Q: What is the fee of a homebuyer’s real estate agent? –Vicki
A: This question comes up only a fraction of the times it ought to, but is a very smart question. The answer is not so simple; it depends on the particular facts of your situation and your transaction.
In the vast majority of cases, the fee paid to the buyer’s broker or buyer’s agent is whatever share of commission the listing office is offering. When a seller and listing agent negotiate a listing agreement, they negotiate two payment terms.
First, they agree on the total percentage of the purchase price that will be paid to the listing broker as the commission. Then, they include what portion of that commission will be shared with a cooperating, or buyer’s, broker.
So, for example, it’s quite common for the listing agreement to specify that the commission will be 5 percent of the purchase price for the home as agreed upon by buyer and seller, and for the listing broker/agent to agree to share half of that — or 2.5 percent of the purchase price — with the buyer’s broker.
This is the arrangement in well over 90 percent of homes sold, and is generally the default arrangement that arises when a particular broker writes an offer for a property that is listed on a multiple listing service.
Nine times out of 10, no contract is required between the buyer and his/her broker to arrange this commission payment arrangement.
However, there are a number of alternative buyer’s broker commission arrangements. For example, a small — but growing — number of brokers are willing to work for a buyer based on a buyer’s broker agreement that sets an hourly fee, flat rate or percentage of the purchase price lower than what is offered by the seller.
Then, the broker collects the full commission from the listing broker and refunds or rebates the buyer the difference, as negotiated between the buyer and their broker — in states where such rebates are allowed.
Beyond that, there are a number of situations that can arise in which there is either no listing broker or no commission being offered by the listing broker to the buyer’s broker/agent. In those cases, the buyer and his/her broker or agent can simply negotiate a commission on whatever terms they like via an hourly fee, flat rate or a percentage of the purchase price.
In many cases, a real estate broker who agrees to an hourly rate will often set a minimum amount he/she must receive for working on the transaction, like $175 per hour with a $2,500 minimum, as a hypothetical example.
And finally, there are buyer’s brokers who, in their agreements, set a minimum they must earn for their work on the buyer’s behalf. In the event the listing agent for the property the buyer selects has offered a commission to the buyer’s broker that meets or exceeds this minimum, the agent agrees to accept the commission as payment in full.
If, however, the listing agent is offering a commission below that minimum (or the buyer selects a property with no listing agent or with no commission being offered), the buyer agrees to pay the difference between the commission offered by the listing agent, if any, and the minimum compensation they agreed to with the buyer’s broker.
About 90 percent-plus of transactions involve the traditional commission arrangement, in which the buyer’s broker simply shares part of the listing broker’s commission; for any of these alternative commission arrangements to govern, the buyer and his/her broker need to negotiate and agree to a Buyer Broker or Buyer Representation Agreement.
However, ideally, every buyer and his/her broker should have at least one conversation about compensation and how the buyer’s broker will be paid — before they get in the car to visit properties.