Eric Vazquez

Commission is commission at any percentage - regardless if buyer or seller. The specific rate or amount is negotiated strictly between agent and Client.

In as far as agency is concerned and how commissions might be affected, here is my breakdown of understanding:

Given listing A with a full commission of X% with a cooperating split of Y% to any type of agency - sub-agent, buyer agent, broker agent - here is how liability lies with each.

Sub agent: All hold liability fo misrepresentation - Sub agent, listing broker, and SELLER.

Broker agent: All but the seller holds liability for misrepresentations. Seller is not held responsible but the Listing broker is held liable for misprepresentation of broker agent. (Broker agency is basically Sub-Agency for brokers and not sellers).

Buyer agent: The Buyer Agent is solely responsible for his or her own misrepresentations. The listing broker/agent and the sellr are NOT LIABLE for those misrepresentations made by buyer agent.

As a seller representative AND a representative of my broker, the most protection offered to my seller is to only offer compensation for buyer agent.

Again, law states that agents working with buyers cannot be denied access to properties, but compensation need not be offered.

I offer ONLY buyer agent compensation. All other compensation must be specified as a part of the offer and agreed upon by the seller and cannot be assumed as a given outside of buyer agent compensation.

An agent may request compensation under agency other than buyer but the seller has the right to refuse if only offering buyer agency.

As a buyer agent, one workaround for compensation on transactions that do not offer buyer agent compensation is to request in writing that the cooperation "be waived" and applied as a concession directly to buyer who will then compensate their agent directly and have all documented on the HUD-1 appropriately from seller to buyer and then buyer to buyer agent accordingly.

As a seller agent, buyer agency compensation offers the greatest protection to the seller and listing broker. Buyer agency also does not deplete the protections offered to buyers - and it does not increase them either. So no gain no loss - buyer agency is really the best way to go in my opinion. - Sat Sep 6 2008, 21:24

In theory, an agents responsibility is to achieve a meeting of the minds between seller and buyer typically on an arms length transaction. As a seller agent, would one be truly effective to endorse a higher priced offer with far worse terms, or negotiate a lower offer with better terms to the satisfaction of their seller client? If a meeting of the minds can ensue, wouldn't both seller and buyer agent have achieved the best for their clients and in their clients interest?

As for not providing a co-broke agreement, I guess your situation in NYC proper is unique and is virtually practiced no where else in the state. Typically in an MLS driven market, such as Orange County which thrives on commuters to NYC, cooperation is offered as a requirement of the MLS. That is to say, as a participant, you must offer something for cooperation. It can either be an offering of compensation for sub-agents, or buyer agents, or broker agents, or compensate for all types of agency relationships.

There must be at least one offer of compensation. For an Office Exclusive, there is no statement of cooperation and compensation is typically left to the agents to discuss and negotiate, or include as a term of the purchase offering, what if any compensation will be agreed to as part of the sale. However, state law indicates that agents representing buyers cannot be restricted from showing properties it just does not guarantee compensation to that agent. Where there is no consideration of cooperation such as exists among agents within an MLS or given association such as NYC, this would be more the norm. This practice actually in my opinion creates rigidity and not flexibility in the industry.

With MLS affiliation, I can list and offer compensation ot coopoerating agents working with buyers. This allows me to sell the listing myself and collect appropriately, or allow any other member agent to bring about their buyer for their compensation. This immediately opens my listing to a much larger field of buyers and hopefully a quicker and more competitive sale. competition is key to achieving the higher price you mentioned. A bid war is never a bad thing.

It takes much greater than 70% to be considered a monopoly and by involvement in a data share such as MLS, it increases every members chance of selling a property and gaining market share.

In summary, my doors are open to all agents working with buyers, my compensation is only to those specifically working as buyer agents (sub-agents allowed for in-house agents where applicable and as such reduces dual agency conflicts), and I can as a buyer agent access all available properties and procure a meeting of the minds between buyer and seller due in fact to having the cooperation of other member agents. - Fri Sep 5 2008, 23:30

I agree, it is a mess.

Around eight years ago, the broker I was associated with issued the entire MLS a blanket rejection of sub-agency (at the time it was the dominant way of working with buyers), we would only compensate buyer agents (sub-agency could only occur with in-house properties and would reduce the amount of dual agency occurring in-house). It wasn't resisted for long and now the predominant offering is buyer agency (though some still offer sub-agency as well). The brokers I see offering only sub-agency compensation do not comprise anywhere near a significant market share and therefore the selection of properties that you may potentially deal with is limited significantly.

