Who Pays Commission?

You can be sure it is not a PropertyGuys.com client!

This question gets debated all the time. It is often thought that the home seller is the one paying commissions because of the way the transaction plays out. In a traditional agent fabricated deal the commission bundle is directed by the listing contract between the seller and the listing agent. They set the amount to be paid to both agents involved in the transaction.

The buyer's role is to simply look at houses with their "buyer's agent" and decide on one that fits their needs and price range and have their agent draw up an offer. They have little, if any, idea as to the commission amounts involved. Why would they even care, their agent did a great job and negotiated $10,000 off the asking price!

In a previous lifetime I was a purchasing agent. I purchased mass amounts of auto parts for the repair industry from all over the world. An important factor needed in my cost calculations was the expense of procuring the item. If there was shipping costs on a product than the expense needed to be included in the net cost of the items. Take a disc brake rotor for your car. These are commonly bought in China. If the rotor was worth $5 but cost $2 to ship to Canada then the "landed cost" was $7. Let's say the rotor sells for $14 with a standard mark up of 100%. If they find an alternate source to purchase the product for $6 locally with no shipping costs than that same part would sell for $12 saving you money.

Think of home buying like this. The price that home seller receives after commissions are paid is the "landed cost". If the seller can adjust his cost by not having to pay the high costs of "shipping" (read "commissions") than the savings can be passed on to you the buyer. The costs of "shipping" (again read "commissions") are actually paid by the buyer because the seller is passing it through.

Now imagine the house having changed hands 5 times. How much cheaper could you have bought it if agents had not been in the equation?

Here is an agent with a "sideways" look at who pays the commission...


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