Why would a seller pay a buyer’s agent??

[Sammy Lyon]

I've been thinking about this one a lot as a realtor having to have these convos with my clients, and wanted to break it down with some simple numbers.

You may have heard about the new law changes in the real estate industry about commissions and compensation.

Some home sellers might be asking, “why would I want to pay a buyer’s agent??”

Well, here’s my simple answer - you can net more money if you do!

Sounds contradictory, but this is how that works. (Hint: it has to do with how "leverage" works in real estate!)

Let’s say you are selling your house. Let’s use a $1M sale price, for easy numbers.

The buyer plans to put 20% down to buy your home. That’s $200,000 for down payment.

Pretend there are no closing costs, etc, so they just have the $200k that they’ve been eagerly saving for years to buy their $1M house.

This is their leverage (the beauty of real estate!) - with only $200k, they can buy a $1M house because they can borrow the rest from the bank.

Let’s say the buyer’s agent is asking for 2.5% of the sale price. That’s $25,000 in buyer agent compensation.

Now, if you the Seller pay the buyer’s agent, you will net $975k.

($1,000,000 - $25,000 = $975,000)

As a seller you probably have a listing agent to pay too on top of your transfer taxes, closing costs, etc, so the net is less than that obviously, but we are just focusing on the buyer agent compensation piece of it right now for easy numbers!

But if you DON’T pay the buyer agent, the Buyer has to pay them.

So now instead of $200k to put down on your house, the buyer only has $175k left for down payment.

($200,000 - $25,000 = $175,000)

Guess, what – now the buyer who was going to pay you $1M for your house can only pay you $875k, since they had to pay out of pocket for their buyer’s agent.

Why? With $175k, their buying power is now only $875,000 with 20% down.

($175,000 / 20% = $875,000)

Of course, the buyer can put less than 20% down and pay private mortgage insurance, but let’s say they really want to put 20% down.

As a seller, you have now reduced the pool of buyers who can pay $1M for your home since the buyer needs to save more money to reach a $1M purchase price.

So, would you rather make $875k and “save” money on commission, or make $975k and just pay their agent?

Up to you! :)

What do you think of this logic...?