The truth is that the commission creates a wedge between what the buyer pays and what the seller receives, and that each pays a share of it.  These shares vary with each transaction, since they depend on market conditions and the negotiating skills of the seller and buyer.  But take away the commission and the buyer will pay less and the seller will get more. 

Eliminating the commission gives the seller and buyer more wiggle room to find a mutually agreeable price.

Though both parties "pay" the commission, it's the seller who negotiates the commission rates.  But buyers have control over commissions, too:

• Buyers who wish to use the services of a discount agent can often get commission rebates of 1% to 2.25% of the final sales price.  See our section on Buyers' Agents for more information.
• Buyers can often save even more money by making offers without an agent.  This is easy to do if the property is being sold FSBO, but if the property has been listed with a real estate brokerage, an offer will usually have to be prepared by a licensed agent.  One way to get around this is to use a flat-fee discount broker or real estate lawyer.  These lawyers often have broker's licenses and they may be willing to help you prepare an offer for a fixed fee, with the balance of the commission to be rebated back to you.  See our section on Making Offers to learn how this works.

Even though the buyer "pays" a share of the commission, it's the seller who typically negotiates the  rate.  Buyer rebates allow buyers to "pay" a lower commission if they want to do some of the legwork themselves.

Cutting the real estate commission, of course, isn't a free lunch--you'll have to take a more active role in buying your house.  You'll usually have to search for properties on your own (though the Internet makes this easy to do) and research neighborhoods and prices yourself.  

But you shouldn't rely too much on a real estate agent anyway.  Here's why:

• Buyers' agents have an incentive to steer buyers towards homes that offer them higher commissions or to boycott homes listed by agents who provide commission discounts.  (Though doing this may be a breach of fiduciary duty to the client, the Wall Street Journal reported in an August 2005 article that, to its knowledge, neither the National Association of Realtors nor state real estate commissions have ever sanctioned an agent for this breach of ethics.) By searching for homes yourself, you may be exposing yourself to more opportunities.
• It's often easier to shop for homes if you're not accompanied by an agent.  Agents are trained to sell and many of them will try to downplay the negative features of a house.  
• Real estate agents sometimes accept (possibly illegal) gifts or kickbacks from the mortgage lenders or title insurance companies they recommend to their buyers.  You may be better off searching for one of these service providers on your own.
• Agents who work with buyers are sometimes legally bound to represent the seller's interests.  If so, they have a duty to pass along to a seller any useful information they learn about a buyer. Though agents in most states are required to disclose to all parties exactly whom they represent, buyers sometimes don't get the message.   

Buyers sometimes disclose their negotiating strategy with the agent they're working with, not realizing that the agent may be legally obligated to pass that information on to the sellers.

• When helping you negotiate a price, an agent--even one that represents you--may not have your best interests at heart.  Buyers' agents have an incentive to encourage buyers to bid high, since the more a buyer offers for a house, the more likely the offer will be accepted.  Higher offers also result in higher commissions. 

This primer will show you how to take charge of the buying process yourself and perhaps capture some of the commission for yourself.

Step 1:  Financing a property  We'll explain how to get pre-approved for a loan before you begin looking at houses.   

Step 2:  Shopping   We'll tell you how and where to look.

Step 3:  Buyer's agents   We'll explain when you should use them and how you may be able to get part of their commission back as a rebate.

Step 4:  Making offers  We'll offer advice on how to negotiate a good price.

Step 5:  Closing the deal  This is usually the easy part, since the title insurance company takes over the process.  We'll tell you what to expect.

©Lori Alden, 2007.  All rights reserved.