Ask The Expert – Real Estate Commission

“Does a buyer ever have to pay the real estate agent?”  PDM, First time buyer
This can be answered two ways- the simple way, and the more convoluted way.
Lets start simply. In most places, the buyer agent commission is paid indirectly by the seller. The seller makes an agreement with their agent (the LISTING agent) to pay a fee for procuring a buyer for the property. But in reality, most times, the buyer is brought by another agent, known as the COOPERATING BROKER. The listing agent makes an offering through the Multiple Listing Service (MLS) of the house they have for sale, at what price and terms, and at what fee they will cooperate with another agent in the sale of the home. In effect, the listing agent agrees to give away a portion of the fee promised by the seller to obtain an army of agents to go out and assist him in procuring a buyer. The portion the listing agent offers through the MLS is the buyer agent commission.
Now it can become more convoluted if 1. The listing agent does not submit the property to the MLS and therefore makes no offer to the cooperating broker, or 2. The seller is acting as his own agent and has not made an offer of compensation for the buyer agent. In both cases, you should counsel with your own agent to see what is the best course for you.
In four decades of my practice, my clients have generally handled this in one of two ways. The first would be to improve the purchase price and ask the seller to compensate the agent. This would generally occur when a seller is acting as their own agent and has not factored in any compensation for an agent. The more common occurrence is that a seller is represented by his own agent, but the property is not in the MLS (a so called “pocket listing” that is being quietly marketed). This is usually done not to avoid paying the buyer agent fee, but for privacy or simplicity reasons. In this case, the seller anticipates paying a fee for the buyer’s agent. How that must be handled is for your agent to get a “single party agreement” which states that if you decide to purchase the property, the seller agrees to compensate your broker. This is done BEFORE you view the property. The obvious reason is that if the seller is unwilling to compensate your agent, you need to factor that cost into your offer price.
There are times that a buyer might want to pay their own agent. The first is for tax purposes. At times my clients have been advised by their accountants to compensate their agent directly to take it as a cost of purchase. The benefit to the buyer is that it results in a lower purchase price, hence lower property taxes and a lower mortgage. You should consult your tax attorney or accountant regarding all of this.
Ultimately, who will pay fees, including commissions and closing costs, is a discussion to have with your agent.

“What’s the difference between a full-service broker and a discount broker?” JR, homeowner

If you’re preparing to sell your home in the near future and you’re the type of person that does a lot of research before making a big decision, chances are you’ve come across the terms discount broker and full-service broker. What’s the difference? Obviously one offers some sort of discount. But why and how?

It’s smart to look into different ways to save money when selling your home because this is a huge transaction. You want to end up with as much money in your pocket as possible. Choosing the right agent is the key to a successful home sale, so you want to make sure you’re making the right choice between a full-service or discount broker.

Full Service: It is with full-service brokers that you would find yourself paying full commission; mostly 6%. This commission rate covers all fees (rarely would you pay extra), including an agents time spent meeting you and marketing your home, handling your escrow and all negotiations.

Marketing costs are some of the highest for a brokerage to sell a home. This includes services such as videography, photography, drone shots, floorplans, direct mail, MLS listings, online marketing, newspaper and brochure advertising, custom websites, and signage. Different teams may have different strategies with different results, but the main takeaway is that full-service brokers include all of their services with the commission rate they charge.

In addition, full service agents handle negotiations all the way through close of escrow, meet with loan, title and escrow officers, inspectors, and repairmen, and interface with you on buyer inspection reports.

Discount Broker: As you can imagine, a discount broker offers a discount on their services. These brokers charge less than full commission, such as 3.5% or 4%. They don’t do it just out of the goodness of their heart, though.

When you pay less than full price for a discount broker, you get fewer services than what a full-service broker would offer. Some discount brokers offer different limited marketing packages that you can choose from. Others offer services like an À la carte menu, where you get to pick and choose which services you want to pay for. For example, you may want online marketing but no newspaper ads.

Which to choose? If you want to play it safe, you should definitely go with a full-service broker. It’s not easy to come across a discount broker with an outstanding sales record. Selling your home is very serious business and Realtors® that work with full-service brokerages are more capable of selling your home for top dollar. Just be sure your agent details what you will be getting, what services you can expect and what timeline you can expect.

That’s not to say that no one has ever had a successful home sale with a discount broker. Maybe you are really good at marketing and you only want to pay an agent from a discount broker to handle the paperwork. That’s certainly a possible situation that could go well, but most people aren’t as skilled in real estate marketing as a real estate professional. Or you want and agent to do your marketing and an attorney to handle the negotiations.  That could work for some people as well.

“What does it cost to hire an agent to sell a home?” MA, first time seller

First of all, like everything else in the real estate transaction, real estate commissions are negotiable.  You will find that in large bold type right on the face of the listing agreement.  In California right now, most full service agents charge a total fee of 5% to 7%.  Here’s normally how it works: Whatever the commission is offered or negotiated, that percent of the sales price on the house generally gets split four ways. 1/4 to the listing agency (Seller’s Broker), 1/4 to the listing agent (Seller’s Agent), then, 1/4 to the selling agency (Buyer’s Broker), and 1/4 to the selling agent (Buyer’s agent).  If the Listing Agent is also the Listing Broker, then s/he would get both quarters. If the Buyer Agent is also the Buyer’s Broker, then s/he would get both of THOSE quarters. And finally, if the Listing Agent is also the Buyer Agent, then s/he would get both quarters. So, the answer just depends upon who listed the house, who sold the house, and whether they are just employees of their agency or owners. Individual brokerages may have variations on this split, but normally it will be 50/50 to listing/selling agency.