How Real Estate Listing Agents Are Paid : Listing Agent & Buyer Agent Compensation

How Real Estate Agents Are Paid & Impact of the 2024 Sitzer-Burnett / NAR Litigation : REMAX Denver Colorado Agent Realtor Anthony Rael


Real Estate
Commissions : How Are Agents Paid?
Navigating Beyond the Headlines to Understand 'How the Sausage is Made'

For those of you who think a seller's listing agent places a sign in the front yard, sets out flyer box, holds an open house then collects a fat check at closing a few weeks later, I feel horrible that's the impression your previous agent left you with. They were either really terrible at their job or the transaction went so smoothly, they made it seem too easy. My goal here is not to make you feel better about the work that takes place behind the scenes to justify whatever commission you may have paid, its intended to educate in the event you misunderstood the process or had expectations that were misaligned or never communicated with your listing broker/agent/Realtor, therefore leaving you feeling blindsided and less than satisfied. Maybe it was a combination of both, but I hope you stick around to learn more.

Those who know me, understand I simply cannot keep anything short because when something that impacts people's financial lives is at stake, you have to be ready, willing and able to transparently tell a story and there's no way to do it without providing additional context - especially for a real estate transaction where there are so many layers in the onion to peel back. Like any profession or industry that's constantly under attack by a society where everyone is uber-critical of someone or something and therefore it becomes opportunistic to blame them for whatever ails you at the moment. Google, Wikipedia and AI have done an exceptional job of creating experts in every subject matter known to mankind after a minimal investment of time online. Those experts rush to their online social media sanctuaries and start parroting what they just read while co-mingling their opinions in order to feel important or credible and sell it as the truth which in turn gets others whipped into a frenzy. Unfortunately, real estate is certainly no different and not immune from misinformation. It's an easy target because people see home prices skyrocketing and start feeling like the "American Dream" is becoming less attainable while at the same time they tune into their favorite "Selling My City" shows where agents are bragging about the insane amounts of money in "potential commissions" for their million-dollar listings. Honestly, it's a huge turn off because in addition to not being the reality for 99% of the real estate agents in the United States, the flex is completely unnecessary. Consumers who see this don't appreciate the commissions being rubbed in their faces and reinforcing the feeling of never being able to afford a home because of "those greedy real estate agents". I get it.

Let's start this conversation by dispelling the headlines that a "standard commission" exists or has ever existed. Like many things in life, listing commissions have always been negotiable. Any report that says otherwise is patently false. When we have conversations with potential clients, most will ask what we charge to list the house. Some sellers are only focused on hiring the cheapest agent in order to "save on commissions", in which case, sometimes its best to wish them well and thank them for the opportunity to discuss things. Educated sellers want to know that you bring a certain level of marketing & negotiation expertise to the table that they're confident will result in the best possible financial outcome for them. Some sellers (with no intent of hiring an agent) will invite you into their kitchen table in order to siphon your market expertise - then turn around and list "For Sale By Owner". These initial consultations are always FREE of charge because agents never know who is serious about listing with us or who is just using us for intel. That's the cost of doing business - we don't dwell on it.

Imagine if you went on an interview and the hiring manager picked your brain for two to three hours and asked you to bring supporting documentation on how to solve a specific complex issue. You willingly provided a comprehensive analysis, proven strategies and market expertise learned over the last two decades plus the additional number of hours to prepare a presentation and they calls back and thank you for the valuable info, but they're taking everything you and the three other experts shared with them and plan to do the job themselves in order to avoid paying someone. Would you be shocked to find out this happens all the time? Additionally, most people are simply unaware that real estate agents are independent contractors - which means they do not get paid by anyone until they successfully help a buyer or seller get to the closing table. Many also have no idea that even though an agent hangs their real estate license with a RE/MAX, Keller Williams or Compass office (for example), that means the agent pays them a monthly and annual fee in exchange for permission to use their corporate branding in all of their marketing, but brokerage firms do not pay real estate agents because we are not their employees. Confused yet? Oh, we haven't even remotely scratched the surface. ;)

I will attempt to separate this page into two sections. First, I'll provide a 30,000-foot level view with bullet points and maybe mixing in a few FAQ's explaining how real estate agents are compensated for their professional services in the State of Colorado. Secondly, I'll do a deep dive into the compensation structure so you can gain an understanding of "how the sausage is made". These are my personal thoughts and are not representative of RE/MAX, LLC or RE/MAX Alliance.

