There’s a term in journalism called “the buried lead,” meaning that the key point of an article doesn’t appear until several paragraphs into it.
Well, last week’s column had a buried lead. You may recall that the headline spoke about the myth of the 6% listing commission. The point of the column was that it’s common for prospective sellers to think there’s a “standard” 6% commission that’s charged by most listing agents. In fact, as I explained, the listing commission is negotiable and has declined over the last 40 years from a 7% commission dictated by the Denver Board of Realtors to listing commissions averaging, according to surveys by the National Association of Realtors (NAR), in the mid-5% range.
What has slowed the decline of the listing commission is the more resilient “co-op” commission paid to buyer’s agents from the listing commission.
Until recently, 2.8% was almost universally offered to buyers’ agents. If listing agents offered less, they ran the risk of limiting the number of showings and contracts they would receive, since the amount of the co-op commission was prominently displayed on the MLS.
What’s now allowing listing commissions to drop to (or even below) 5% has been the freedom that listing agents now feel to offer a smaller co-op commission.
It has been my own practice to list homes for 5.6% because I felt it necessary to offer half of it — 2.8% — to the agent who represents the buyer. With a 2.5% co-op becoming more common (as I showed in last week’s column and as evidenced in the chart below), I’m more comfortable now listing homes, especially higher priced homes, for 5% instead of 5.6%. I believe next year’s survey by NAR will show a big drop in listing commissions, and it will be because of the lowering of co-op commissions.
In addition to being good news for sellers, this is not bad news for listing agents because of the increase in selling prices of listings. Getting 2.5% on a $700,000 transaction pays $3,500 more than getting 2.8% on that same listing when it sold for $500,000 a few years ago.