Every buyer’s agent is required to provide a buyer’s agent contract when they begin working with a home buyer. One thing the buyer’s agent agreement must include is a clear description of what the buyer will be paying the agent and when the agent gets paid.
How buyer’s agent compensation works:
Buyer’s agent compensation has typically been included in the sale price, mostly or entirely. That buyer’s agent fee is deducted from the seller’s profit at closing. Buyers pay their agents through the sale price of the house. Sellers pay the buyers agent as a debit from their profits.
Why do sellers offer to pay buyers agents?
Some sellers choose to include offers to pay the buyer’s agent fee because it encourages buyer’s agents to bring buyers to the house or condo. Sellers realize that many buyers do not have extra funds to pay a buyer’s agent commission in cash; it needs to be included in the mortgaged sale price. The goal of the seller is to get the most money for their property. The best way to do that is to have many buyers interested in the house.
Will I know what the seller plans to offer for compensation before I see a house or condo?
Some sellers offer compensation to buyer’s agents when they begin marketing the home. If they have an agent, the seller’s agent can tell the buyer’s agent how much is being offered. Sellers who do not have agents can advertise how much they are offering to buyer’s agents.
How is the buyer’s agent fee negotiated in an offer?
The amount of buyer’s agent compensation is written into the offer to purchase a house or condo. By including the buyer’s agent fee in the offer, the funds can be included into the mortgage on the property. Buyers negotiate (through their agent) with the sellers (through their agent) to include this buyer’s agent compensation in the sales contract. Both the buyer and the seller must agree on the sale price and other terms. The buyer’s agent fee is like any other cost of doing business that would be deducted from the seller’s profit at closing.
What happens if the buyer’s agent fee on the contract is not the same as the fee the seller is offering?
The total compensation agreed to in the offer could be more or less than what the buyer owes their buyer’s agent by contract.
What happens if that compensation is more than what the buyer’s agent contract requires?
The buyer will get a rebate. Buyers pay what their buying agent contract requires; never more than that.
Suppose there is a +$2000 difference between what the buyer owes in the buyer’s agent contract and what the seller has agreed to pay towards that buyer’s agent fee.
During the offer negotiation, the buyer can choose these options:
- Include all of the offered compensation, and then be rebated $2000 at closing.
- Reduce the buyer’s agent fee by $2000 on the offer, to make the net purchase price higher for the seller. This could create a competitive advantage.
What happens if that compensation is less than what the buyer’s agent contract requires?
The buyer will owe some compensation directly to the buyer’s agent.
Suppose there is a -$2000 difference between what the buyer owes in the buyer’s agent contract and what the seller has agreed to pay towards that buyer’s agent fee.
During the offer negotiation, the buyer can choose these options:
- Request that an additional $2000 buyer’s agent fee is included in the purchase contract.
- Request that a $2000 is credited to the buyer from the seller at closing for closing costs. Note: this must be approved by the mortgage lender. If the seller agrees and the buyer’s lender permits it, the additional $2000 can be incorporated into the mortgage amount.
- Otherwise the buyer will need to pay their agent directly.
Questions to ask your buyer’s agent before signing a buyer’s agent agreement
- How will you keep me informed about the buyer’s agent compensation when we are negotiating my offer on a property?
- Do you have experience negotiating your fee with sellers and their agents?
- How many of your last five clients have paid additional buyer’s agent fees at closing?
- How many of your last five clients received rebates on their buyer’s agent fees at closing?
NAEBA exclusive buyer’s agents always begin with a real estate agent contract with buyers. Our agents are experienced in negotiating to get the best price and terms for buyers. That is the job of a fiduciary agent. Good fiduciary care includes keeping an eye on all the total costs, including the buyer’s agent fee. A buyer’s agent fee will not be a surprise to the buyer. If, during negotiation, the final cost is not acceptable to the buyer, the buyer can say “no” to the seller’s counteroffer. A buyer is always informed and in control during negotiations when they choose a NAEBA exclusive buyer’s agent.