Ask Dr. Fil

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Dear Dr. Fil,

I Love your column! Thank you for the opportunity to have my questions answered without the hassle of a formal consultation. My question is regarding Real Estate Commissions. My daughter is selling her house and she has limited funds. Her realtor is telling her she needs to agree to pay a 6% commission fee to be split between brokers/ agents. I understand this may be the industry standard and she is more than willing to pay for her realtor’s fees. But why does she have to pay for someone else’s realtor? Why is she expected to pay for all of it?

Angry

Proper Pauper

Dear Proper Pauper,

Thank you for your question. Real Estate Commissions have been on everyone’s mind lately and it’s always great when confusion, anger and drama arise. It means we are being given the opportunity to explore a topic more deeply and seek understanding of it.

There are three major components at play during a Sales Transaction:

• The Capital,

• The Product,

• The Service.

The Capital is provided by a “buyer”, The Product is provided by a seller. Real Estate professionals provide The Service, which can range from teaching and analyzing data, writing and filling out paperwork, showing homes, etc. Buyers and sellers can engage in real estate sales and are NOT required to hire a Real Estate professional. This is the best way to go if you’d like to avoid all real estate related fees.

Real Estate Service fees are “usually” set at 6% to be split between sellers and buyers agents and paid from the sellers net proceeds at the end of a sale. But it is not standard, rule or mandatory. In fact, commissions are and have always been negotiable between all parties. It is important to have these conversations with your realtor, seek to understand what your realtor will do for you and even negotiate commissions. Negotiating goes both ways, and your realtor is also free to ask for more compensation or discount compensation.

To go further into your questions, sellers don’t pay for commissions: they do not provide “The Capital”. Buyers are the ones who pay for RE Service Commissions, which is included in the purchase price. Remember: only Capital can pay.

A Good Salesperson is not one that fills out the paperwork or shows you the most amount of houses. They are the ones with the most developed and personalized rolodex of connections that can link “The Capital” to “The Product”, yielding sellers the most amount of Capital for their Product, and providing buyers with the best quality Product for their Capital. It’s a skill set that takes years to develop, season and mature and the Hallmark of a true professional.

And that is a Service worth Paying for.

Sincerely, 

Dr Fil

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