Who Really Pays the Fee? Understanding Buyer Rebates

Batterymarch Group LLC is a full service independent real estate brokerage firm specializing in the downtown Boston market. More about our services here.

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In this issue:

Who Really Pays the Fee? Understanding Buyer Rebates

Property Spotlight – On the Market

  • 305 Commonwealth Ave, unit 2 – A Solid Back Bay Duplex, With a Fancy Price Tag – Offered at $10.6 Million

Well Bought/Well Sold

  • 301 Berkeley Street, unit 5 – A Great Co-Op Apartment, Even Better Value – Well Bought
  • 191 Commonwealth Ave, unit 61 – Big Money, Odd Layout – Well Sold

What’s Catching Our Eye

Who Really Pays the Fee? Buyer Rebates

They say that if a product or service is free, the customer is the product. Conventional thinking in a real estate transaction dictates that the buyer doesn’t pay the transaction fee – the seller does. This is largely because the seller “negotiates” the fee (we use the term negotiate loosely, see our recent report “The Boston Real Estate Oligopoly”), and the fee is accounted for as an expense to the seller on the HUD closing statement. But the buyer is the one writing the check, so aren’t they paying the fee?

Having grown up on a proprietary trading desk, we view fees as a “mark-up” to the buyer and we consider it paid by the buyer. Generally speaking, Boston is a 5% market, meaning that the transaction fees are usually 5% of the gross sales price, or there is a 5% markup. In most cases, the 5% fee is split equally between the seller’s broker and the buyer’s broker, i.e., 2.5% each.

It’s critically important that buyers understand that just because the seller sets the fee, Massachusetts allows “rebating.” Rebating allows the buyer’s broker to rebate a portion of their part of the fee to the buyer at closing. In other words, buyers can, and should, negotiate a rebate with their broker. Saving a point or so on a large transaction is real money.

We recognize that not everyone is comfortable negotiating what is effectively compensation, which is why as fiduciaries, we initiate the fee discussion at the beginning of the process. We take into account things like breakpoints and recognize that every transaction is different. Our a la carte approach often involves a rebate to our clients.

Property Spotlight

Batterymarch Group is focused on buyer representation, so the highlighted listings are not ours. These are our opinions, so take them with a grain of salt. We’re happy to set up showings of these properties, offer our valuation analysis, and assist with preliminary renovation budgets when needed.

305 Commonwealth Ave, unit 2 – A Solid Back Bay Duplex, With a Lofty Price Tag – Offered at $10.6 Million

Unit 2 at 305 Commonwealth Avenue, a 4,253 square foot, 4 bedroom parlor and above duplex on the sunny side of Commonwealth has been on the market now for 214 days. The unit comes with two deeded garage parking spaces and a private deck. 

305 Commonwealth Ave.

Pros: Scale – the unit is very spacious. High ceilings on both floors. Functional outdoor space. Large kitchen. Well preserved original detail.

Cons: Location – it’s pretty far down Commonwealth. Parlor level. Turntable in garage. The wood detail may not be for everyone. Valuation.

High-end buyers usually gravitate to penthouse units, and it’s understandable: better views, less street noise, and you don’t have neighbors clomping around in their clogs above you. What often gets overlooked is that in the world before elevators, the top levels of these old brownstones housed the help and so generally have smaller windows and much lower ceilings.

This unit occupies the first and second floors, where the owners actually lived and entertained, thus soaring windows and high ceilings. With limited commercial traffic on Commonwealth Ave., we don’t think street noise is a meaningful problem. Unlike most Back Bay buildings, this one was never chopped up into apartments, so there is a ton of well preserved original detail.

Probably the biggest knock is the price. The sellers paid $9.5 million in the spring of 2019, which seems like a premium for what it is, and for being that far down Commonwealth. For sellers looking to unload these high-end units after a short period of ownership, it’s not about the return on their money, it’s more about the return of their money.

We think that the $10.6 million ($2,492/sf) asking price is too aggressive. That said, it’s a very good property and at the right valuation, we’re giving it a thumbs up.

The property is listed with Gibson Sotheby’s, and, as usual, we’d be happy to set up a showing and walk you through our valuation analysis.

Well Bought/Well Sold

301 Berkeley Street, unit 5 – A Great Co-Op Apartment, Even Better Value – Well Bought
301 Berkeley Street

It took well over a year, but cooperative apartment 5, at 301 Berkeley Street has a new owner with a sale price of $5.3 million ($1,492/sf), a 15% discount from the original asking price of $6.2 million. The 3,550 square foot fifth floor apartment has four bedrooms, one parking space, direct elevator access, and windows on all four sides.

Readers of our work know that we’re big fans of pre-war co-ops, and this apartment is no exception. We know this building well as yours truly came close to buying a smaller unit there many years ago. It’s a great Back Bay location, although some people may be turned off by the heavy traffic on Berkeley Street entering Storrow Drive.

From a valuation perspective, the last sale here was $5.0 million in August of 2017 and the apartment subsequently underwent a comprehensive renovation by a well respected general contractor. As we see it, the new owners got a great apartment and effectively got a fairly new high quality renovation for free. This one was definitely – Well Bought.

191 Commonwealth Ave, unit 61 – Big Money, Odd Layout – Well Sold

Unit 61 at 191 Commonwealth Avenue changed hands this week after 480 days on the market. The final sale price came in at $8.24 million ($2,023/sf), a 23% discount from the ridiculous original asking price of $10.75 million. This 4,072 square foot penthouse has 4 bedrooms and the price includes one deeded outdoor parking space located two blocks away.

191 Commonwealth Avenue

The property, which has 109 feet of frontage on Commonwealth, was originally developed in 1873 as a six unit residential hotel. It was converted into 16 condominium units back in 1973. This unit last traded in 2017 for $5.1 million (without parking) and underwent an extensive renovation.

As a general rule, we’re big fans of larger single floor units, but that’s not the case with this one. Our biggest gripe is the floor plan. Having a similar sized living room, study and den feels a bit redundant to us – two of these rooms would be ample. You enter the unit into a vestibule, which leads to a good sized foyer, that empties into another large transitional space before you enter the living room. The large kitchen, which is very nice, has one tiny window (there are two skylights), and the windowless dining room feels like an oversized pantry with a skylight. It’s best if we stop there, I think you get the point.

It may seem like we’re being overly picky, but for $2,023/sf, properties need to be spot on, and, as we see it, this one falls short. Someone loved it, and we have no doubt that they will love it long after the price is forgotten. We’d say that the seller got the better end of this one, it was – Well Sold

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About Batterymarch Group LLC – Batterymarch Group is an independent full service real estate brokerage and advisory firm focused on the downtown Boston high-end residential market. We represent both sellers and buyers with a sharp focus on valuation. We also offer sub-advisory and owner’s representation services to financial institutions, family offices, and trustees.

About Andrew Haigney – A 25 year Wall Street veteran, Andrew held senior positions at leading global investment banking institutions where he routinely valued and negotiated complex securities transactions on behalf of institutional clients. Andrew has been an outspoken advocate of a universal fiduciary standard. In founding Batterymarch Group, Andrew brings that same discipline and passion to the real estate brokerage.

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