Imagine if your boss at work asked you to sign a new employment agreement that said “Employee to receive $3,000 per month (or whatever your regular compensation is) via ABC Company, Inc. (your employer's name) but only $1.00 will be guaranteed. Company, Inc. does not guarantee payment of compensation.”
Sound legit, doesn't it? Actually, no, it doesn't sound the least bit legitimate. Most employees asked to sign such an agreement would start looking for a different job immediately if their company tried to create a legal loophole that would excuse them from paying and give no recourse for getting paid.
A recent seller called us before listing and asked us if we guaranteed payment of the commission to the buyer agent. This was a good but never before asked question, so it really piqued our interest. We explained how when an agent/broker procures a buyer who successfully closes on a property, the MLS rules are clear--the listing brokerage must guarantee the payment of the commission to the buyer agent/broker. We know from experience that this guarantee is a big part of the reason that agents show our listings—they don't need to worry about losing the commission they expect from working with their buyers. This comfort that agents feel with our listings is a direct contrast to how an agent feels about an unlisted "by owner" property (See this story for more background on how agents want to keep their buyers away from unlisted by owner properties that are for sale).
We asked this seller more questions and learned that his current flat fee MLS listing broker had listed his property with a commission in MLS of only $1.00 (yes, that is one dollar, not a typo) even though the seller was offering 2.75% of the sale price as is typical in this particular area. The listing had language similar to the employment agreement in the hypothetical story above, including clearly stating that the Brokerage “does not guarantee payment of compensation.” The listing essentially stated that the buyer agent will probably get 2.75% if their buyer closes on this property. This seller had reviewed his listing, seen it on many public websites, but had no idea his listing was presenting the buyer agent commission differently than other listings. He understandably assumed if he was offering the commission, that would motivate agents to bring their buyers.
As you can imagine, the seller was on the market for a while with little or no activity, so he tried calling some agents who were active in his area to see if maybe they had a buyer for his property. When he spoke to the buyer agents, they effectively told him that they'd be crazy to take their buyers anywhere near his property. Agents understandably refused to rely on the kindness of strangers to make sure they were paid the commission for their work representing their buyer. Every other listing in the MLS protected and guaranteed their commission, and if they could reasonably expect to get paid why would this listing brokerage have gone to all the trouble to create this loophole to make payment optional?
Every Realtor who would see such an unusual commission offer would visualize all the work they put in with a buyer and then finding out after all that time was spent that they would not be compensated as expected. The Realtor would picture being at closing and instead of receiving the commission check as is typical, they would receive nothing (maybe a story or an excuse for why there would be no commission paid). Worse yet, the Realtor would have little or no recourse to try to recover the expected commission because this contrived commission arrangement removes all the MLS rules that protect the buyer agent's commission.
As one of the first Flat Fee MLS Listing Brokers, (More about about our background) I can understand how it would make my job easier if I were no longer responsible to make sure buyer agents were paid, but the harm it would do to my sellers and buyer agents would be way too great. When this commission payment loophole killed a possible sale or showing, most sellers would have no idea why. The property wouldn't sell, and sooner or later the seller would give up (probably thinking flat fee listings just don't work, or their price was too high for the market, etc.).
I just looked up the brokerage that listed this seller's property and every one of their current listings I found had the same non-guaranteed commission clearly stated. Early on, we created the idea of the Agent Friendly Listing, where buyer agents (who represent and influence 86% of all buyers) would be motivated to show and sell our listings. Having an Agent Friendly Listing is more difficult than the average consumer realizes (learn more about how to have an Agent Friendly Listing here). This unprotected buyer agent commission is yet another example of how most other flat fee brokers sell Agent Unfriendly Listings that alienate and repel buyer agents and the buyers they assist. There is almost no way for a consumer to know a Broker lists this way because all commission information is only available to agents and does not show up on any public websites—it is completely hidden from the view of the consumer.
In the end, this seller listed with us and sold shortly thereafter. Unfortunately, He wasn't able to get a refund from the first flat fee listing company. Fortunately, through our service, his home sale check was about $14,000 larger than it would have been had he gone the traditional huge commission route.
This is yet another reminder to BE CAREFUL when selecting a Flat Fee MLS Listing Brokerage, there are many, many bad options out there.
You won't save any money if you aren't successful at selling.