MLS Compensation; The Ugly Truth Today

Posted by: Jeffrey Bastress on October 24th, 2007

House and Money

“Real estate compensation structures are wrought with problems, which could be effectively eliminated if the MLS-mandated offer of compensation were done away with.

Agent compensation is set by office policies that support a specific company’s fee philosophy and income. But the system doesn’t take into account how it affects consumers’ opinion of value received or how it can clash with other companies’ compensation policies.

These policies also contribute to uneducated agents blacklisting certain properties—either intentionally or unintentionally.

One major contributing factor to the compensation problem is that a buyer’s agent is paid according to the selling agent’s office policy. This totally disregards the buy-side agent’s office policy on compensation, the buyer’s contract with his agent and the seller’s best interests, which are to remove any barriers that may keep potential buyers from seeing their home.

One problematic result of the mandatory unilateral offer of compensation is the belief that the seller and his agent are the ones paying for the buyer agent’s fee. In reality, both the seller and buyer agents’ fees come from the negotiated sale price, and are deducted from the proceeds at closing. It is the buyer who put the money on the table and who has agreed to pay back the lender.

It’s no wonder that sellers feel brokers’ fees are too high—they think they are the ones paying for the buyer’s agent fee.

They’ve been conditioned to feel this way by seller agents who simply dictate company policy that’s based on the MLS compensation offer. It is all sellers and their agents have known without questioning for so many years.

The practice of including the buyer agent fee in the commission fee that sellers pay has directly contributed to the growing number of for-sale-by-owners.

FSBOs in many cases offer a fee to the agent who brings the buyer, which shows the seller is not averse to paying a fair fee to one agent to secure their home sale.

If the MLS offer of compensation were not offered to buy-side agents, then many if not most FSBOs would gladly let a seller’s agent handle the entire transaction, knowing the one fee they would incur.

Also, all buyer agents would negotiate their fees in the offers from the closing proceeds or be paid by the buyer.
Consumers get it. Most agents and their companies do not. The MLS definitely does not.

Fixing this fundamental compensation flaw would eradicate the entire debate over high commissions charged by so-called ””traditional”” firms versus the ””discount”” brokerage fees.

By eliminating the MLS offer of compensation, traditional firms can list homes for any fee their company sets on the selling side and know that buyer agents will be compensated either directly by their buyer or from negotiated proceeds at closing.

The difference is that the seller and buyer each pay for the services they bargained for, and the negotiated sale price includes all these facts on the table. Buyers would get to see all properties, not just ones that fit the agent’s company policy.

Sellers would get more showings and opportunities to entertain offers that they don’t see now due to the invisible barriers set when the compensation offer is perceived to be too low.
One-size-fits-all company fee policies do not take into account what the consumer pays for compared with the perceived value of service they receive. Agents of all experience and education levels charge the same for their services. It’s company policy!

The internal office splits favor the company on new agents versus experienced agents, but the consumer pays the same no matter the experience level. This is another reason consumers feel they pay too much—90 percent of the time they pay the same amount for inexperienced service that the other 10 percent of consumers paid for more experienced service.

This contributes to the bad rap that real estate professionals have to combat, and makes it harder for the experienced agents to justify their fees as horror stories abound.

If we eliminate the MLS offer of compensation, we could eliminate:

  • Sellers’ adversity to high fees;
  • “Traditional” versus “discount” fee battles. Each will simply negotiate their fees with their clients and get paid from proceeds at closing;
  • Blacklisting certain companies’ listings due to low co-broke offers of compensation. More showings and more offers is a good thing;
  • Agents thinking the world spins around their office policy. So why doesn’t everyone else?

And instead we could:

  • Empower consumers with decisions on offers based on more than just one office policy;
  • Enable consumers to more easily shop and compare agents to ensure value received;
  • See more FSBOs hiring selling agents;
  • Minimize MLS arbitration (as 90 percent currently is over compensation disputes);
  • Enable buyer agents to negotiate fees based on anticipated workload for ””entry-only”” or flat-fee listings.

The days of MLS compensation’s usefulness are over. It had a purpose back when information was hard to come by and all agents basically worked for the seller.

Just like sub-agency, which recently became an issue of mandatory disclosure, it will have to be mandatory for brokers and agents to disclose the MLS offer of compensation to clients for it to go away.

Otherwise the issue of whether the office policy best serves agents or clients will not be considered. The ugly truth of offering compensation through the MLS will not, in my humble opinion, be considered unless the MLSs mandate changes themselves.

The many agents that not so long would never have worked as buyers’ agents or only allow sub-agents to show their listings have learned only by mandatory agency disclosure why to change for the better.

These will be the same ones that will only accept the obvious truths of MLS offer of compensation, only by a forced MLS mandate. Sadly, this encompasses the vast majority of real estate company policies and their agents’ blind acceptance.

Jeffrey Bastress is Founder & President of StartPoint Realty in the Boston metro area in Massachusetts.



10 Comments on “MLS Compensation; The Ugly Truth Today”

Paula Bean

Interesting comment.
I agree with most of what was said, and that is why my partners and I designed the ACRE(tm) Accredited Consultant in Real Estate Program

It is transparent.

The agent and the consumer both know what they are paying for and whom works for whom.

Consumers love it – agents love it. You get paid for what you do, they get results they want for what they are willing to pay and there is no problem with what is offerred via the MLS.

NAR and our individual MLS systems are not going to be quick to jump on this bandwagon, so it is up to us to educate and inform the consumer and the agents as to how we want to do business.

I look forward to more posts on this topic in the future.

Alan Barker

It may be different in other markets, but in my market nearly every brokerage gives the individual agents almost complete control over what commissions they will charge. I’ve seen Buyers agent commissions by the same brokerage anywhere between 2 and 5%. In my market, brokers don’t really mandate the problem, and nearly half the agents aren’t on commission splits, but are under a hundred percent setup.

Taj Penaso

Basically this is not always true because some selling brokers neglect to take a commission and instead take a flat fee.Flat fee mls breaks the traditional mold of doing business.

Wayne Long

I have to totally disagree. I think the structure of the mls with an offer of a set commission creates a system in which Realtors can work together in a spirit of cooperation.

Alex Greben

I just dont see why MLS is getting so strict. I had them contact my IDX service because of something I did on my site. Its my listings for crying out loud. I cant wait tell we dont need them anymore.


Personally I think this MLS would be kind of a mess. So every time an agent meets with a client they hammer out some policy to use. This seems like a huge time suck.

hotel for sale

you have some really good posts here. Im going to spend the next few days reading them. i love your writing style and im really happy to be your fan. keep those posts coming

Paul Howard

The sooner the ‘offer of compensation’ is done with the better. There is a belief among most listing agents, indeed among most buyer agents, that the buyer’s agent must accept the “offer” or not show the home. That is not the case but to the extent that Realtors think it is, it is anti competitive and also results in listing agents interfering with contracts buyer agents have with their clients.

Buyers should be free to provide for the compensation of their agent when they make an offer to purchase NOT take the risk that their agent won’t show them a home with a low offer of compensation.

Charlotte MLS

These are all great points concern compensation broadcasted upfront on MLS’s. I woudl disagree, however, that buyer agent compensations keep all but a very few homes from being shown. Besides, the Realtor code of ethics effectively addresses this issue.


MLS obviously needs attention and tighter regulating. There is always going to be exploitation where there are gaps.

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