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Real Estate Commission Offered To Buyer’s Agent (Co-Op Percentage) And How It Relates To Actual Sales Price Vs List Price In Tucson.

February 10th, 2009 by Michael Oliver

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realtor-pic-rs-190.jpgOk so your listing agent tells you:

“The higher commission we offer the buyer’s agents the faster your home will sell and that will translate into a higher net price for you the seller.”

So is that true?

Well here are my statistical findings of the subject. I pulled closed home stats from November 15th 2008 until present and then divided the search up dependant upon what the seller offered the buyer’s real estate agent in commission (Also known as Co-Op or Cooperating Broker Commission). I then did calculations to figure out number of homes sold at each percentage, list price vs. eventual sales price, days on market, and also the “cumulative actual net sell price including commission paid”. (That last one is something I made up however its very relevant as if you pay more in commission do you “on average” sell your home for more thus netting you as the seller more money at the end of the day?)

To be honest I have never seen, thought of, or ever heard anyone else even consider these stats before I pulled them today so I think if your reading this you probably way ahead of even your favorite Realtor when considering co-op (buyer’s agent commission) vs. eventual sale price and what it means to you as the seller. Ok so with no more preamble here are the un-biased, and raw statistics over the past couple months.

-Percentage Paid For Buyer’s Agent’s Commission: 2%

Number of Solds for this Co-Op Percentage: 3 (Not very many and to be honest not enough to really even consider using this metric but just so people “can-see” what happens with the statistics at a 2% co-op)

Average Listed Price/Square Foot: $127/sf

Average Sold price/Square Foot: $100/sf

Percentage Less Then Listed Price: -21.25%

Cumulative Percentage (Meaning after you consider the savings off of the more standard 3% commission what did it save or make you to offer more or less vs. list price at that particular co-op percentage): -20.25% (The sellers “saved” 1.0% by only offering 2% vs. the more traditional 3.0% however you can see the results when doing this.)

Average Days On Market at 2.0%: 16

-Percentage Paid For Buyer’s Agent’s Commission: 2.5%

Number of Solds for this Co-Op Percentage: 72

Average Listed Price/Square Foot: $91

Average Sold price/Square Foot: $85

Percentage Less Then Listed Price: -6.7%

Cumulative Percentage (Meaning after you consider the savings off of the more standard 3% commission what did it save or make you to offer more or less vs. list price at that particular co-op percentage): -6.20% (The sellers here saved 0.5% off of the more traditional 3.0% so that’s where this stat comes from.)

Average Days On Market at 2.5%: 72

-Percentage Paid For Buyer’s Agent’s Commission: 3.0%

Number of Solds for this Co-Op Percentage: 298

Average Listed Price/Square Foot: $121/sf

Average Sold price/Square Foot: $115/sf

Percentage Less Then Listed Price: -5%

Cumulative Percentage (Meaning after you consider the savings off of the more standard 3% commission what did it save or make you to offer more or less vs. list price at that particular co-op percentage): -5% as this was the basis for these stats

Average Days On Market at 3.0%: 79

-Percentage Paid For Buyer’s Agent’s Commission: 3.5%

Number of Solds for this Co-Op Percentage: 45

Average Listed Price/Square Foot: $105/sf

Average Sold price/Square Foot: $114/sf

Percentage Less Then Listed Price: -5.8%

Cumulative Percentage (Meaning after you consider the savings off of the more standard 3% commission what did it save or make you to offer more or less vs. list price at that particular co-op percentage): -6.3% (These sellers paid 0.5% more in commissions however it did still seems like it cost them considering they paid more on commission AND sold the home for a higher discount. Losing them 1.3% more (on average then had they just offered the more traditional 3.0%)

Average Days On Market at 3.5%: 102

-Percentage Paid For Buyer’s Agent’s Commission: 4.0%

Number of Solds for this Co-Op Percentage: 11

Average Listed Price/Square Foot: $105/sf

Average Sold price/Square Foot: $100/sf

Percentage Less Then Listed Price: -4.8%

Cumulative Percentage (Meaning after you consider the savings off of the more standard 3% commission what did it save or make you to offer more or less vs. list price at that particular co-op percentage): -5.8% (Again these sellers paid 1.0% more in commissions (for the buyers agent) and it resulted in a net -1.8% loss over the more traditional 3.0% statistics. These sellers did however sell much fast then the 3.0% sellers did indicating that it does work if you need to move a home faster then average.)

