Sellers, Pay Attention to the Co-Broke!

When listing their home for sale, the only commission number sellers typically pay attention to is the "gross commission" charged by the listing agent. One broker may charge a little more, another a little less, and that gross commission number can become a huge factor in who a seller lists with.

But there's another number on the listing agreement that is equally, if not more, important — the "co-broke" commission (or portion of the gross commission) that the listing broker will offer to another cooperating broker who brings the eventual buyer. Many brokers, as a matter of course, routinely offer a 50/50 commission split with cooperating brokers. But quite a few don't, only offering a smaller fraction (sometimes a third or even just a quarter) of the gross commission to a cooperating broker.

As a seller, should this matter to you? Absolutely. It is more likely that the buyer for your house will come through a cooperating broker, not your listing broker. In fact, of the 400 single family sales handled through the Sullivan Multiple Listing Service, 58% were sold by a brokerage other than the listing broker! (Note: that isn't another agent in the same company, but an entirely different brokerage altogether.) At higher price points, the percentage climbs even higher. For all sales closed above $200,000, 65% were sold thorugh a cooperating brokerage, and above $300,000 the number jumps to 78%!

If a seller presses a listing agent on why they aren't offering an equal commission split, they're likely to get a laundry list of reasons. They need to keep a bigger share of the commission because of the costly marketing and adverting they're going to put behind your property. But unless they're doing some special niche marketing, say advertising a horse property in horse magazines, or an estate in the NY Times, that argument is weak. Other agents, myself included, also invest in marketing and advertising to attract buyers.

Frankly, given the data, the lion's share of your commission dollars should be targeted at motivating cooperating brokers to short list, show and sell your house. I would even go so far to venture that, particularly for higher priced properties, a strategy to generate interest among an appropriate group of cooperating agents can be more important than slick advertising. But for more listing agents, marketing a property to other agents and brokers is sort of an afterthought.

As a seller, when you go to list your property, be sure to discuss the entire commission picture, not just the gross commission. Because that co-broke number can be particularly important in motivating the person who is most likely going to find your buyer.

Comments

[Friday910]

A bit off-topic, but since winter is here... David you mentioned something about pipes above the frost line in one of your articles. Any concrete/quantitative info on frost line and SC?

based on this http://2.bp.blogspot.com/_QOEZ0xLtg2g/SRs2ytDeyRI/AAAAAAAAAc8/_rvSvSIMrj8/s1600-h/frost+line+graph.gif it looks that most of SC is between 50 and 60 inches. Is that what you have?

[David Knudsen]

I don't know exactly. The contractors and excavators do. But I think they generally put pipes 4 to 5 feet below ground.

[helmut]

The following post was written a few threads ago about natural gas.

A few bucks says Arthur?

Not to ExxonMobil this morning.

They just purchased XTO for 31 billion.

Read on:

http://www.bloomberg.com/apps/news?pid=20601087&sid=anlPM8zJ_rE4&pos=1

And - just who is XTO - and their relationship to the Marcellus Shale play?

Read on:

http://pittsburgh.bizjournals.com/pittsburgh/stories/2009/12/14/daily3.html

====
[Title]

Exxon Mobil paves way to enter Marcellus Shale with plan to buy XTO Energy

=====

Big news for Sullivan County. Big news.

Helmut

=========================

{Arthur writes:}

The absence of gas drilling from the agenda confirms your belief that leadership is lacking. When the facts come out on gas drilling, everyone will receive a sorely needed "wake up call". In other areas where gas drilling has occurred, water has become polluted; pets and livestock have died; spontaneous explosions have occurred; and, people had to abandon their homes. The greatest service we can do for one another is expose the sad facts. We will ruin this bucolic area with gas drilling; and, for what, a few bucks? People who have called Sullivan County home, be it fifty years, or, one year, and everything in-between, will become homeless. The area will be decimated. The facts are slowly coming out, and, the facts are daunting and scary. Everyone needs to become informed before it's too late !

Posted by: Arthur | December 13, 2009 at 09:37 PM
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[rob t]

what has the average buyers-broker commission been on homes in the 250,000 to 400,000 price range?

