What do you want to pay your real estate agent?

Well, if you're a buyer, you might think you don't pay your agent anything.

That's because, the commission on the deal is paid out of the seller's proceeds. So, the seller pays it. Of course, there'd be no sale without the buyer, and the buyer (or, the buyer's bank) is, in effect, paying the commission.

And, it's the buyer who's paying the interest on that commission, since it's included in the total he borrowed from the bank.

Lots been said over the past several years about broker commissions. Mostly, it's people complaining about the total commission paid out at closing - usually 5% (here in Boston), but as low as 4% or as high as 6%.

The commission is split 50-50 between the broker representing the seller and the broker representing the buyer. Further, each 50% is split in half, between the office and agent for the seller and the office and agent for the buyer.

So, if I was your buyer's agent, and I helped you buy a home, and that home cost $500,000 and there was a 5% commission, the total commission would be $25,000. From this, the seller's agent collects 2.5% commission, or $12,500, and the buyer's agent collects 2.5%, or $12,500.

If I was working for a company such as Coldwell Banker, I'd then have to split the $12,500 with them, probably leaving me with anywhere from $6,250 (if I was on a 50-50 split) to $7,500 (if I was on a 60% split).

Of course, I don't work for a company such as Coldwell Banker, so I keep the entire buyer's side commission.

And, of course, I'm worth it.

What is your agent worth? Whatever you're willing to pay.

If you are looking to buy or sell some real estate, discuss this with your agent, before you go looking for a condo. If you're a seller, of course you can negotiate the commission. Mostly. If you said to your agent that you only wanted to pay him 1.5% and the buyer's agent 1.5%, for a total of 3%, and he worked for Coldwell Banker, he'd tell you he wouldn't be able to do the deal. He would be forbidden. If you asked me to list your condo for 3%, I'd also tell you I couldn't do it, basically because I don't think I can cover my expenses for that amount, plus, the buyer's agent is going to want 2% or more, and if we want to get you the exposure you're going to need to get top dollar, you need to pay what the market is at.

If you are looking to buy, you can definitely negotiate the commission. It's mostly unheard of to do so, but you can, and, I suggest, you should. Especially in this market, where every agent is looking for business. Sit your agent down and say to him or her, "I want to buy a home through you, but I don't want to pay you more than 1/3 of any commission. I want the rest." Or, "I want to buy a home through you, but I don't want to pay you more than $5,000."

How would this work?

Suppose you bought a $500,000 condo. At closing, the seller's agent would get a check for $12,500. Your agent would also get a check for $12,500. If you had an agreement that your agent would only get $5,000, the remainder, or $7,500, would go to you. And, obviously, if you had an agreement that your agent would only get 1/3 of the commission, your agent wouuld get $4,333, and you'd get the rest (is my math right?).

Here's the problem: If your agent works at a large company, he or she is not going to be able to work with you. The major real estate companies will not allow it. It's that simple.

When you have the conversation with your agent, he will probably be speechless. If the agent is newer, he may never heard of such a thing. He'll say, "I'll have to check with my boss." Then, he'll most likely come back to you and say, "I checked, and my boss says it's illegal."

Not really. There are regulations about rebates, etc., that all agents must follow. The idea being, if I give you a refund of 2/3's the commission, then I'm buying you off, and/or convincing you to buy something you wouldn't otherwise buy.

There are many easy ways to get around this, well, not get around it, but do it legally. Such as, make your offer to the seller for 2/3's less of the commission - for $492,000 instead of $500,000, and tell the seller you won't be asking for the full commission. Or, more likely, have the commission applied toward your closing costs.

(You'll want to discuss this all with your real estate attorney and your mortgage broker, as well.)

Several real estate companies have gone this route - ZipRealty was one of the first major companies to to this. They offer buyer's 20% back on their commissions, and up to 25% to sellers.

Recently, a company called Redfin went into business, offering to rebate any buyer 66% of their commission and offering to sell an owner's home for a flat, $2,000 fee.

That's disruptive.

Redfin believes it can do this because it is using technology to cut its costs. More importantly, Redfin believes it can do this because it's doing a lot less for the average buyer.

Details on how Redfin works, can be found, here.

Why do I mention Redfin?

Because they are coming to Boston. Soon. Like, within 90 days. Boston will be their third market, after Seattle and San Francisco.

I'm going to be talking with the people over at Redfin sometime during the next week.

I'm curious what everyone thinks.

Would you want to use a discount broker, if you were buying real estate? Why or why not?

Would you want to use a broker who charges a flat fee?

Any and all comments are welcomed. Leave a comment or send me an email, at john@johnakeith.com.

Thanks.