Steve Olson
The way you pay your Real Estate agent going forward changed.
How it used to work.
A homeowner would hire a real estate agent or REALTOR to sell their home. In order to list the home for sale, a listing agreement between the homeowner and the listing broker or agent needs to be signed.
In that agreement, the homeowner agreed to a commission payable to the listing broker. This percentage was negotiable and often times fell between four and seven percent.
The listing broker then offered a portion of that to the broker who brought the buyer, payable at closing. For the most part, the four to seven percent was split 50% between the two brokers.
It was common for the listing broker to have a higher % of the commission due to the expenses of listing a home for sale. For example: 3.5% to the listing broker and 2.5% to the buyer broker.
So why did this change?
The main reason this changed was due to the class action lawsuit that changes the way commissions are paid and negotiated.
The lawsuit claimed that in its current state, real estate commissions were fixed. Meaning brokerages were getting together both internally and externally and telling everyone to charge the same amount or said a different way, price fixing.
One of the other views was that since the commission to the buyer broker was paid the same no matter who brought the buyer, there was no negotiation between the buyer broker and the buyer.
In simple language, whether you were represented by a brand new agent or the most seasoned in the market, they were both paid the same.
How do real estate commissions work now?
When a homeowner agrees to list their home for sale, they still need to sign a listing agreement. In that agreement they will agree to a commission payable to the listing broker only.
The buyer broker or agent can still be paid a commission from the seller, but that must be negotiated off the MLS (or Multiple Listing Service). The seller or listing broker may not publicly advertise the commission on the MLS in any way shape or form.
How does this affect the buyer?
The buyer has a few options now when hiring a real estate agent
- Have the commission negotiated as part of the contract to be paid by the seller
- Pay the commission as a closing cost at closing
- Negotiate a flat fee for commission with the buyer agent // broker
If the seller agrees to only pay a portion of the commission, then the remainder of the commission would be the responsibility of the buyer at closing.
Signing an agreement with a Real Estate agent when buying a home
Another change to the way people buy homes is that now, in order to work with a real estate agent when buying a home, you must sign an agreement that outlines the responsibility of the parties.
Very similar to a listing agreement.
This agreement is not meant to “lock you in” to a buyer agent. It is more to outline a few key details:
- How much the real estate agent is charging for their services
- The length of the agreement
- The duties of the client and the agent during this process
As always, all of these terms and commission are negotiable.
Let’s say you and your agent agree to 2% commission. The buyer agent then finds out the seller is willing to pay 3% commission. The buyer agent can only collect 2% commission because that is what your agreement states.
What if the seller doesn’t agree to pay all of the buyer broker commission?
You have a few options
- The buyer pays the difference at closing
- The buyer broker and buyer and agree to accept the lower amount
A great real estate agent who is experienced and who knows the market is worth their fee plus more. We would suggest negotiating the amount you are comfortable with and assume you will be liable for the entire amount. Anything the seller agrees to pay for are savings that are passed on to you.