SELLERS

  • There is no "standard commission"
  • Listing commissions are negotiable (always have been)
  • Sellers understand the value of hiring a competent agent to protect their best interests
  • a % of a listing commission was typically shared with the buyer's agent
  • Brokers are forbidden from advertising commissions or compensation in the MLS
  • Sellers may or may not want to offer a Buyer Broker compensation (aka "co-op)
  • Sellers may consider paying a Buyer Broker compensation as part of purchase offer
  • Listing commissions are used by sellers & builders to incentivize buyers

In fact, well before I obtained my real estate license two decades ago, I negotiated the listing commission for the sale of my home with a listing broker who explained that along with the discount I was seeking, would be a reduction of services. You see...everything is negotiable!

 

Everything You Need to Know About Hiring a Listing Agent
Selling a Home in the Denver Metro Area : Buyer Agent Compensation : Real Estate Agent Commissions

Contrary to what you're hearing in the news or on social media, there has never, ever been a "standard commission". Listing commissions remain negotiable today, just as they've for many decades. Any articles or click-bait links suggesting buyers and sellers are going to save thousands of dollars on the sale and purchase of a property are misleading and require additional context so you can educate yourself on what's actually happening in the Sitzer-Burnett lawsuit. In a nutshell, effective August 17, 2024, every MLS in the United States will be prohibited from advertising offers of buyer broker compensation. Also known as a Buyer Broker "co-op" or "co-broke", it represented the amount a buyer's agent would be paid (usually a % of the sales price) by the listing agent, seller or home builder if they successfully represented a buyer who closed on the property. Moving forward, real estate agents working with a buyer will be required to enter into a written agreement with the buyer BEFORE showing them your property. In other words, before an agent can show your home, they MUST have a written contract with a buyer that clearly discloses to a buyer that they will be responsible for compensating their agent (*see below for additional context specific to Colorado). Buyers can continue to ask the listing agent, seller or home builder to compensate their agent (just as its been done for decades), the only difference now is the broker "co-op" must be negotiated directly into the purchase offer because there's no guarantee the seller (you) will accept it. In other words, everything is negotiable. Link to a comprehensive NAR settlement FAQs -


Real Estate Commissions : How Are Agents Paid?
Navigating Beyond the Headlines to Understand
"How the Sausage is Made"

Now let's address the headlines and internet memes announcing "Death of 6% commissions in Real Estate". Many clients, friends and family members have reached out asking for opinions on how all of this negative media coverage will impact my business. In order to fully understand what all the headlines are about, let’s talk about "how the sausage is made". A lawsuit filed in 2019 in Missouri (aka the Sitzer-Burnett case with home sellers alleging they should not have to pay a buyer's agent commission and that the real estate industry was colluding to keep commissions high by transparently advertising in the MLS + every single real estate website in the world (zillow, redfin, realtor.com, remax, etc…) how much a buyer’s agent would be paid if they were to cooperate ("co-op") with the listing agent and seller by bringing a buyer to the closing table. This class-action lawsuit was immediately followed by copycat suits around the country with the same claim that the National Association of Realtors (NAR) and real estate brokerage firms were conspiring to set commissions at 6%, which violated the Sherman Antitrust Act of 1890. In October 2023, the case went to a jury and after only a few hours deliberating, the jury ruled in favor of the plaintiffs (home sellers). In early 2024, NAR along with several brokerage firms settled with the plaintiffs for hundred of millions of dollars and agreed to implement two new rules effective in August 2024:

1) Sellers and listing agents would be prohibited from advertising a buyer's agent co-op commission in the MLS (Multiple Listing Service) or any website that receives its data from the MLS

2) Buyer Agents are now required to have a Buyer Broker Agreement signed with a buyer that outlines compensation, duties and both party's rights and responsibilities (*Colorado has offered a Brokerage Disclosure to Buyer or Buyer Listing Contract since the 1990’s. Unlike many parts of the country, Colorado Law does NOT require buyers to a sign a agreement before touring homes. Any agent that tells you they are not allowed to show homes until you sign any document is not being truthful. They're likely just pressuring you to sign a listing contract - so please be careful).

