Who pays REALTOR commissions?
I’ve found that one of the biggest hesitations that first time home buyers have about working with an agent is the cost. One of their concerns is who pays REALTOR commissions?
In a nutshell, the seller usually pays the commission of both the listing agent and the buyer’s agent.
When a home owner decides to sell, they have a couple of options. They can choose go it alone and try to sell it themselves or they can hire a professional REALTOR. When they hire a brokerage and choose an agent, the listing agreement outlines how much that agent will charge in commission. Out of that commission, the listing agent offers a percentage (usually 50%, but not always – a topic for another day) to any other brokerage/agent who brings a buyer and successfully closes the transaction.
The end result is that there is no cost to the buyer to take advantage of the expertise and market knowledge of a good buyer’s agent.
What about For Sale by Owners?
Most For Sale by Owner (FSBO) home sellers are simply trying to save a few dollars by cutting out the listing agent’s commission from their expenses and are usually open to paying a buyer’s agent who brings a ready, willing and able buyer to their home. When this happens, the seller signs an agreement with the agent/broker for a buyer’s agent commission only and no representation is provided to the seller.
But, there are always exceptions.
Some FSBO sellers are adamant about not paying a commission at all or simply can’t afford to pay a commission and pay off their mortgage as well. In those rare cases, the cost of using a REALTOR falls on the shoulders of the buyer if they want to have representation through the process.
I had an out of town client once that absolutely needed an agent. They could not be here for negotiations, inspections or the appraisal. The house they wanted to purchase was a FSBO and the seller was maxed out and could not afford to pay me a commission. Because the buyers knew that they would need assistance, they chose to move ahead with the purchase and paid my commission on their own.
This, however, is not the norm and has only happened a handful of time over many years of practicing real estate.
Buyer Brokerage Agreements
In some other states, the use of Buyer Brokerage Agreements (also known as Buyer Representation Agreements) is the norm. When a home buyer chooses an agent to work with, they sign a BBA agreeing that their agent will be compensated a certain amount. If they choose a home that is offering a commission that is less than that in the agreement or if they run off and buy a FSBO without their agent or if they wander into a new home builder’s office without their agent and buy new construction…well, they are contractually liable to their agent to pay them the commission agreed to in the BBA.
If you are moving to New Orleans from a state that uses Buyer Brokerage Agreements, you might think that your agent has skipped over something when you aren’t asked to sign a BBA. In reality, I don’t know of many agents or brokerages in our area that are using them. While in theory they a good idea for an agent or broker, in practice we just don’t do it.
Do you have questions about how to choose an agent? Call us at 504-327-5303 and we’ll be happy to help you through the process.