Published September 6, 2024
Do You Get What You Pay For?
Yes... you do. Buyer broker compensation is a marketing tool and provides a positive return on investment. 98.8% of Sellers in 2024 offered 2-3% commission to the buyer broker, and those in this group offering 3% received the best net proceeds.
The national news has put a spotlight on the economics & practices of the real estate market especially on how buyer's brokers are compensated. Traditionally over the last 80+ years, buyer brokers in most transactions were paid by the seller of a property through a concession which essentially acted as a reward connecting the buyer with their property and closing the transaction. Additionally, the economics of this approach substantially lowered the amount of cash a buyer needed to make a purchase increasing the potential demand for their property and resulting in higher prices given the limited supply. In the simplest terms, this buyer broker commission was a marketing expense which increased demand for their properties which most often resulted in greater net profit for sellers.
Return on Investment Is Key
In the end, most sellers (and business people) are less concerned with expenses and more concerned with 'net proceeds' or profit. They understand whether it's the cost of replacing carpet, repainting, replacing an old furnace or investing in better marketing, as long as they get more back than they invest in expenses and time, they make a profit. Which is why we've tracked commissions levels & results for more than 10 years to help guide our clients in making the best decisions and investments.
Buyer Broker Compensation Market Share
In looking at 23,442 closed sales in our region in 2024,
more than 98.8% of Sellers have offered buyer broker compensation of 2% to
3%. Only 180 listings, or 0.77% of the market, offered no compensation to
a buyer broker with the vast majority (124 or 69%) of these sellers being home
builders who often favor the lower accountability of working with unrepresented
buyers and enjoy greater flexibility in holding properties for longer while
waiting to sell. Non-institutional sellers offering no compensation were
only 0.2% of the market.
Commission Performance
When we look at the average list to sale price ratios, we
can see offering 3% compensation is still providing the highest average ratio
of 102.1% with all other options dropping off by 0.7% to 3%.
Net Proceeds
Return on investment or profit should be the focus here, and when you account for the savings/expense of different approaches, the 3% option is the best performing for the majority of the market. Of course, the no & very low commission options actually provided higher net returns, as mentioned earlier they represent a very small share of the market.
While no & very low compensation options look attractive based on net proceeds, we understand our role as a trusted advisor is to provide strategies which provide the most reliable, optimal outcome for clients so inherently we tend to recommend the most proven paths to success. That said, we also believe in honoring our client's preferred approach to selling their home, so long as they are informed of the risks & benefits and we aren't compromising laws or ethics. So, if or when we have a client who wants to take road less traveled, we'll be there and get to see the market from a different perspective.
For now, for the majority of our clients we'll
keep with the 98.8% of the market where we've proven we can get reliable and
optimal results for our sellers. Of course, as the market evolves we'll update
our recommendations based on data and performance.