If a property is really desired by a buyer client, a buyer agent can always request in the offer that the "sub-agency" fee be "waived and credited to the buyer towards the buyer's agent fees". This can be done as a concession usually. Buyer and listing agent get compensated appropriately. (*and if the fee is documented on the buyer's side of the HUD1 statement, then it qualifies as an additional exemption on that year's filings for the buyer while the seller may still claim the concession).*

*Check with a really good accountant. - Mon Jul 28 2008, 08:35

It doesn't make sense to take this route - "from a consumer perspective", lets start with the buyer as consumer. Broker agency allows the listing broker to compensate other brokers as sub-agents without passing on liability for errors, omissions, and misrepresentations made by the buyers representative to the seller. It allows the buyer much more recourse in an adverse situation to make claims against his broker, and the listing broker and agent. It only protects the seller to the buyers discontent. With the seller as consumer, the seller is very well protected in an adverse situation not of his own doing. All others involved in the transaction have liability.

I don't offer broker agent compensation for this reason. To insulate the seller and my broker, I only offer buyer agent compensation. With buyer agency, my sellers AND my broker are shielded from the misrepresentations, errors, and omissions made directly by the buyers representative. It doesn't make sense to me as my interpretation of Broker Agency is a modified form of sub-agency. It adds liability. It does not defer liability.

As for dual agency, I make certain to explain to all buyers and sellers how dual agency works with and without designated agents. Dual agency can arise at any moment when working with buyers as a buyer's agent. The only way to avoid dual agency is to refer one party to a competing brokerage when it arises or simply work with only sellers or only buyers period. - Wed Jul 23 2008, 23:03

Short term or long term, capital gains is capital gains. The only difference is in the rate that they are taxed. They are both taxed. Do the gains fall within the exemptions? Yes or no - it's that simple. Does commissions affect the potential gains - yes they do as they reduce the taxable debt when all calculations are complete.

As for differentiating investment property from personal or second residence, the paragraph you quoted actually refers to personal residence and not investment. With investment income property, repairs are deductible but generally not improvements. With personal residence, it is reversed. Improvements are deductible but not repairs - UNLESS as stated in the paragraph you qouted - they are performed within 90 days of the sale of the home and for the purpose of making the home more marketable and therefore valuable.

I see your point. I just wanted to clarify investment vs personal residence, and repair vs improvement and how they differ. In the end, whatever the property value is, these factors will come into play to affect the bottom line BEFORE applying the Cap Gain exemption. In either case, commissions as stated, affect that bottom line regarding the sale value itself - irrespective of any other income and loss from any other source. - Wed Aug 20 2008, 10:33

The question was "what do you guys think is better?" and the parameters were as stated above, and I will include the 3rd FSBO option because it is a viable option. Assuming a net of approximately $376K, the house will sell at the price established. Nothing else withstanding. Based on this criteria alone, the seller receives his net $376K, and takes the benefit of reducing gain at varying rates per option expressed. Cap gains exemptions aside - I have no way of knowing how long John has held the house or how much he paid - I am not concerned at this point with Cap Gains. This deduction comes after the fact - the house first has to sell at whatever price. As I said earlier - a loss is a loss and a gain is a gain - AND THEN the exemption can come into play.

Based on the facts/criteria alone provided, I stand by my answer. And no, this is not about a FSBO vs Realtor debate. And this is not about the concept that paying more commissions means you will get more advertising. One would hope you get what you pay for but that is not always the case.

You are not a bad example of whether you would have been better off with a Realtor, you are a good example of a Realtor not selling his value and worth and thus you feel the way you do. In the example, the amount of marketing John would have recieved is inconsequential because in the scenarios proposed, the house would sell. This was a question of Realtors being able to sell their value. From what I've heard - not. Some easily said go FSBO. Some easily said go with the cheaper deal (though the house would sell in either scenario regardless). So what then is the value. Again, after-the-fact exemptions aside and based solely on information provided. The option that pays the greater commission is in MHO, the better option. This is not to say this will always be the case. When you get to analyzing your personal position and ALL other tangent factors, the better option may differ. But that was not discussed as a matter of the question posed and therefore, factors I can't base my opinion on. There are truly too many variables that will play into the final numbers and benefits. Again, checking with a CPA on all the specific factors that will affect one's sale and gain/loss is important, if not a necessity - actually before a house goes up for sale. Especially if one is approaching that exemption limit. But that is not what is proposed here. its about selling value - the vlaue of the Realtor. Not just what they will "do" for you but in what other ways, might their consultation and knowledge help you if so.

And no, I'm not a financial adviser, I recommend that people talk to an accountant, however, in so much as real estate is concerned, I try to remain aware of whatever benefits my sellers may benefit from if at all possible.