[David Knudsen]

2.5%

[Rod]

Paying a co-broke fee of 2.5% is a ridiculous insult to the seller, especially when half these companies charge 7 or 8% with the cockimany excuse of gas expense and 'keeping the lights on'. Especially when any marketing that these agencies do is lackluster at best, ineffective and a waste of ink at worst.

As with many things in Sullivan County, the lack of good competition keeps prices high, be it with real estate prices, bank rates or gas prices.

[John]

I do agree that a fifty fifty split is fair, because the buyer's agent does just as much work, and spends just as much money. As for Rod's comment 7% is not very common and 8% is even less.

As for lack of competition keeping rates high, tell that to Foxton's. Like anything else you get what you pay for.

Realtors do not make a dime unless they sell something. 8% of zero is still zero.

[r_krumcake@verizon.net]

Rod,
I would think 5% total commission with a 2.5%/2.5% split would be adequate for a sale at between 250k to 400k.

Asked and answered.

That's what the person asked about.

Rudolf Krumcake

[David Knudsen]

I posted my overall average, so that means some sales had a co-broke of less than 2.5% and some more. The point of my post wasn't about gross commissions, but rather the equitability of the split, when the seller is paying, say, a 6% or 7% gross commission, and the split offered to the selling agent is 2%. I have no comment about the gross commission a seller may negotiate with his or her broker, but rather the best use of that money in the seller's interest to generate a sale. This post came to be after a seller called me a couple of weeks ago to chat about why their house wasn't selling, or why it wasn't even getting any interest. I looked at their listing, saw a 2% co-broke, and told them that one reason might be that they were offering sod all as a co-broke to the selling agent. The seller told me the gross commission on the listing, and the co-broke wasn't even close to 50% of the total. He told me that his agent told him there were all of these expenses to advertise and market the property, and the higher split for the listing broker was to cover these. I asked him what those expenses were, and one he mentioned was listing in the MLS. Get real. Putting a listing into the MLS costs about ten bucks (I think, remember, I don't list), and that propagates out to Realtor.com and other syndication sites. Sure, the property is posted on the broker's website and maybe their franchise network if they're a franchisee. But I saw no indication of any extraordinary marketing or advertising expenses for this property, and the seller was led to believe that a pretty standard MLS listing input incurred large expense that justified that the listing side earn a far larger split of the commission. But the reality was that the justification was just a bunch of bull.

[larry steiger]

I do agree that listing agents should offer attractive splits to selling agents. You’re right, David, when you say that higher commissions will attract more attention by selling agents (or buyer agents) and will get the property shown more often, especially in a market when inventory is high and demand is low. If there were ten similar properties in the same price range, I would be motivated to show the five with the higher commissions offered to the selling agency. Listing agencies do have substantial expense, however. Most listing agencies in Sullivan County have offices they either rent or own. I believe most buyer agencies in Sullivan County work from home (where the MLS services are available on their home computer). Most listing agencies must staff and equip these offices. Most listing agencies advertise in a number of homes magazines. I haven’t seen full page buyer broker ads in the mags ever. Listing agencies buy FOR SALE signs, take pictures of the property(usually not the most flattering), and do spend quite a lot on marketing. And listing agents show lots of properties, since they are selling agents too. After listing properties, they also must show and try to sell properties. They do spend more time and probably more money wearing both hats. So its understandable that some listing brokers and their agents feel that the selling agency side deserves a smaller split. In the final analysis, however, I don’t agree with this thinking. Bringing the buyer to the table is what makes the deal and the sale, and giving the selling agent an even split (or even a higher percentage) would motivate them to sell more of the listing agents listings in the future. The beginnings of a beautiful (and profitable) relationship!

[David Knudsen]

Larry, I appreciate your thoughtful comments. But a couple of clarifications. Sellers agents do not necessarily equate with us small cadre of buyer agents. Most seller agents who actually sell a property through the MLS are also in the more traditional mode you mention, with offices and franchise fees and the like. And even as a buyer agent, traditional agents generally perceive we don't have advertising and marketing expenses. I don't advertise in print throw aways because I personally find print to be pretty ineffective. But don't assume I don't have marketing expenses unless you know what I pay for online marketing. Maintaining a top 5 position in Google for most search terms doesn't just happen by accident.