If you're interested in taking a deep dive into understanding the History and Background of the Multiple Listing Service, please read this informative article. It will literally walk you through how real estate has evolved since the 1880’s! In a nutshell, what started out as town auctions in the 1880’s reaching a few dozen people changed to agents having to go to each other’s offices and changed to driving around town looking for ‘for sale signs’ and changed to the process of printing property listing books in the 1960’s once or twice a month so agents and prospective buyers who stop by an office and thumb through a catalog. Then in the mid-1990’s, the internet was born and changed the entire landscape forever by making it possible to input a property listing 1x in the local MLS database which would propagate to thousands of websites and reach millions of potential buyers around the globe! As exposure for Seller listings grew, brokerage firms  agreed to share the listing commission paid by their Sellers, thus allowing agents who weren’t representing the Seller to sell the property. These agents were known as sub-agents as they were sub-contracted by the listing brokerage to work with prospective buyers to sell the home. This meant that the sub-agents legally represented the Seller and owed the seller fiduciary duty even though they might not have ever met the seller. Agents showing a Buyer properties had a legal obligation to protect the Seller’s best interests rather than the Buyer. This led to a lot of confusion and disenfranchised a lot of Buyers! It proved to be a bad system because nearly 75% of Buyers believed the agent showing them homes represented their best interests. Fortunately, the 1990’s ushered in Buyer Agency – which for the first time meant Agents could actually represent a Buyers' best interests. Finally, each side had legal representation in a real estate transaction! That system has worked flawlessly for decades.

Fast-forwarding to 2019, when the Sitzer-Burnett lawsuit was (as mentioned above). The United States Justice Department got involved to have real estate compensation (formerly known as commissions) “decoupled” between the listing broker and buyer broker - thereby ending broker-to-broker "co-op".  The DOJ wanted Sellers to know that they could continue offering compensation to the Buyer’s Broker, but just not make it publicly known in the MLS because they feared agents might steer buyers away from listings that offered less compensation. I personally don’t agree with this because in Colorado at least, our Buyer contracts specifically stated who paid the commission and buyers were allowed to determine if they wanted to see a property even if it didn’t pay what they had agreed to with their agent. On the flip side, I wholehearted like the idea that compensation is hidden from websites for the very fact that each Buyer Broker is now forced to demonstrate their professional value because they were no longer guaranteed a specific % of the sale. In other words, the most seasoned veteran in the market with decades of experience was previously being compensated the same % as an agent who literally just passed the state licensing exam a week ago! Nonetheless, I find it a bit hypocritical that almost every Seller in the United States seems to have forgotten that when they purchased a home, the Seller of the property they purchased, paid their Buyer’s agent a commission (not them). During the last few years (2019-2024), Buyers have been faced with a market that is heavily weighted against them with historically high home prices, high mortgage rates, low inventory and in order to compete, were asked to make regrettable decisions like waiving inspections and other contract contingencies (a very bad idea). That being said, real estate markets have always been cyclical and we will soon return to a Buyer’s market.
 

What if I Don't Want to Pay a Real Estate Listing Agent?

There's absolutely no requirement to be represented in a real estate transaction. Homeowners have always been able to fly solo and hope for the best. It's called 'For Sale By Owner' (fsbo). FSBOs accounted for 7% of home sales in 2023 and the typical FSBO home sold for $310,000 compared to $405,000 for agent-assisted home sales. There are those who believe "I'll just cut out the agents and deal directly with a prospective buyer to save on commissions." As long as you understand that 89% of buyers purchase their homes through a real estate agent, at some point, you will be asked to pay the buyer's broker compensation on behalf of the buyer. That broker will be hired to look out for the buyer's best interests (NOT YOURS). They can not help you negotiate against their buyer. When issues arise that require advise or counseling, you're on your own. Competent representation and advocacy is essential and like you, real estate agents don't work for FREE. Remember, while compensation is no longer displayed on the internet, buyer's will now be including their Broker fees as part of their offers - so nothing much will have changed - only the way things are communicated. You can refuse refuse to negotiate the requested compensation, but be prepared for lower offers or for the buyer to just move on to the next property and a seller that is willing to work with them. Proceed with caution and have a great real estate attorney on speed dial.


