It’s a fact: a growing number of agents rebate some part of their commission to the buyer. Combine this with another fact: many agents pay a hefty referral fee for new business, whether to other agents or through a relo company, of usually between 20-35% of any commission eventually earned from the referral.  Now with all this money being given away, it begs the question: where is this money coming from, and why is it being away?

The money, of course, comes from the seller, who signs a listing agreement, agreeing to pay a commission and authorizing/instructing the listing agent to offer, usually half, of the total fee to buyer’s agents as an incentive for them to bring buyers to the house.

But at some point, sellers are going to realize that this is a pretty crazy system. Take a million dollar listing, with a total commission of 5%, or $50,000.  The buyer’s agent share would be $25,000. Now, if the buyer’s agent has to pay a 30% referral fee, that equals $7,500. So the seller is paying $7,500 to someone who has nothing really to do with the sale of his house.  That’s a lot of “fat” in the system, so it shouldn’t come as a surprise that new business models are emerging to make the process more “lean.”

But its not all so new.  Agents like to complain when a listing offers them “only” 2% , from a total commission of 4%. But these are crocodile tears—they routinely accept this much when a referral or relo is involved. The bottom line: few agents can make a living from just a couple of transactions a year. Sometimes you take a listing at 6% and also represent the buyer, keeping the whole 6%. Sometimes you do both ends and gross 5%. Sometimes, you do one side and get 3%. Or 2.5%. And sometimes its 2%, or even less. It all evens out in the end.

And I, as a 20+ year veteran, won’t exactly be sad if the some of these complaining agents drop out of the business. It another place where there is way too much fat in the system.