Breaking Down the Differences: Commissions vs. Concessions in Real Estate
- Buying Buddy Support Team
- August 15, 2024
- Industry News
- 0 Comments
If you’re a real estate professional, you’ve probably heard a lot about commissions and concessions -especially with the recent National Association of Realtors (NAR) settlement making headlines. But what exactly do these terms mean, and how do they impact your day-to-day business? Let’s break it down in plain language.
What’s the Deal with Commissions (aka Cooperative Compensation)?
When we talk about commissions, we’re basically talking about how real estate agents get paid. It’s that percentage of the sale price that’s agreed upon when the seller signs a listing agreement with their agent. Now, cooperative compensation is just a fancy way of saying that the listing agent shares a portion of their commission with the buyer’s agent as a thank-you for bringing in a buyer.
In other words, commission is the money that goes into your pocket for doing the hard work of selling or buying a home.
So, What Are Concessions Then?
Concessions are a little different. These are perks that the seller might offer to the buyer to help close the deal. Think of things like covering the closing costs, offering a credit for repairs, or even knocking a bit off the sale price. These concessions are all about making the deal more attractive to the buyer, not about compensating the buyer’s agent.
Concessions are purely about easing the financial burden on the buyer – not about putting more money in the buyer’s agent’s pocket.
Key Differences Between Commissions and Concessions
- Who’s Benefiting?: Commissions are what pay the agents, while concessions are all about helping the buyer save some cash or get a better deal.
- Negotiation Time: Commissions are sorted out between the seller and their agent right at the beginning. Concessions usually get hammered out during negotiations, especially after an offer is made.
- MLS Disclosure: Commissions are listed in the MLS for everyone to see, but concessions? Those are typically kept between the buyer and seller and don’t need to be on the MLS.
The NAR Settlement: Why You Should Care
The recent NAR settlement has put a spotlight on how transparent we need to be about commissions. The idea is to make sure buyers know how their agent is getting paid and that there’s room to negotiate those payments. However, this settlement doesn’t change the fact that concessions and commissions are two separate things.
Why Concessions Aren’t Compensation for the Buyer’s Agent
Let’s be clear—just because a seller agrees to a concession doesn’t mean the buyer’s agent is getting a cut of that. Here’s why:
- Direct Payment? Nope: Concessions go straight to the buyer in the form of savings or credits. They’re not padding the agent’s paycheck.
- Different Purposes: Commissions compensate the agent for their work. Concessions are simply there to help the buyer out.
- Keeping It Legal and Ethical: Any money an agent earns needs to be disclosed upfront and agreed upon by all parties. Concessions are outside of this because they’re not about compensating the agent.
Wrapping It Up
To sum it all up, commissions and concessions might both involve money, but they serve entirely different purposes in a real estate transaction. Commissions are the bread and butter for agents, while concessions are the cherry on top for buyers. With the recent NAR settlement, it’s more important than ever to be transparent about how commissions are handled. But when it comes to concessions, just remember -they’re there to help the buyer, not the agent.
Understanding these differences will help you guide your clients better and stay on top of the changes in our industry.
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