Level Playing Field — or Stacked Deck?

Once a Buyer’s agent has determined that a home their client wants to buy is in multiple offers, the foremost question on every Buyer’s mind is, “What’s it going to take to get this house?”

In turn, that depends on the Comp’s; the motivation and number of competing Buyers; and whether there are any other terms besides price that are important to the Seller (like, financing terms or closing date).

However, there are two, other questions that can affect the outcome:  1) is the listing agent also representing any of the other Buyers?; and 2) if so, does their listing contract provide for a variable rate commission?

“Variable Rate Commission,” Defined

Why do those questions matter?

Because if the answers to both those questions are “yes,” the bar is effectively higher for other Buyers.

As the name suggests, a variable rate commission means that there are two commission rates — one if the Buyer is represented by another agent (the usual case); and a second, lower commission if the Buyer is also represented by the listing agent.

Called “single agent dual agency,” this is permissible — in Minnesota, if not many other states — as long as it’s disclosed, and both the Buyer and Seller agree to it.

Why would they do that?

Typically, the Buyer agrees to single agent dual agency because they think it will give them the inside track purchasing the home — perhaps at a lower price.

Meanwhile, the Seller agrees to it because they think they will get more money.

See a contradiction?

Losing $13,800, But “Saving” $5,000

Assuming two, identical $500,00 offers on a home where the “regular” commission is 6% and the variable rate commission is 5%, in theory the Seller would net $5,000 more opting for the offer from the Buyer also represented by their agent.

In practice, however, it’s seldom the case in multiple offers that two offers are identical.

In my experience, a home seller who opts to “save” 1% on commission often loses much more than that by accepting a too-low sales price.

That would be the case if Buyer #2 (represented by their own agent) ultimately would have paid $520,000, but the Seller accepted $500,000 from the Buyer also represented by “their” agent.

Here’s the math:  $520k x 94% = $488,800 vs. $500k x 95% = $475,000.  Difference:  $13,800.

And that gap may very well widen if the Seller’s (dual) agent doesn’t negotiate aggressively on their behalf if/when there are inspection issues, appraisal issues, etc.

P.S.:  While MLS rules explicitly prescribe that listing agents are to disclose the existence of variable rate commissions, in practice, many agents fail to do so.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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