Selling Real Estate is Easy

If you’ve ever had a real estate transaction that seemed “easy” – thank your REALTOR! That means they did everything possible to ensure a smooth transaction and insulated you from 100 things that may have been going sideways behind the scenes. You see, we protect you from the drama and nonsense that sometimes takes place between parties (including agents) because let’s face it, buyers, sellers & agents can sometimes allow their egos and emotions to interfere with things. They dig their heels in on the dumbest things that would otherwise completely blow up a real estate transaction and it’s completely avoidable. That's why I often refer to myself as a firefighter because just like our local heroes, we’re busy using our respective expertise mitigating life-changing disasters and we don’t get caught up in the nonsensical things that would otherwise interfere with us doing our jobs. Surely everyone knows there’s A LOT more than just dousing a structure with water to extinguish the flames, but regardless of whether the buyer or homeowner understands “how the sausage is made” or not – we take pride knowing what it took to ensure the best possible outcome.

In the age of Google and recent emergence of artificial intelligence (AI), many would-be buyers and sellers question how complicated real estate really is. Truth is, I can train any monkey to set up client searches in the MLS or drive around town opening doors (which is what many people thing that's all we do), but do you really know "how the sausage is made"? If you believe you can successfully navigate Title companies, Home Inspection companies, Lenders, Appraisers, HOAs/CC&Rs, Non-warrantable units, Metro Districts, Local municipality rules & regulations, Solar Leases, Water & Mineral Rights, Insurance companies, Structural Engineers plus dealing with inspection-related issues? Do you have expertise in assessing property values and negotiating the right price and terms? Do you have knowledge to effectively execute a Listing Contract or Contract to Buy & Sell? By simply checking the wrong box (or failing to) and/or using legal clauses in the additional provisions section that can mitigate any potential ambiguities which may otherwise cost you tens of thousands of dollars (or more) in a future lawsuit? If the answer is yes, then by all means you are probably skilled enough to pursue this journey unrepresented. But if you're not 100% certain about what it takes to avoid future litigation, then you might want to consider hiring a trusted (full-time) real estate professional. If not me, chose someone who comes highly recommended by family or friends and/or has a stellar reputation on realtor.com.

I realize this is a massive amount of info to digest, so please bookmark this page and refer to it to remind yourself that real estate agents are not paid a penny until they can successfully demonstrate their value and get you to the closing table. We are self-employed small business owners who don’t earn a salary; receive no benefits; no 401k plan; no medical, dental or vision insurance; no vacation days or PTO; no reimbursement for vehicles, mileage, repairs or insurance. Nada.  Additionally, we pay our respective brokerage firms 10-40% of everything we make (it comes right off the top). Real estate is a performance-based career, so if we cannot get you to the finish line, we do not get paid – even after months of work in many cases.

Having said all of that, you (as buyer or seller) are empowered to determine if the person you are considering hiring to represent your interests brings value to this massive financial and sometimes life-changing decision. I encourage you to talk about everything from your service expectations to compensation and remember, no question should be off-limits! If your agent cannot expertly and effectively communicate their value and they quickly pivot the conversation to discounting their commission, respectfully walk away. After all, if the agent doesn’t have confidence in their own expertise and the backbone to fight for their livelihood, why on earth would you trust them to fight for yours? 

Link to a comprehensive NAR settlement FAQs -

Home Sellers: Here's What the NAR Settlement Means for You
Home Sellers: Here's What the NAR Settlement Means for You Home Sellers: Here's What the NAR Settlement Means for You

 

If honesty, integrity and an agent's reputation are important factors to you when deciding to purchase a home - Anthony Rael is the real estate agent for you.  As a professional listing agent, I am knowledgeable about local market conditions and will market your home to to worldwide audience, negotiate the best sales terms and price and more importantly, look out for your best interests every step of the way. I have extensive knowledge of the purchase process and my responsiveness to your needs will be first-class. My real estate services are backed by a 100% satisfaction guarantee!

My personal belief is that everyone deserves Nordstrom-level service...it's just the way I've always conducted my business. When your friends & relatives need honest, responsive and professional real estate advice - contact Anthony Rael at (303) 520-3179. Rest assured, I will do everything humanly possible to ensure a stress-free transaction.

Anthony Rael, RE/MAX Alliance offers professional & trustworthy real estate services to buyers & sellers throughout the Denver metro area including ArvadaAurora, Brighton, Broomfield, Denver, Golden, Highlands Ranch, Lakewood, Littleton, Louisville, Longmont, Thornton, Westminster, Wheat Ridge, Adams County, Denver County & Jefferson County Colorado.  Find out why Denver is rated one of the Best Places to Live!  I offer homebuyers & sellers a 100% Performance Guarantee that will exceed your expectations and set a new standard of service excellence.


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