How much of his knowledge, awareness, AND value did your Realtor sell you that you selected him among many? That is a rhetorical question, it is just something you may wish to ponder for yourself. There is no one absolute way that is right when you factor in all the variables and based only on what was provided ... - Tue Aug 19 2008, 22:38

I'd like to turn this back to John and ask - John, after reviewing the discussions - which option do you feel would be best for you given the criteria provided - and why do you feel that way? - Tue Aug 19 2008, 18:03

Rockinblu real estate commissions are deductible in the sense that they are added to basis and deducted from total gain before calculating Capital Gain. Gain is ANY gain on the property - not to be confused with the Capital Gain exemption. Follow the link and reference the section regarding Selling Costs and Capital Improvements.

Actually, since you were a lucky FSBO who sold and closed, you may wish to review the entire list and then maybe call your accountant to see if he caught every other deduction you may have missed. Calculate the amount you missed, and then let me know if option 1, 2, or 3 (the FSBO option) would have been the best option for you. - Tue Aug 19 2008, 17:56

Lets make it simple. Before you can consider if you have a gain or loss (ordinary income or capital gain) - you have to calculate your gain or loss. That would mean accounting for the basis at the time of sale. As I said, for the purpose of the question originally posed - irrespective of all additional cost and expense beyond the commission, as the commission is added to basis - thereby reducing any potential taxable debt (GAIN) from the sale of the house - option #2 gives the best advantage.

As the question was posed, there was no inference to profit. It was about how much can John get for his house. Did he do improvements that will add to his basis and reduce his "gain"? That information was not provided as a factor to which option was the better option.

Taxable debt (regular income or capital gains) cannot be determined until you have calculated the net gain from the sale of the house - the commission is above the line in this matter as it is a part of the basis calculation and therefore - a reduction in net gain and potential taxable liability. After which, one can determine if it falls within allowable exemptions or not. And to see if it is taxable or not.

In the scenario provided, the commission amount which reduces the potential taxable debt is $24,000. That equates to a $24,000 of additional gain if going the FSBO route, and $8320 more gain if going with option #1.

Once you have determined any gain/loss, you can determine if there is a tax consequence or not - I'd much rather have the money reduce my net gain and therefore reduce my potential tax consequences upfront and not wait until tax time to find out I might owe. Again, a good CPA will be able to help calculate gain or loss - but key here is - it can only be done post sale. When it comes to ones bottom line - there are many other factors aside from just the commission that would affect a personal gain or loss and that is not a part of the question posed. Not inconsequential, just not a parameter provided provided for the question posed. The sale, only within the given parameters - option #2 is still the better option in my opinion. - Tue Aug 19 2008, 12:22

To elaborate on the tax deduction angle, commission add to the basis of the property being sold, which then is deducted from the total sale to determine net gain or loss - regardless of the property type (residence vs investment).

When you sell a property, your basis is calculated to determine the amount of gain or loss as deducted from the total sale value. If you sell for a loss - its a loss and a reduction on your income. If you sell for a gain, remember, that gain is only the amount less the calculated basis. Basis is original purchase price, plus commissions, and other certain cost and fees, and reduces the income liability generated by the sale of property.

With this, it becomes a far more specific accounting issue and a CPA should be consulted. While one may easily be exempt from capital gains tax, income is separate. For the purposes of the question posed, without the minutia of this cost vs that cost and how it fits into a bigger picture, #2 is the best way to go in the clients best interest in my opinion.

As for the strategy that is addressed in that link. It is commission based. The commission would have to be, or agreed to be paid, before it can be reduced in lieu of a charitable donation. As a percentage, the lower the actual commission paid, the lower the basis deduction - and the lower the percentage to charity. At this point, you definitely want to talk to an accountant to determine which is best for you as the seller.

A word of caution regarding charitable donations. As there were some down payment assistance programs which hinged on charitable donations and the mortgage mess in the state it is in, these programs are coming under great scrutiny by the Feds. As an agent, I would exercise caution to be certain that any "rebate" buyer incentive, does not also run afoul of any conflicting regulations - RESPA or other. In a word, I love charitable donations but some of these programs may not be all they are cracked up to be. Use caution. - Tue Aug 19 2008, 10:54

Lets examine the choices first.

Agent #1 will list for $392K @ 4% (1% to list agent, 3% to buyer agent) for a net of $376,320.
Agent #2 will list for $400K @ 6% (3% to list agent, 3% to buyer agent) for a net of $376,000.

From a seller perspective, looking at the bottom line, for an extra whopping $320, why not go with agent #1. However, from an educated seller persepective, choice #2 is the best way to go. The reasons are as folloows.

