What Does It Cost?
This web resource will help you better understand what the different types of fees are as they relate to both purchasing and selling a home or property. It will cover what it can cost to list a home for sale, what that commission/fee structure is and how it’s broken down between the listing brokerage and their (seller’s) agent and the selling brokerage and their (buyer’s) agent. It will also cover buyer representation fees and who pays them.
The fee for listing a home or property for sale, which is charged to the seller, is a purely negotiable fee.
For purposes of an example, let’s say that the commission/fee charged to list a home is 6% of the selling price of that home. The 6% fee represents the total listing fee and in a cooperative multiple listing service (MLS), which we have here in Ulster County, that fee is divided between the listing fee to be paid to the brokerage that is listing the property for sale, and the buyer’s broker fee to be paid to the cooperating brokerage that brings the buyer.
How the total listing fee is divided is determined by the seller who lists the property for sale. It can be evenly divided: 3% for the listing side and 3% offered out to the brokerage that brings the buyer. It can also be proportioned unequally between the listing side which handles the marketing of the property, and what’s offered out as a cooperating fee to the brokerage representing the buyer. Regardless of how the total listing commission/fee is split, the seller pays the whole fee that they negotiate with their listing brokerage. (Note: The payment of a fee does not determine representation. Only a signed agreement does.)
Buyers/Buyer’s Agent Representation Fees
The buyer representation fee is also purely negotiable.
This fee is the amount of compensation the buyer negotiates with their buyer’s agent and their brokerage to represent them as a client in the purchase of a home or property. As described above this fee can often be covered by the cooperative fee offered out by the listing brokerage, but not always. Please see below. Buyer representation is best performed under a written representation agreement not unlike a listing agreement, which specifies the duties and services to be performed by the buyer’s agent, the responsibilities of the buyer under the agreement, and the compensation for services rendered by the buyer’s agent. Find out more about buyer representation.
Many questions—and misconceptions—about buyer’s agents relate to fees and how the representation works.
Who Pays the Buyer’s Broker?
The surprising short answer is: in many cases, the seller pays most if not all of the buyer’s broker fee. That said, who actually pays this fee can depend on your point of view. The seller generally pays the overall listing fee out of the gross sale proceeds; however, if you consider that there would be no gross sale proceeds without the buyer’s purchase money, you could also argue that the buyer pays the fee. It depends on your perspective.
How Does That Work?
Although the total commission/fee for listing a piece of real estate is negotiable, we’ll use 6% of the sale price as the listing fee for this example. This overall listing fee can be split evenly in many cases, but not always, with 3% going to the listing brokerage and their seller’s agent to compensate for marketing and the representation of the Seller in the process. The other 3% is offered out to cooperating brokerages, and ultimately their buyer’s agent who brings a buyer to purchase the property. So the seller essentially pays the buyer’s agent’s fee to represent the buyer is this scenario. Note: This presumes the buyer representation fee that was negotiated between the buyer and their buyer’s agent was 3%.
Why Would a Seller Do That?
The answer is simple. They want to sell their property. If there’s no buyer, there’s no sale, so homes are often sold through a multiple listing services (MLS), where the brokerages and their respective agents all cooperate to sell homes and property by offering out compensation to cooperating brokerages and their buyer’s agents who bring in buyers to purchase homes listed for sale.
Real estate transactions work more smoothly—and are a lot more likely to be successful—when both sides are represented.
So Using a Buyer’s Agent is FREE?
In many cases, there is no additional charge as in the example above. In many cases the buyer representation fee for the buyer’s agent is funded from the overall listing fee paid by the seller. This is provided that the commission being offered out to the cooperating brokerage in a particular listing is the same as what was agreed to in the buyer’s representation agreement (in this example 3%). This is not always so—please see below.
There are some circumstances in which the entire buyer representation fee agreed to in the representation agreement between the buyer and their buyer’s agent is not completely covered by the compensation offered out to the buyer’s broker by a particular listing.
For purposes of example, let’s say the professional fee agreed to between the buyer and their agent is 3%, and the buyer wants to purchase a home listed with the fee offered out to a buyer’s agent of 2.5%. In this case, unless the buyer’s agent is able to negotiate with the seller through their agent to cover the .5% difference, then the buyer maybe required to pay their buyer’s agent the .5% difference in the fee.
In this instance, sometimes the seller agrees to pay the difference and sometimes they don’t. Sometimes the buyer will choose not to ask the seller to pay the extra fee and are happy to pay the difference to their buyer’s agent for the valuable service provided. (Note: Any compensation paid to a buyer’s agent by the buyer must be disclosed.)
There are many different scenarios governing how these fees may be paid based on the different types of listing agreements that exist, and how their respective commission/fee structures are set. A buyer representation agreement can also include properties that are not listed in the MLS system, such as “For Sale by Owner” properties in which the seller is not represented by a listing brokerage or a seller’s agent.
It is important to keep in mind when engaging a buyer’s agent that you thoroughly discuss the terms of any agreement in advance with your prospective buyer’s broker and that you completely understand the agreement before signing.
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© Copyright 2015. Brian Cafferty. All Rights Reserved.