Justifying a higher split because they spend money on FOR SALE signs and taking pictures is, in my opinion, laughable. Show me ONE brokerage in this county, besides Freda Real Estate, that has invested in lighting and camera equipment to photograph a house well. (Although Chapin Realty also does appear to take time with its photos.) And in my 9 years of selling real estate here, I've only seen an agent prepare a full color brochure with a DVD of the property ONCE --- kudos for that to Denny Pratt. A hundred buck digital point and shoot camera is not my idea of an marketing investment to take photos to market a property. And spending more time and money wearing both hats? How about coming out with me one day when I'm taking a prospective buyer from Glen Spey to Roscoe and showing a half dozen houses, or going out with me on a 'preview' trip to take my own photos of a house for a prospective buyer because the listing photos are so poor. And how about the time and expense for the continuing education to do what I do well? How many agents in Sullivan County have spent the time and money to take NAR's day long short sale course? Or schlepped to the city to take one of the top notch real estate courses at NYU (that cost a LOT more than the fifty buck online courses that a lot of agents cram through when their license renewal is coming up.)

[Ken]

I'm actually a little surprised that the traditional real estate broker business has remained intact this long. Something like 6 or 8 years ago people could now list their house on realtor.com without a broker. I always thought of the MLS book as being a piece of job security for the broker business because it was basically the only way to get your home broad exposure.

I'm surprised more people don't try to sell this way. I don't think that many people are even aware of the fact that you can do this. Let's say I'm paying 6% to the listing agent and it's a 50/50 split on the co-broker thing. I would rather list it myself at 4% commission. I'm going to try this next time I sell. I don't mind paying someone to sell my house. I do mind paying someone for basically doing nothing.

And get real. You really don't need a big fancy office in order to conduct a real estate business. You just need a car, camera, telephone and some knowledge of the market.

[larry]

David, there is no doubt in my mind that you are the most prepared, intelligent and well informed agent in Sullivan County. I have been looking at your site and reading your blog for years, and I can well imagine the work involved. Why not become a listing agent and help sellers understand what it really takes to market a property properly, price it realistically, and collect more or all of the well deserved commission. I would imagine that a good listing agent sells a lot of their own listings and doesn’t need to co-broke as much as you are probably doing. I’m serious about this. Why be at the mercy of listing agents who aren’t as qualified. You’re probably doing most of their work anyway once you show and start negotiating one of their properties. As a buyers agent, you are practically forced to work with listing agents who don’t understand (or don’t care to understand) current market conditions, regulations, trends, etc.

[keith]

As some of you probably know, Sullivan West, is a school system that resulted from the merger of Delaware Valley, Jeff-Youngsville, and Narrowsburg schools. What happens if gas drilling is the only way for the school from going bankrupt? Not saying I'm for it, but the issue will have some momentum.

http://sc-democrat.com/news/012December/18/news.htm

[Jim The Realtor in Sunny San Diego]

Interesting concept.

Maybe Dave can shed some light on this where the writer below writes that they will pay a commission to the selling side (say 3% or 4%) and nothing to the listing side of the transaction.

My guess is that your listing would be rejected by the local MLS bureau since it does not compensate the listing side eventhough on an Exclusive Agency list neither the sell side nor the list side gets compensated usually - unless, of course, you are a realtor and belong to the MLS.

In fact, that's where it is similar.

A realtor, who belongs to an MLS, has property of theirs that they want to sell.

They have to disclose to other realtors and the general public they they have a direct inerest in it since they own it.

They will pay a commission to the sell side but the list side commission is absorbed by the sale of the property less any cut that goes to the principal broker, if any.

But if the seller does NOT belong to the MLS or is NOT a realtor - my guess is that your listing would be rejected by the MLS bureau since everybody else in the general public would follow suit to save on expenses (i.e.; the list side) and at the same time get your listing info to as many brokers as possible through their database and realtor.com.

Interesting concept though.

Jim The Realtor
in Sunny San Diego

-----

I'm actually a little surprised that the traditional real estate broker business has remained intact this long. Something like 6 or 8 years ago people could now list their house on realtor.com without a broker. I always thought of the MLS book as being a piece of job security for the broker business because it was basically the only way to get your home broad exposure.

