How do home buyer agents get paid?

The transaction closed and everyone is happy!

How do home buyer agents get paid?

A goodly number of sellers seem to have forgotten the finances of their buying experience of the past.

Buyers don’t seem to know–the subject usually is not broached during the home search with their agent. Why is that?

It is not a mystery, though many would have you believe that. Should the question be asked, the stock answer–“my service is free to you.”

As with most things business-wise, look towards the distribution and availability of money.

The first absolute is that real estate brokers/agents do not provide their services for free. Maybe in those rare instances involving family members. So somehow the listing agent and buyer’s agent needs to get paid.

The second absolute is the listing broker/agent is paid by the seller. There is a services contract signed between the parties. It will define how and for what amount to pay the broker. Everything is negotiable, with both parties agreeing to the terms.

Let’s get right to it; the current reality is the buyer’s broker/agent is compensated from proceeds to the seller’s broker, which was negotiated in the listing agreement. To put in clear terms–paying of commissions come from the seller proceeds.

A buyer’s agent can negotiate with the buyer the fee for services provided–a buyer/brokers agreement is the instrument used.

The agreement is seldom used in our area.

The current mechanism for establishing the buyer’s broker/agent compensation is in the listing agreement.

The listing agent will request a certain fee, dollar amount or a percentage of the sales price. Within the agreement, a portion of that fee is designated for compensating the cooperating(buyer’s) broker. The transaction will have to close to collect.

So why not have the seller pay their broker and the buyer pay theirs? Sellers have this same thought. Again we have to look at the monies.

A buyer is staring at a downpayment, loan and lender fees, and desired inspections. I would dare say that if a buyer needs to provide more cash to pay their agents for the representation of a home purchase, 50% would not be able to perform–the classic cash-flow problem.

Lenders do not directly provide the funds, and to do so would probably be a violation of lending. In the lender’s loan package, you will not find a separate line-item that indicates Buyer’s Broker Compensation.

The idea that changing the current practice would bring housing prices down, I would have to concur.

Not because the sellers will reduce the asking price by the amount of the buyer’s broker commission. Oh no. Changing the current practice would reduce the buyer pool, creating less demand. Resulting, I predict, dramatically reduced home prices.

No, the buyer would need some mechanism for spreading broker compensation over the years for a change to occur. Currently, the choice for covering expenses is within the loan. Is there another?

Now you know the skinny on how do home buyer agents get paid?

If you are looking to purchase a home, ask your agent the first time you meet how they get paid. Of course, you already know the answer. The next question–is there a minimum co-op they will accept before they will show you a specific home?

Some brokers/agents do have a minimum; however, they are reluctant to communicate, hoping the issue need not come up. The problem, homes not seen because of a lower co-op offer. There are many excellent agents not beholden to this restriction.

The positive, you decide on the agent to employ. All aspects of the business relationship are negotiable. In the end, it boils down to trust.