Thread: Realtor Friend Fee

I have always been a firm believer that you get what you pay for. So this 4.25 percent is to be split between both brokers evenly, I assume (in which case, many brokers will not be inclined to encourage buyers to your home). Or is your friend still paying 3% to the buyer's agent (assuming he doesn't procure the buyer)? There are a number of marketing expenses that the listor would incur, as well as the usual overhead. If he was to do it for free, like your aunt did, not only would he be giving you his professional services for free but also losing money in the process. Do you trust him to be well qualified to sell your home? In the end, by trying to get something for nothing, it could actually cost you more (what if due to weak marketing, your home doesn't sell for a year, if at all, or what if another realtor could negotiate a better sales price and terms on your behalf). Comingling friends/family with your business transactions can be a recipe for disaster.

Maui thanks for responding.

He is going to split it 50/50 with the buyer's agent.
I certainly wouldn't expect him to incur any expenses but (and perhaps this is my own ignorance) other than listing it in the MLS and putting up some signs what is the 10 grand for? I always figured that a realtor's real work came in representing the buyer rather than the seller. I want to compensate him fairly but this is a really good friend and I guess I expected a little better deal. Am I wrong?

I agree with your warning about doing business with friends but I think he'd be insulted if we went a different route.
I don't really know how good of a realtor he is. He does it part time on the side.

Ok, lets take a look at the numbers... assuming that you can sell it for your asking price of $500K, the commission based on 4.25% is $21,250, split evenly (assuming he does not procure a buyer) is $10,625. From that, his brokerage will get their cut, as you probably are not privy to his commission split, lets just say that it's a fairly common 70/30, so his portion would be $7437, from which he would have to pay taxes, so lets say he pays a conservative 25% (it could be more or less, but obviously for our purposes this should serve just fine), so after taxes his net would be $5,578. So from this, he would have to pay whatever additional fees he may incur. I don't know where on your local market your home would be at $500K (obviously would be totally dependent on your specifics), but when we list a higher-end property we hire a photographer for photos/video(costs would vary depending on location, quality of work, existing relationship, etc.), produce custom signs specific to the property, feature listings on several syndicated real estate sites, hosts a broker's open house (with food/drinks as appropriate), additional marketing (online and offline), etc.. He could be incurring additional fees for licensing, overhead, etc. but obviously we don't know that (and not that it's your problem, but those are costs of doing business). My point, after all is said and done, he might end up with $4K in his pocket. Sure, not bad for a part-timer, but certainly not the $10K you thought he'd net. As for me, unless I know for a fact that a friend is the best in his applicable field (whatever it may be, accounting, law, construction), I prefer to keep my business and personal relationships separate. But I wish you the best of luck, post updates as the situation progresses.

Thanks Maui!

This is very helpful in helping me to understand the costs.

Side, best of luck to you in your future real estate endeavors. Update when you can as your case unfolds. Mahalo.

It really depends on the average rate in your area. If that is 6% (3% to lisiting agent and 3% to buyers agent) then it is indeed a great deal on paper but as already mentioned, you get what you pay for. What is he going to do for his portion of the commission? Just put it on the MLS and wait or truly market it with a virtual tour, open houses, Realtor luncheons, etc. and an even bigger concern is the amount offered to the buyers agent.

I'm not sure what the market is like for homes in your price range in your area but here in Charlotte, NC, it is very slow. You have to stand out to even get looked at. If he is splitting the commission 50/50, that means that the buyers agent will only be getting 2.125% on your home. If the normal rate is 6% or even 5% with a 50/50 or 40/60 split, then there are hundreds (maybe thousands) more that are paying the buyers agent 3%.

While we should always choose properties to show our clients based strictly on our clients needs and desires, when there are 100 that come back in the search that an agent can show and 95 of those are offering 3% commission, which ones do you think the agent is going to show first? That one with 2.125% is going to be at the very bottom of the list if all other things are equal.

If he wants to list it for that, it's fine but you should offer a very minimum of 2.5% to the buyers agent with 3% being a better number. Obviously, you have to appeal to the buyer but if the agents never show it because of the commission, you don't ever get a chance for the buyer to see it.

You should first ask a licensed real estate agent in your area what the laws are in your state concerning commissions. If your state forbids agents from suggesting that there is a 'standard' rate, as is the case in my state, then all an agent can do is offer an opinion as to whether they think a given rate is fair. I'd ask several agents. After a while, a picture will start to emerge.