I'm surprised more people don't try to sell this way. I don't think that many people are even aware of the fact that you can do this. Let's say I'm paying 6% to the listing agent and it's a 50/50 split on the co-broker thing. I would rather list it myself at 4% commission. I'm going to try this next time I sell. I don't mind paying someone to sell my house. I do mind paying someone for basically doing nothing.

And get real. You really don't need a big fancy office in order to conduct a real estate business. You just need a car, camera, telephone and some knowledge of the market.

Posted by: Ken | December 18, 2009 at 02:10 PM

[wendell]

Mornin' all!

Here's an article that was published today in The New York Times about Sullivan County, New York.

It doesn't seem like a pretty picture.

Online at:

http://www.nytimes.com/2009/12/19/nyregion/19metjournal.html?_r=1&adxnnl=1&adxnnlx=1261231647-TaFIGeZV2odzmEAps4KrEg

---------------

Few Laughs Left in a Catskill Town Struggling to Revive

NY Times

[...joe]

As a matter of fact, if you go to:

www.fsbo.com

you'll see that the seller of a property can market their house AND it will be featured in BOTH their local MLS database and REALTOR.COM.

They save the sell-side commission.

In this day and age, with a people saving money, it will make the old real estate business model even more obsolete.

Also - in today's New York Times:

"Agent or No Agent?"

At:

...joe
http://www.nytimes.com/2009/12/20/realestate/20cov.html?_r=1

[David Knudsen]

A bit of clarification to both Jim and Ken. For a property to be included in the Realtor MLS (at least in the areas of NY and PA I'm familiar with; I don't know about the whole country), it must be listed by a participating member Realtor (who also has to be a licensed broker in the state.) However, a Realtor member of an MLS does not have to be a full service brokerage. There are some limited service brokers who make a business of essentially "listing" FSBO houses for a modest, usually fixed, fee. These flat fee listers usually belong to a number of MLSs, and usually do little more than input your listing into an MLS and direct inquiries to the seller. FSBO.com has relationships with a number of these listers, and FSBO.com charges $299 for this service for a 6 month listing. Once entered into an MLS, it passes through to Realtor.com. To my knowledge, sellers cannot place a listing directly in a Realtor-owned MLS. (the reason I qualify it as "Realtor-owned" is that there are a handful of private MLSs around the country that may have different policies.)

And in reply to Larry, I'm flattered by your comments. I have no interest in being a listing agent. I believe very strongly in this concept of representation, amd have thrown my hat onto the side of representing buyers — and never take a listing or represent a seller. I wish that there were listing agents who took representation as seriously, and solely represented sellers and didn't muddy the waters by working with buyers as customers.

[ar]

From what I've observed, there seems to be a fairly predictable hierarchy of brokerages that signals the health of a listing. A small group of "brand" firms will have a grip on a particular area -- say, Freda in Callicoon, Fremont; McKean in Bethel, Cochecton; Elliott & Pomeroy or RM Farm in the Livingston Manor vicinity -- and a sure sign that a listing is in trouble is when it moves from an agency like these to an outfit you've never heard of. Alternatively, there is another familiar name that seems willing to take over any listing that has been languishing for however long, which I suppose tells you something about how inexpensive it is to maintain a listing.

Wouldn't it make sense to peg the gross commission to a sliding scale based on (1) price, (2) time to sale, or (3) some combination of both? Does that ever happen up here?

[Ken]

Point well taken, Dave. A friend of mine sold a house this way a few years ago and he used one of those services you're referring to that charge a few hundred bucks to list it.

That's an interesting article from the NY Times regarding using an agent or not. But it seems whenever I stumble across an article like that they treat it as a completely "this way or that way" sort of decision. If you list your house yourself and offer a more than reasonable commission to a broker then realtors are still involved. If they find the buyer then they make money. The only difference is they don't get paid if they don't find the buyer. Seems reasonable to me. That's how most sales jobs work in our economy.

And as far as this big commitment to be there to do showings, etc, while maintaining a full time job, you really don't need to do that. Just do what most realtors do. Go to your local hardware store and buy a lock box for about $25. When brokers call, just give them the combo to the box.