender can totally disallow the commission savings.
That reminds me. If you are buying a short sale or a bank owned property then the seller's lender has an opinion on this matter also and that opens up a whole other can of worms. In these cases the seller's lender can prevent you from getting the commission.
So Is There Any Way For A Home Buyer To Get The Commission?
Yes. And the solution is pretty simple actually. Just find a realtor that either rebates a healthy portion of the commission or works by the hour in exchange for a 100% rebate of the real estate commission. But, in light of the issues I discussed above, be sure to engage this realtor early on in the process - before you actually start seriously looking at properties. You can go to open houses by yourself but to keep the vultures at bay just tell the listing agent or their minions that you are already working with someone - but be prepared with a realtor's name in case they ask you.
With this approach, on a net basis, you won't get the full economic benefit of the commission but, depending upon the brokerage model you engage, you can get substantially all of it. In exchange for giving up some portion of the commission you will get the benefit of professional help. Like I always say you can change your own oil but is that really the best use of your time? The goal is not to "save" as much money as possible but rather to save as much money as possible without wasting your own time. If you effectively pay a realtor $75 - $100/ hour to do work that you would not do as well in twice the amount of time then that's a pretty good trade off.
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Source: http://www.chicagonow.com/getting-real/2012/08/homebuyers-that-want-the-real-estate-commission/
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