Buyer's Real Estate Agent Commission

Written Buyer - Agent Agreements

Generally a written agreement is required with a real estate agent for them to tour a home with you, either in-person or via a live virtual tour. The written agreement specifies roles, responsibilities, agent compensation, and how the agreement can be terminated.

If you are visiting an open home or asking about their professional services, you are not obligated to sign a buyer agreement.

Agreement Details

All of the details of the agent agreement are negotiable. The agent's compensation and how long the agreement will last are perhaps the most obvious. Also, the services your agent will provide such as finding properties, showing properties, providing comparable sales, analyzing properties, negotiating contracts, resolving escrow problems, and more should be agreed upon. Note: a real estate agent who is not a practicing attorney can not provide legal advice, they can only provide general guidance and caution you to get legal advice if it is important for your choices.

Previously, agents provided services with the expectation that they would be paid an advertised commission by the seller. Recent legal cases have eliminated that expectation, turning the buyer representation into a written agreement between the buyers and their agent. This has made for a clearer understanding between buyers and agents, but has also made agent compensation more problematic.

When buyers spend their own cash to compensate their agent, they will have less money for their downpayment. The impact is multiplied by limiting the amount of a loan they can qualify for.

How Is Buyer Agent Compensation Determined

Compensation can be a flat fee, a percentage of the purchase price, or an hourly fee. Agents cannot agree to an open-ended amount or range of compensation such as "whatever the seller offers" or "between X and Y percent".

Previously a buyer could work with an agent and at any time decide that agent wasn't fulfilling their expectations and simply work with a different agent. Now the buyer has to negotiate the termination of the buyer-agent agreement. Many home buyers find the change troubling. They are used to not having to make a commitment until they make an offer.

Some buyer agents are not comfortable selling their own services, and find the change challenging. With buyers making a written commitment to their agent, and setting clear expectations, it is likely that with time both buyers and agents will benefit. Uncertainty tends to create unneeded costs.

Compensating Your Agent Without Affecting Your Downpayment/Loan Amount

The most direct way to compensate your buyer agent without affecting your downpayment is to make a purchase offer that specifies the seller will pay the compensation.

Another way would be to ask for a seller concession that would cover the cost of the commission such as asking the seller to pay your closing costs. It is important that you discuss your ideas with your agent so that your mortgage loan is not impacted.

It is likely that with time most sellers will just subtract the cost of the buyer's commission from the offered price when judging competing offers. This simply makes the buyer responsibe for judging the value each potential agent brings and hiring the one they want to work with.

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