I may not make any friends here.  At least not among my fellow real estate agents.

But this needs to be said.  It is my take on commissions paid to real estate agents.

This is intended as a consumer guide.  It’s about how to get the best, most cost-effective representation from a realtor, whether selling or buying.

Many people believe real estate agents make too much money.  Consider the sale of an “average” $600,000 single-family home in Denver.  In the common case of 5.6 percent paid in total commissions, the result is a charge of $33,600 to the seller.

I say “to the seller” because usually, compensation of both agents comes out of seller proceeds.  I say “both” because usually two agents are involved—one serving the seller and one representing the buyer.

The total commission paid typically is split 50/50 between the two agents.  So in this case each side would receive $16,800.  A portion of that, like maybe 10 percent, goes to the agent’s employing broker.

Any way you slice it, it’s a big chunk of money.  It’s a significant bite out of the seller’s home equity, which may have taken years to accumulate.

What these figures don’t account for is all the unpaid, fruitless time required of realtors. Time spent with indecisive buyers touring multiple homes; and with unrealistic sellers demanding impossible prices.  Time spent on unsuccessful contracts due to inspection issues, failed financing, etc.

Do real estate agents make too much money?   Here’s my opinion.  Most don’t.  Some do; and that’s partly because of their clients’ failure to ask a few questions and drive a harder bargain.

—

There is no “standard” commission rate that must be paid to agents.  Sellers can request a rate lower (even much lower) than 5.6 percent.  Agents can insist on something higher.  It is all negotiable.

But there are practical considerations.  There is the law of supply and demand.

Recently I represented a young client named Israel: A first-time home buyer, U.S. Marine Corp veteran, engineering student, and all-around great guy.  He qualified for a VA loan backed by the Veterans Administration. That type of loan allows for a zero down payment.

We toured 12 homes, and the first 11 were unimpressive.  Most were maintenance-deferred (run down) attached homes with punishing HOA fees of $300 to $400 per month.

Then came Number 12.  A tight little two-bedroom in Commerce City, north of Denver.  It was a single-family with no HOA, built in 1958 but very well maintained, with shiny original hardwood floors and a recently constructed commercial-style garage.  The place was perfect for my buyer.

It was a snowy Friday evening. We both hustled home and threw together a full price offer of $365,000.  We were under contract the next morning.  We closed the purchase five weeks later.

The home had been listed for 16 days.  Why was it still Active when we got to it?

Here’s my theory:  The listing offered only a 2.0 percent co-op commission to buyer-side agents (like me).  Most listings offer at least 2.8 percent.  (This is confirmed by my own recent research.  There does seem to be a trend toward buyer-side compensation at 2.5 percent.)

The seller in that case refused to offer more than 2.0 on the buyer-side. For the listing agent it was even worse—just 1.5 percent, based on distributions I could see on the settlement statement.  So the seller’s total commission load was 3.5 percent, or $12,775.

—

A widely held belief is that showing agents shy away from lower-paying listings.  Do they?  Heck, I don’t know.  (Showing stats are carefully tracked.  Seems like somebody could quantify the frequency of showings “per bracket” of commission rates.)

But the above situation didn’t stop me from showing the property—even on a snowy Friday evening.  My buyer was excited to see a great single-family at a price similar to the condos we’d been looking at.  I was happy about that too, and glad that our showing days might soon be over.

Suppose the seller had been more generous with commissions.  Would he have done better—with more showings, a quicker deal, or a higher sale price?  Again who knows.  What he got was a full price contract, expertly handled on both sides, with minimal inspection concessions.

There are many incompetent hacks in real estate.  But there are also many very capable professionals willing to negotiate commission rates, and who don’t feel the need to make hundreds or thousands of dollars per hour.

To find them, home sellers need to exercise some due diligence.

• Don’t hesitate to inquire and negotiate hard on the total commission rate. And clarify how much will go to each side, seller versus buyer.   Don’t accept a response like, “I can’t say until I see the property.”
• Don’t fall for the “top producer” pitch. Brokers with a high closing count often state, or imply, that it’s a sign of exceptional competence.  To me it suggests having met just a minimal standard. “I managed to not mess up a hundred deals last year.”

I mean, McDonalds serves a lot of customers too.  Does that mean it’s a great restaurant?

• Don’t fall for ad claims like, “Sell Your Home for 1 Percent.” Undoubtedly that’s 1 percent covering the seller side only, and with various strings attached.  Don’t trust a broker whose very first communication with you is a deception.