Commission on Concessions?

Question

I was in a meeting today with fellow REALTORS® and the discussion moved to "Why do some agents put in that commission will not be paid on concessions?"

There was a bit of back and forth and I was not quite grasping the other side so I figured I would throw it out there for fellow agents to chime in.

MY STANCE: My seller should not pay commissions on monies used to assist the buyer in purchasing.

REASONING: We earn our commission (at least in NY) when 4 items are reached. We produce a "Ready, Willing and Able buyer and provide documentation to all relevant parties"

STIPULATION: Yes I agree there are plenty of other things to be discussed,

ARGUMENT: As a buyers agent, you have not produced an "Able" buyer. You have produced a "willing" and "ready" buyer. But to get to able your client is asking for assistance. Not only are you asking for assistance to get to "able" you are asking for payment to get to "able". Why should my seller pay commissions on the difference?

Figured it would be a good topic to discuss among agents.

Steve Vaughan · Answer

Hope I'm not out of line commenting as a non-licensee, Mike.

As a seller I would think it pretty stand-up to say, as my listing agent, you won't charge commission on seller concessions.  Would be a smart business move. A cool niche for a really small cost.  The LA's direct commission on a $10,000 concession would be what, $21?  ( .06 x10k /2 x.7)

So, for up to a $50 loss, you get to tell your sellers you won't charge commission on concessions they end up giving? Yep yep! Anybody else advertising that?

Funny though how much push back will be received from the buyer's agents.  Dude, it's a happy meal.  Let's leave a good taste in the seller's mouth.

Rebecca Rasmussen · Answer

"Why do some agents put in that commission will not be paid on concessions?" --> I ask instead why is it the assumed norm to pay on GROSS vs NET? I contend that if anything's going to be assumed then the assumption should be NET, and GROSS the outlier. My guess is that the tradition was established before the concept of concessions came into the mix, and how commissions are calculated hasn't adapted.

As a listing agent I'm one who states in my broker remarks that commission will be paid on NET sales price and explicitly define it as [GROSS Sales Price] - [Seller Concessions] = [NET Sales Price]. [Seller Concessions] around here being any Seller contribution to closing costs or Buyer's fees, credits given to Buyer at closing for repairs, and so on.

We do have to have it specified in the contract -- or have the Sellers and Buyers review and sign an amend/extend -- that the commission is to be paid on NET Sales Price as otherwise the Closing company will *assume* it's being paid on GROSS and calculate the checks as such.

Why NET vs. GROSS? GROSS is sales value published publicly here after the sale, but ...

• NET is what the Buyer is actually paying for the property.
• NET is the value we use when comparing properties for CMAs.
• NET is the value Appraisers use when doing their work.
• And last but by far not least: NET should be the value on which we pay commissions because otherwise the Seller might be paying a commission on a sales price they did not receive.  So, if there are concessions and the commission is paid on GROSS the Seller would be effectively paying a higher commission rate than agreed upon in the listing contract.

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@Steve Vaughan -- another way to look at that is $600 that the Seller keeps in his/her pocket. In my last listing the NET vs GROSS total difference was $65.83 that the Seller didn't have to pay. So, sometimes it really is peanuts but, as you say, always good press. :0)

Eric Clayton · Answer

It’s a private price reduction. Pay commission on the price after concessions because that’s the “real” sales price.

Jake Alger · Answer

Hi Mike,

That is quite the question and to be honest, after reading it slowly, I see all sides here and I'm sure everyone will see it a little bit different.

I agree with the point about the seller not paying commissions on monies used to assist the buyer.  It doesn't make sense that the sales price would include concessions, but in all reality, that's how it's reported, at least here in WA.

As far as the argument part, I would argue that producing an "able" buyer doesn't necessarily mean that the buyer isn't "able" to purchase the property without the concessions, but rather unwilling.  For instance, purchasing a home and asking for seller concessions may have nothing to do with qualifying for a loan.  It could purely be a move to close with less cash out of pocket for any number of reasons.  That to me would mean they are unwilling to purchase at any other terms, but have every right to do so.

I've always understood it as:

Ready - is in a position to offer on a property, actively looking, etc.

Willing - makes offer on a property at the terms of the seller

Able - has the financial means to close at the terms of the seller

This is a good thinking question, it's going to be on my mind all night!  Thanks for posting :)

Clayton Boyle · Answer

This thread is five years old.

Commission on Concessions?

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