In the Twin Cities real estate market, most sales transactions involve two agents – the listing agent, who represents the seller, and the selling agent, who represents the buyer. In certain cases though, a buyer will find your home and make an offer without the services of his own agent. If this happens, your listing agent will not need to pay out a cooperating broker commission.
Great – this should equal to some commissions saving for you, right? Nope. Unless otherwise specified in the contract, your agent will be able to keep the entire commission for himself! This type of windfall is referred to by real estate agents as a “hogger,” and they’re more than happy to get one!
While handling the entire transaction himself may involve a little more work for your agent than an ordinary sale, it certainly doesn’t justify him keeping the entire commission for himself. To ensure that you receive the benefit that would result should the buyer of your home not be represented by his own agent, make sure that your listing contract contains a Variable Rate Commission clause.
A Variable Rate Commission clause included in your listing contract will reduce your total commission obligation in the event that a cooperating broker commission is not paid out. For instance, if your commission rate is 6%, it would be reasonable to reduce that commission to 4%, if the buyer is unrepresented. Personally, I would request a variable rate of 3% rate, although most agents won’t agree to go this low.
Not surprisingly, most agents will not voluntarily bring up the option of a variable rate listing agreement, so you need to make sure and ask for it specifically. Don’t be surprised if your agent doesn’t understand the concept at first – it’s likely that his company is not training him to offer lower listing commissions.
A request for a variable rate listing clause is totally reasonable and more than fair. If, after explaining the concept to your agent, he refuses to agree – just find a different agent who will. If you need a recommendation, you can try this link.
No Nonsense Landlord says
That is an interesting concept, but only possible with a dual agency. I have heard of flat rate brokers, even some as low as $500, and you do all the work yourself. And decide on what the selling agent gets too.
Since many buyers have MLS though the web, the buyer can contact the seller directly and avoid a large commission altogether.
Kevin Huntington says
Hi No-Nonsense Landlord,
Thanks for your comment. You’re on the right track that a variable rate commission would only come into play when there’s only one agent – (the seller’s agent.) However, it’s a misconception that the seller’s agent must necessarily act as a dual agent in cases in which the buyer is not represented. It’s entirely possible for the listing agent to remain the seller’s agent only, and to have the buyer remain unrepresented/self-represented. (Of course, a clear disclosure to the buyer is warranted to make clear to the buyer that the agent is providing no representation.)
As for myself and my company, I do not practice dual agency, and I always offer a variable rate commission on my listings. The result is, that my sellers retain full representation and pay a lower commission when the buyer has no agent.
Your second point is also a misconception. Since the listing agreement is a contract between the seller and the brokerage, the seller is bound to pay the agreed-upon commission regardless of where the buyer comes from. In the typical (non-variable-rate-commission) situation, if a buyer were to contact the seller directly and purchase the property without an agent, the unfortunate seller would be bound to pay the full commission as stated in the listing agreement. This is the aforementioned, “hogger,” in which the listing agent keeps the entire commission to his/herself.
The way for a seller to protect himself is exactly as stated in my post – demand a variable rate commission. This would ensure that, should the property sell to a buyer who is without an agent, the seller would pay a reduced commission.
It’s a matter of contract. The typical listing contract used by most participants, at least in my state of Minnesota, calls for the seller to pay the stated commission regardless of where the buyer comes from – the agent, the brokerage, the MLS, or the seller. While this may seem unfair, especially to a seller who’s caught off guard, this is how the contract operates.
I’m very much in favor of sellers saving money when the listing brokerage does not pay out the MLS cooperating broker compensation. This is why it is written into all of my contracts via the variable-rate commission clause.
You’re totally right about flat-rate brokers. For a flat-rate fee, a seller can get their property on the MLS, and is free to offer whatever they want as the cooperating broker compensation. Nearly by definition, these flat-rate contracts will also be variable-rate – if there is no cooperating broker compensation to be paid out, the seller only pays the flat rate. For sellers who are comfortable with the process, a flat rate arrangement can work great!
Thanks again for taking the time to comment!
– Kevin