Who pays a Buyers Agent??? What, it’s not the Seller??

For many years the phrase has been, “I work for you and the Seller pays me!!” Yipes!

Standard in the industry has been Seller pays commission, that is to say, there is no commission clauses in a purchase agreement, the settlement statement demonstrates the commissions paid and disbursed from Seller side of proceeds, with Buyer side devoid of mention of commissions paid to Real Estate Agent. This standard may likely be due to multi-list service participation, compensation must be offered to Buyers Agents to have it “in or on” the MLS. Times are changing… MLS minimum requirements are changing with offer requirements having the option of zero offering. Soon, no offers will be allowed in pls and will require negotiating of compensation and concession for Buyers Agent. So the question is who really pays it??  Estimated net sheets for Sellers show, included in costs, deducted from proceeds, the commissions. A Seller calculates into his “walk-away” all costs to achieve said bottom line. From this perspective the Seller is paying. Estimated net sheets for Buyers show costs of borrowing money, those costs must be included in the Purchase Agreement for Lenders to loan and underwriters to approve, banks to fund. These costs are historically based on bank costs, fees and charges and prorations of the ownership of the property. Lending does not include personal property or items or services not attached and defined inside the four corners of the purchase agreement. There is not a specific line in standard calculating for real estate commissions as cost to close for a Buyer.

As a standard in our practice, and has been for twenty years, Buyer representation courses as follows;

The prospective buyers interviewed, steps are taken to qualify and vest the prospective buyer to his type of purchase, including budget range, fund sources, personal preferences, level of purchase experience, and in general, will our personalities mesh.

Generally, buyers are then presented with a Buyer Agency Agreement. This document ensures that we will be paid, as well as the Buyer is dedicating and warranting themselves to us to be the buyers agency, it does not specifically require the performance of purchase.  Compensation for those services is explained at that time. If a seller offers compensation via the multi-list service, we will accept that compensation as payment as long as it is a minimum of “X%”. Any shortages of that compensation is the responsibility of the Buyer. If we are seeking off market properties, or approaching sellers, who have never listed their property, the compensation is “X%”, and, at the Buyer’s direction, will be sought via the Purchase Agreement from the Seller, however, it is the responsibility of the Buyer to compensate us should they refuse. Our negotiating technique and skill is of great value now!  

Keep in mind all compensation paid to real estate professionals must be fully disclosed to both parties.

The majority of agents that are unable to present this Agency Agreement to Buyers at the initial contact and commencement of work fear Buyer rejection and losing the Buyer and are secondary difficulties behind the primary inability to adequately explain this document and present a value proposition to warrant confidence from a Buyer. Unfortunately, it is slipped in with the multiples of documents requiring signature when submitting an offer. This makes for a difficult time in collecting commissions, under some circumstances. This largely contributes to fail/success rates in this business.

From a Buyer side, because so many agents do not do this as standard business practice & as statutory requirement compliance, it raises question in a Buyers mind if they should sign it. Very unfortunate. This document also encompasses the duties owed to the Buyer from the Agent. Which includes, but is not limited to, confidentiality, which can be paramount and obtaining specific prices and motivations. It assures the Buyer will not be at an unfair disadvantage in negotiations!  In the end, who pays the commission?

It would appear to be determined dependent upon the perspective of the Seller or the perspective of the Buyer!