We sold our family home a few years back for $300,000. We paid our realtor 3% and the buyer’s realtor 3%. This is a messed up system ripe for scandal, as we paid $9,000 to someone we never met, never worked with, and never saw. To this date, I still don’t know who or why I paid them $9,000.
Why did I just pay the buyer’s realtor $9,000?
I didn’t give it much thought when my realtor said, “The sellers pay the buyer’s realtor commission. It’s usually 3% of the sale price. Sign here.” I signed the line, giving away $9,000 of my hard-earned cash to someone who might not even be a human. I mean, I might have given that $9,000 to a sham corporation set up by the homebuyer – in which case the buyer just got a secret $9,000 discount on the price of the house! It’s a strange system that doesn’t exist in any other industry as far as I can tell.
There are lots of messed up things about realtor compensation that deserve another look:
- Why did I pay my realtor a $500 fee on top of his 3% commission (e.g. $9,500 instead of $9,000)?
- Why doesn’t the buyer pay their realtor for their work?
- In addition to paying the above fees and commissions, I’m also responsible for a bunch of other standard buying-a-new-house things: Title insurance, closing fees, inspection fees, air testing fees, loan fees, etc. In a reasonable world, there’s a good argument that some of those dollars should be the realtor’s responsibility.
Why did the buyer get a free ride, paid for by me?
As far as I can tell, there’s no legal obligation to pay the buyer’s realtor’s at all! Like so many things in life, we just do them because “that’s how it’s done”. But, as with everything else in life, it’s all relative. For example, if you have strong negotiation skills and a backbone, you can negotiate down your realtor’s fee considerably. You don’t even need to negotiate down the buyer’s realtor percentage – just put a “0” in the form! When my parents sold their house, my dad, who was very generous in life but also had a backbone, went to the local realtor and said, “I’ll pay you $15k if you can find a buyer for our house.” The realtor found a buyer immediately, and that was that. As far as I know, my parents never paid a fee to the buyer or their realtor.
But then the buyer’s realtor won’t get paid?!
Trust me, if we all stopped paying the buyer’s realtor fees, they’d figure out how to get paid appropriately no time. Realtors are some of the craftiest, bootstrapping, gritty, gutsy, independent people in the world. They’d figure it out very quickly. And they have a strong lobbying group in their corner – the National Association of Realtors invested $44 million lobbying government in 2021. Even if they had to lobby Congress to pass a law legally demanding that the sellers pay the buyer fees – they’d figure it out immediately.
So I can just NOT pay the seller’s realtor?
If you are wondering whether or not you are legally required to pay the seller’s realtor’s fees, I don’t actually know for a fact – ask a lawyer, ask your realtor (but verify with a lawyer if they give you the wrong answer). What I know for a fact is that included on both of my home-selling contracts (which are very standardized in MN), there were blank lines where the percentages for each party was entered. Nothing physical was stopping me from putting a “0” in the field for the buyer’s realtor. For that matter, nothing was stopping me from putting a lower number for my realtor (whom I love, by the way).
What’s the lesson here?
There are a couple of business lessons here:
- The sick lesson: It’s possible to get people to pay for all sorts of things if they think it’s normal and that everyone else is doing it. (Pay attention to the upsells when buying a car, and you’ll find many examples of this in a single transaction.)
- The healthy lesson: Just because someone says you need to pay a specific fee doesn’t mean you need you. Ask thoughtful, respectful questions and see what you can learn.