1-Why would I hire a Realtor who prides his value as low as 1% as compared to the Realtor he hopes to work with as buyer agent (clue: not everyone gets to sell thier own listings or want to as a matter of avoiding potential dual agency issues).
2-To pay 2% more to the agent representing me at the net cost of $320? Deal - providing the services represent the value paid. At $320, its a steal of a deal.
3-Commissions are a deductible expense. Option #2 increases my deductions by $8,320.

Note: This assumes as you did that the home sells for full price. Now to also examine the market - what is the likelyhood that this home will sell at full price? Is it priced THAT WELL? A good qualified Realtor would be able to provide you with appropriate comparables to help you decide on the right price too.

Bottom line - an extra $320 up front in your pocket, or an extra $8,320 in income deductions?

Have fun with your FSBO! (at $376K on a FSBO site, kiss the added deductions goodbye!) - Mon Aug 18 2008, 14:16

Thank you to Options realty for that link to DOJ. I guess the point I failed to clearly make, which this letter does is that there is a clearly defined line between being a customer/client, and acting in the capacity of a agent - licensed or not. As long as the lines are clear, the rebate is applicable in the right circumstance. - Mon Aug 18 2008, 14:03

Wow, after surfing through all this commentary, I'm not sure that your question was ever answered, and any issues surrounding it have been properly addressed either. There were some very good responses and some nto so good. However, with that said, here is my understanding of some issues yoru questions brings up.

As a licensee in NYS I can only tell you my understanding. Practices and legalities can vary greatly by state. In NY, a buyer cannot receive compensation from commissions earned unless three criteria are satisfied.

1- Buyer must hold an active real estate license.
2-Broker receiving commissions to be given to buyer must also be that licensed buyer's supervising broker.
3-Buyer as licensee must "disclose interest" and all parties entering into negotiations must be fully aware.

In NYS only a licensed Broker can collect a commission directly and from there, pay appropriately, any licensee under his supervision for thier portion of the transaction. Anything else can be considered a kickback and is illegal and may violate federal RESPA regulations.

If a non-licensed eller is offering a "cashback bonus" incentive directly to the buyer, that may fall under different legal criteria, that may be ok. But that would have nothing to do with commissions earned and payed to licensees.

I do not know what the legal ramifications of providing a 2/3 commission kickback is on other states and I am not aware of any company that will do that sorry to say. Consider this also, if a seller is willing to give you "2/3's of a 'projected' commission, is that deal being brought together by two independent Realtors? Or really, is it one salesman collecting both sides and therefore, can legitimize "giving away" a portion of what he would have normally given if a 2nd agent was involved? You get what you pay for. At this point, I would probably rather have them knock off that value from the total price and get a reduced mortgage and/or negotiate to have that money counted towards the down payment. Why pay more (mortgage interest) for less money in the end?

(Now to step on the soapbox)
As for the argument that commissions are negotiable - THEY ARE - AS THE LAW STATES. And that is a discussion to be had between agent and broker, and agent and buyer or seller appropriately. The argument raised here earlier is nonesense as it went nowhere near to answering a prospective buyer/seller question. I have to ask - whom do we really serve? Really? Whom?

That and any other discussions, rants, bashing, and flaming really does not serve our community as Realtors and CONSUMER ADVOCATES. Total BS to be frank! That and any other discussion that did not go to answering the question posted here should better have been left out of the discussion.

For those who answered thoughtfully, I applaud you. For those that took it upon themselves to disgrace this space. Ashamed doesn't even come close to how I feel.

(Can't get off this soapbox fast enough - sheesh) - Mon Aug 18 2008, 12:03

Buying a house now or in a few years really depends on your needs. First question to ask yourself is how long do you plan to live in the house? If it is only for a couple of years or for several years - enough to ride the market back into an upswing? I can't say that it is a good market or bad market right now, some areas are feeling a decline, and others are holding steady.

Buying on the short term in a down market may not build you equity and may net you a loss. However, buying on the long term, enough to ride the market back into an upswing, you fare better at building equity over time. If you already own a home too, and need to upsize into something bigger, buying up in a down market may also be a move to consider. As the market turns back, so does your equity postiion.

Of course there would be mortgage factors to consider as well. Possibly discussing your needs with a financial advisor may help you determine if now is the best time for you. I service Orange and Rockland counties, if you would like a more specific evaluation of your area, I would be happy to be of service. - Mon Aug 18 2008, 12:34

To expand a little on Gail's answer. If it were your residence, you would need to live in it for any two of the last five years to qualify for the capital gains exemption of up to $250K for a single person ($500K for married couples). Any taxable gain (income tax separate from capital gains) is usually calculated on yoru basis (purchase price) less any improvements. For investment properties, it is your basis less any repairs. Check with a qualified CPA as it is my understanding, the IRS classifies "repairs" different from "improvements". - Sun Aug 17 2008, 11:58