How? and What’s the Deal?
The system of compensation to brokers as it has existed for decades has included an element of “socialism”. That is, brokers could not afford to handle low dollar transactions if they were not also doing some larger transactions. The percentage paid on that small transaction would just not pay the overhead and leave enough to make a living. Thus, the higher dollar purchaser subsidizes the lower priced transaction. In addition, the typical “success based” compensation formula results in many hours of work that do not always result in payment to the broker. Every once in awhile a consumer will comment that a broker is “making a lot” on a given transaction. What the consumer does not see is the hours that the broker may have spent with someone who did not buy or sell or the hours on that smaller transaction mentioned in the first paragraph. The business model practiced by most brokers allows all of this to occur, provides for consumers to often receive services for which they do not pay and sets up a system where the professional services do not seem to be valued by consumers or by brokers.
What is the option? How can I save significant money?
You can hire your real estate just like you hire an your attorney or your accountant; BY THE HOUR. This is not “success” based compensation. You can expect to pay a “retainer fee” and then to be billed at stated intervals for your broker’s time. By agreement your agent should then be able to negotiate a price reduction based on the seller not paying your broker or, by agreement, your broker could pay that amount toward your “pre-paid expenses and/or closing costs”. By my observation and experience this will result in savings at purchases of $300,000 and up. That is dependent upon the hourly rate of the broker and just how focused is the buyer. For instance, on a recent $500,000 purchase, my client realized a savings of $7,500. Again by observation, consumers seem to be more careful of time when they are paying for it and will drive by potential homes and not request to see homes that just do not work.
Is this “fee for service” arrangement available with all brokers?
No. Many are comfortable with the current “system” and have simply not given any thought to other options. Sometimes they simply do not know how to properly value their time. It is certainly worth asking.