Average Days On Market at 4.0%: 56

-Percentage Paid For Buyer’s Agent’s Commission: 4.5%

Number of Solds for this Co-Op Percentage: 32

Average Listed Price/Square Foot: $96/sf

Average Sold price/Square Foot: $93/sf

Percentage Less Then Listed Price: -3.1%

Cumulative Percentage (Meaning after you consider the savings off of the more standard 3% commission what did it save or make you to offer more or less vs. list price at that particular co-op percentage): -4.6% (This is where the savings for the seller truly was as the home sold quicker then the 3.0% co-op, and SOLD FOR MUCH CLOSER TO LIST PRICE EVEN AFTER ADDING IN FOR THE INCREASED CO-OP! So statistically speaking offering buyer’s agents 4.5% on your home will sell your home faster AND net you as the seller 0.4% more then any other strategy. Now 0.4% may not sound like a lot however when you’re dealing with 100’s of thousands of dollars this all adds up.

Average Days On Market at 4.5%: 67

So what do all these statistics suggest? Well off of the pure unbiased stats if you want to sell your home for the most money in the fastest relative time (specifically a wise decision in a declining market). You should set your Cooperating Commission (what the buyer’s agent’s brokerage will be paid from your home sale) at 4.5%. Now if you don’t set it to 4.5% (which statistically nets you the most money and also one of the fastest sale times.) then the next best choice (per the statistics) would be to go with the more traditional 3.0% cooperating buyer’s agent commission. This sets you up (purely off of statistics) with the next best terms as far as list to sale discount and a decent (average) sale time.

I’m going to continue to keep trying to pull stats together to help give people a better understanding of the Tucson real estate market and what ideas and techniques they should employ. After uncovering these statistics I’m wondering how many sellers will take the initiative to offer a 4.5% co-op on top of the traditional 3% listing side fee for a total listing fee (commission) of 7.5%? Or maybe they price ultra competitive and find a listing agent that will do their listing side for 2%. List the home just under comps and offer the same 4.5% to the buyer’s agent (for a total listing fee of 6.5%) and then move their home even faster and ultimately as these numbers suggest for a higher net price (to them as the sellers) then if they just take the traditional approach of a 6% listing commission, 3% to the buyer’s agent, and 3% to the listing agent.

(For those wondering the picture in this post I just coudn’t pass up it was too funny. I wonder if that guy really uses that business card?)

2 Responses to “Real Estate Commission Offered To Buyer’s Agent (Co-Op Percentage) And How It Relates To Actual Sales Price Vs List Price In Tucson.”

  1. Eric Painter Says:
    February 10th, 2009 at 8:32 pm

    Mike,

    This is very interesting. I have always thought this to be true but these numbers don’t lie. I guess it makes sense that agent will be more likely to show homes that have higher commission on. I think that in a city like Tucson where there are many homes for sale buyers will still have many choices when it comes to buying. I would be scared to see these numbers in a small town. Since I am not a agent I would think that sellers who are doing this may invest more in to setting their home up for sale and these homes are more attractive so when they buyers see the property they are more appealing. I would also bet that these home are the first home that are shown to buyers due to the higher commissions paid out! I will be pay a large co-op when I sell my next house.

  2. Michael Oliver Says:
    February 10th, 2009 at 9:54 pm

    I don’t really watch commission when trying to find good fits for clients so for me it’s not something I really even pay attention too. I think a lot of agents do though because let’s face it a bigger paycheck is a bigger paycheck. This results into more showings on those properties with higher co-ops and the more showings usually equates to a sale.

    I think that’s the only real factor is the more showings will occur and that also puts buyers at a disadvantage because they see “wow this house had 5 showings today” it changes the amount of leverage a buyer can exert on a seller because the seller more then likely has “other buyers thinking of buying”.

    That’s the way this works I think but for me personally I feel like regardless of what I’m personally being paid what difference does it make if the client doesn’t like the home? Why waste their time, and mine to try to show homes there’s about a 0% chance they will buy because it will not fit their needs and wants. Plus there are 2 other things to consider as an agent if you’re trying to push higher co-op homes on buyer clients:

    1) The client will eventually fire you as their representation for showing them a bunch of homes that didn’t necessarily fit their wants/ needs.

    2) Why spend a bunch of time showing all the homes that won’t work but may pay a higher commission when you as the agent could show fewer homes that were very close fits thus saving you (as the agent) time and the client time. This allows you to work with more clients in a week thus making you way more sales/ commissions in the long run because you can work with more clients. Also it directly benefits your client because their not dragged through homes that don’t fit what they want.

    #2 Is how I do it for sure, and in some ways (at first) it sets buyers back because I only show 1-3 homes at a time after a couple “showings” they realize the homes we’re looking at are real contenders and are closely screened unlike what the average agent usually does which is take a client through 12 homes in an afternoon. Looking out for the client’s interests is the only way to go because at the end of the day they will realize you’re not trying to do anything but find them the best fit and do a great job!

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