[headline h=”1″]Commission practices in Puerto Vallarta[/headline]
Like virtually everywhere, commission practices in Puerto Vallarta are driven by tradition and company policy and not by any law or government regulation. Standard commission rates in Puerto Vallarta for resale properties are 8% whenever listed through the local MLS services. If the property sells for a million or more the commission often drops to 7%. For a building lot or a business the rate jumps to 10%.
These are the standard rates and, like anything these days, they’re negotiable; however, as the number of overall resales in the region each year is much less than other North American markets, the 8% rate gets justified. There are exceptions. For example, developers of large housing projects often negotiate a 6% fee to the agency representing them due to the greater sales volume involved.
Whatever the agreed commission rate is on a given property, the amount gets written into an exclusive listing contract signed between a seller and their agency. That amount and how it’s split can always be superseded by what’s later agreed upon in a sales contract between a buyer and seller but the listing agreement sets the expectations between a seller and his agent.
Commissions always get shared between the two agencies involved in every sale: the listing agency (who represents the seller) and the selling agency (who brings in the buyer). On a typical MLS resale, that 8% commission is evenly split between those two agencies. On a $300,000 home sale, for example, 8% equals $24,000 in total commission, which is split 50/50 ($12,000 & $12,000) between the two agencies involved. Each half is further split between the individual agents working the sale and their respective companies, often again 50/50 but that split can and does vary from company to company and from agent to agent within each company.
So generally speaking, the agent who brought in the buyer on a $300,000 sale makes more or less $6,000, that is, a quarter of the total commission paid out by the seller. Not bad if one pulls that off every month though that’s not the easiest of feats. But there are other ways to make up the difference.
If the same agency represents both buyer and seller, referred in Canada and the US as “dual agency”, then that company makes a whole lot more money. Just add the quarters together. It’s most wonderful if you own the company, it’s your own listing and you represent the buyer, too. It’s not difficult to understand why agencies are tempted to push their own listings over what may otherwise be a buyer’s better choice or preference.
Nor should it be difficult to understand why everyone involved in a sale wants the buyer to pay as much as possible. Not just for the sake of the seller to get the best price but obviously each salesperson’s earnings go up with it. It’s the nature of a commission-based system.
There you have two pitfalls of the commission-based structure. One, listing agencies are obviously more motivated to sell their own listings than someone else’s regardless if another listing would be of greater interest or value to the buyer. And two, even the agent representing the buyer, who’s suppose to assist the buyer in getting the best property at the best price, instinctively wants the buyer to pay as much as possible since it has a direct effect on that agent’s income. I’m not saying all commission-based agents won’t try to achieve for their buyer the lowest price possible, just that’s the opposite of instinctive nature.
There’s a host of other aspects concerning commission rates and their effects on sales agents’ behaviours to explore another day. Apart from setting commission rates, though, the exclusive listing agreement signed between the seller and their agency does something even more important…
Next: Fiduciary Responsibility & Due Diligence
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[headline h=”3″]Introducing the flat-fee business model to Puerto Vallarta Real Estate[/headline]
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1. Introduction
2. Understanding the Commission-based system
3. Fiduciary Responsibility & Due Diligence
4. Flat-Fee Details
5. Buyer’s Agency Agreement
6. Flat-Fee FAQ
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