Disclosure of Real Estate Commissions Paid to Buyer’s Agents
By Michael Repka
There is a new controversy brewing in the real estate industry. Washington state recently began requiring the public disclosure of the real estate commission paid to the buyer’s agent. This has some real estate agents incensed.
Recently, I was at a meeting with very experienced and well-respected real estate agents. There was virtual unanimity (amongst those who spoke) that agents should not be required to disclose this information. The most widely cited rationale for this position was that “sellers pay the commission, so buyers don’t have the right to know.”
Additionally, some agents worried that their clients would think they were overpaid if the clients knew how much money the agent was receiving on the transaction.
The Problem
Most Multiple Listing Services (“MLS”), including the MLS used in Silicon Valley, have a public-facing section that includes information about homes for sale with pictures, descriptions, maps, and other useful information. Additionally, there is a Members Only section available only to Realtors® that has some additional information.
One of the fields prominently featured in the Members Only section is the commission paid to the buyer’s agents. In fact, some MLS, including the one in our areas, allow agents to search for properties based on the commission rate specifically. For example, an unscrupulous buyer’s agent could search for homes with at least four bedrooms, two bathrooms, and a buyer’s agent commission rate of at least 2.5%. Thus, the list would exclude otherwise appropriate options if that seller is offering less than 2.5% to the buyer’s agent. In my personal opinion, as a starting point, this should not be a searchable field because it leads to temptation for a buyer’s agent to show buyers homes that offer more commission.
The Solution
By making the commission offered to the buyer’s agent public, buyers would be better equipped to protect themselves. They would be able to make sure that their agent is not omitting properties that offer a lower commission or steering them to one property over another because one has a higher
commission rate. Additionally, MLS should not offer agents the ability to search or sort results based on the amount of commission that the agent is receiving.
It is not hard to imagine a situation in which a buyer could be disadvantaged by a disparity in commission rates without even knowing of the conflict. For example, imagine a buyer torn between two properties. Both could be purchased for $3 million, but one is slightly larger, and the other is in a slightly better location. The agent’s opinion regarding the relative value of the two properties could have a significant impact on the buyer’s decision. However, the agent could be tempted to recommend the larger home if the commission on that property was 3%, whereas the other property was only 2%. The buyer has the right to know of this $30,000 disparity so that they can consider any potential for conflict of interest.
The DeLeon Policy
We know that transparency is good for our clients, and believe that it is also good for the real estate industry. Therefore, we have elected to note the commission paid to buyers’ agents prominently in our ads. We encourage other brokerages to join us in setting a good example for the industry. We also request that other brokerages join us in asking our MLS to disable the feature that permits agents to filter properties based on how much commission the agent would earn. Additionally, we believe that this field should no longer be proactively hidden from the clients we serve.
