Sellers, Too, Can Pay Too Much in Fees When Selling a Home

[Published Jan. 1, 2015, in abbreviated form in the Jeffco editions of the Denver Post's YourHub section]

In last week’s column, I wrote about buyers paying too much in fees when they buy a home.  Sellers can also pay more than they should in a transaction.

Listing commissions are negotiable, and agents can’t even discuss among themselves what they charge, much less “fix” commissions.  To do so would be a violation of the same federal anti-trust laws that apply to other industries.  A brokerage firm can dictate how much of their agents' listing commissions must be offered as a "co-op" to buyers' agents, but each agent sets his or her own listing commission. Since the typical co-op offered to buyers' agents is 2.8%, a 5.6% commission, for example, would net the listing agent 2.8% for himself after paying 2.8% to the buyer's agent.  A 6% commission would net the listing agent 3.2%, and so forth.

Your listing agent may not offer to reduce his commission if he does not have to pay a co-op commission, and he/she may hope that you don't ask him to... but he will reduce his commission if you ask him, and I believe that a 1% reduction is appropriate.  This way, the listing agent is still incentivized to sell your home himself and makes significantly more commission -- say 4.6% instead of 2.8% in the above example -- but you deserve to share in his windfall by paying less commission. 

In last week's column I mentioned that agents from many of the larger brokerages pass on the "broker administrative commission" which is assessed by their brokerages on each transaction.  These fees are typically in the $300-500 range, and agents from those brokerages routinely insert those extra fees in their listing agreements, but if you see such a fee, just know that this fee is a brokerage requirement of the agent, not of you, and if you refuse to include it in the listing agreement, the agent will happily absorb it from his commission rather than lose you as a client. 

Title insurance policies are regulated and pretty competitive, but the fees for escrow and other services vary widely, as does the discount given if you bought or refinanced your home in the last 3, 4, or even 6 years.  This is called the "re-issue" rate, and you need to inquire about it by name. If the title company recommended by your listing agent doesn't offer a re-issue rate that another title company might grant you, then ask to switch title companies.  If your agent doesn't know of such a title company, ask me!  

Sometimes buyers will ask the seller to pay the buyer’s closing costs in lieu of a lower purchase price. For example, $4,000 in closing costs with a purchase price of $200,000, rather than a purchase price of $196,000.  As a seller, you should demand of your listing agent that you pay commissions on the net sale price when there are concessions involved. MLS rules once required that commissions be paid on the total purchase price, as recorded with the County Clerk, but that rule was removed, partly because home builders have routinely violated it by paying commissions on the "base price" instead of the total transaction price.