Benefits of Paying the Buyer Broker’s Commission

Why Sellers Should Pay the Buyer Broker’s Commission

Buyer broker’s commissions are a hot topic right now.  Historically, sellers have paid the buyer broker’s commission. While it might seem odd for the seller to pay the buyer’s representative, there’s a reason this model has remained in place. It benefits the seller in several ways:

1. Avoid Lower Offers: When the seller pays the buyer broker’s commission, buyers don’t need to allocate available cash for this expense. This can prevent lower offers on the property.
2. Increase Appointment Requests: Listings where the seller covers the buyer broker’s fee typically receive more appointment requests and sooner after the listing appears on the MLS.
3. Avoid Unrepresented Buyers: Dealing with unrepresented or under-represented buyers can be difficult and often results in failed transactions.

Consequences of Not Paying the Buyer Broker’s Commission

When a seller does not pay the buyer broker’s commission, it can lead to several negative outcomes:

1. Lower Purchase Prices: Buyers who have to pay their agents in cash often submit lower offers to offset this cost. This results in lower net proceeds for the seller.
2. Reduced Competition: Homes requiring buyers to pay their agents may receive fewer showings, as many buyers do not have the extra cash on hand. Less competition typically means lower offers.
3. Increased Risk of Fall Throughs: Buyers who represent themselves or use discount brokers are more prone to mistakes, leading to a higher rate of transaction fall throughs. Houses that return to the market often sell for less.

The Financial Impact: A Real-World Example

Consider a buyer purchasing a $500,000 home with a 20% down payment ($100,000). If the buyer also needs to pay a 3% broker commission in cash ($15,000), the total cash outlay is $115,000.

If the seller covers the 3% commission and raises the home price to $515,000, the buyer’s down payment increases to $103,000. Additional costs like title insurance, transfer tax, and interest would be minimal, totaling less than $300. The buyer’s total cash outlay would be about $11,500 less than if they had to pay their broker directly.

Long-Term Benefits for Sellers

Sellers covering the buyer broker’s commission can expect:

1. Higher Net Proceeds: With buyers not needing extra cash for commissions, offers tend to be higher.
2. Increased Buyer Interest: More buyers are likely to view and make offers on properties where they don’t need to pay their agent’s commission in cash.
3. Smoother Transactions: Fewer transaction fall throughs and a more straightforward selling process.

Conclusion

Sellers who do not pay the buyer broker’s commission generally end up with lower net proceeds. The long-standing practice of sellers covering this cost benefits both parties, facilitating smoother transactions and better financial outcomes. Despite ongoing discussions and legal changes, the advantages of maintaining this practice are clear.

Check out the listings on ColdwellBankerHomes.com, to see Coldwell Banker listings that offer buyer broker commissions.

Contact me today to learn more about the benefits of paying the buyer broker’s commission.