How Buyer Agents Get Paid
Will hiring a buyer broker cost me more money?
In a standard real estate transaction, it doesn't cost a home buyer any more to use a buyer broker than it would if they used any broker to assist in locating the right home. The only difference is the buyer assumes the responsibility for the commission due to the buyer broker.
Who really pays the real estate broker?
Whether a real estate broker represents the buyer or seller, there is always a brokerage fee paid from a real estate transaction when a broker is involved. The question of who pays the real estate brokerage fees is a matter of how one looks at a real estate transaction and the terms of the contracts involved between the parties.
Leading real estate industry trade associations report that the vast majority of real estate transactions in the United States involve the use of at least one brokerage firm, but more often than not there are two brokerage firms involved. One broker usually works for the seller; the other broker works with the buyer. In the case of two brokers being involved in the same transaction, both brokers typically share the commission in the form of a "co-fee" or "cooperating broker fee." This co-fee is defined in a real estate listing agreement and/or buyer agency agreement prior to the transaction taking place, and may be regulated by the local (MLS) Multiple Listing Service in which the brokerages participate. Because the brokers share the transaction commission, there is no additional cost to either the buyer or seller for using their own individual broker.
Understanding that real estate involves both a buyer and a seller, there are always two sides to every real estate transaction
Looking at a transaction from the Buyer’s side:
A buyer is the person who brings the money to the closing table. In a typical real estate transaction involving one or more brokers, the buyer pays a total acquisition cost to buy the property. This is known as the "gross" purchase price. The gross purchase price includes the seller’s net proceeds and the brokerage commission. Thus, from the buyer’s point of view, the buyer is financing both the seller’s money and the brokerage commission in a total gross purchase price. In the case of two brokers being involved in the purchase, both brokers get paid a piece of the agreed upon brokerage commission that is clearly defined in the purchase and sale agreement.
Looking at a transaction from the Seller’s side:
A seller brings the product to the closing table. In a typical real estate transaction involving one or more brokers, the seller never actually keeps the full amount of "gross" sale price. Instead, the seller keeps a "net" amount after the brokerage commission is paid. Thus, from the seller’s point of view, the seller is paying the brokerage commission from the seller’s gross sale price. As described above, when two brokers are involved in the purchase, both brokers get paid a piece of the agreed upon brokerage commission that is clearly defined in the purchase and sale agreement.
No matter whether a broker works for the buyer or seller, you can see that the question of who pays the brokerage commission is a matter of opinion and interpretation. Most experts agree that the simplest way of looking at a real estate brokerage transaction is by looking at it as simple arithmetic.
What makes a Buyer's total purchase price:
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Seller’s "Net" Proceeds |
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Real Estate Brokerage Commissions |
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Buyer’s "Gross" Acquisition Cost of Ownership |
Summary
With the majority of real estate transactions involving professional real estate brokers, buyers should employ their own exclusive buyer agent to assist them in locating, evaluating and negotiating real estate, without the fear of additional fees needing to be paid for buyer brokerage services. Remember that unless you specifically employ a broker to work for you by signing a buyer agency employment agreement, all brokers and salespeople represent the seller.
