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One Buyer’s Real-Estate Story, With a Twist on the Commission

Los Angeles Times real estate columnist Peter Viles writes of a tale from would-be homebuyer and blogger Kate in the Valley, who hatched the following money-saving plan while making an offer on a home:

Traditionally, when you buy a house you just give the purchase money to the seller and the seller pays the 5% commission out of that. But when you think about it, you are agreeing to pay 5% more for the house, and that translates to a bigger down payment, a bigger mortgage and bigger property taxes every year. So I figured it would be brilliant to subtract the 5% off the purchase price and pay the agents’ commissions separately myself. Seems like no big deal, right? Wrong.

Let’s say I agreed to pay $750k for the house. Traditionally, the seller would give the agents $37,500 in commissions and take the remaining $712,500 to pay off his expenses, etc. I need to cough up $150k for the down and take out a $600k mortgage. My property tax is $9,375 per year.

But if I just give the seller his $712,500 directly and then pay the 5% commission to the agents separately, the 5% is reduced to $35,625 (saving $1,875) because it is based on $712,500 and not on $750k. The seller is getting the exact same thing, only the agents’ commission is reduced.

My 20% down is likewise reduced to $142,500 (saving $7,500). My mortgage is reduced to $570k (saving $30k principle and 30 years’ interest on that). My property tax is reduced to $8,906.25 (saving $468.75 each year I own the home).

Unfortunately, her plan ended on a sour note:

Ultimately, my agent begrudgingly wrote the offer. The house went into multiples and guess what happened? The seller’s agent refused to counter my offer. Yup, they countered everybody but me. The house went for a price that I would have happily paid, but I was excluded from the bidding.