Whether you are buying or selling a home, you need a licensed professional real estate agent or broker to help with every step of the transaction. These professionals know the real estate market, the current conditions, and have great negotiating skills that make the entire process easy and hassle-free. Since they offer a professional service, they earn a commission when the deal is closed. What is the buyer’s brokerage compensation? How much is it, and who pays for it?
The buyer’s brokerage compensation or commission is the amount of money paid for the services of the broker. This amount is stated in the buyer’s brokerage agreement, which is the contract that you enter with a broker that states the duties and responsibilities of both parties during the transaction.
The agreement also clarifies that the buyer is not obligated to pay if another party (such as the seller) pays instead. Most listings state that sellers will pay the buyer’s broker commission.
In most cases, it is the seller who is responsible for paying the commission and compensation towards the services provided by the broker. However, this can vary on a case to case basis. Most sellers agree that it is the person who is purchasing the home that should cover this expense since the broker basically represents them in this transaction.
This is why it is called the buyer’s brokerage compensation, since the buyer receives the service of the real estate professional.
In a standard real estate transaction, it is acknowledged that the seller is the one to pay for the commission of the broker. Thus, buyers may assume that the fee paid to the broker is added to the listing price of the home. This is a tricky situation because, if it is included in the home purchase price, then technically it is the buyer who pays for it.
Buyers would surely not want to pay extra for a home that is already priced to include the broker’s fee. When entering into an agreement with a seller, make sure to consider this, and be upfront with the seller. In the case that the broker’s commission is already tied into the price of the home, then you – the buyer – would no longer have to budget for this as an extra cost during your transaction.
The rate for your broker’s fee will vary significantly based on a number of factors. On average, a broker’s commission starts at 5-6% of the home sale price. It can vary depending on your location and the existing real estate market conditions. There are some areas that only require 2.5% to 3% of the home sale price.
This means that, as a buyer, this is one of the largest expenses that you need to consider when buying a home (aside from the down payment, of course). Since it is a percentage-based fee, the cost of the broker’s commission is higher for more expensive homes.
The fee that you pay for goes into the services that are provided by the broker in order to assist in the sale of your home. The services include advertising your home for sale, pricing it, dealing with the offers, negotiating, and handling all the paperwork.
Buyers might look at the compensation of the broker as a large expense, but, if it goes toward making it easier to close out on a home purchase deal, then it makes sense. In a competitive real estate market when the process of home buying is often slow, tedious and expensive, leveraging the service of a broker can make a difference. Their professional knowledge and expertise can make the home buying process seamless.
Dual agency is when the agent represents both the buyer and the seller. This might seem like a favorable situation, but it is actually something that real estate experts recommend you avoid.
Dual agency is considered illegal in many real estate markets since it can cause conflict. When agents enter into a contract with either the buyer or seller, they agree to represent that party only and to serve their interest. When an agent represents both parties, it would be impossible to negotiate with the interest of either the buyer or the seller in mind. One has to sacrifice in order for the other to gain leverage in the transaction.
If your broker is a dual agent, it is impossible for them to come up with a fair transaction that benefits both sides of the transaction. Before you agree to pay for the commission (whether you are a buyer or seller), it is good practice to check if your agent is doing this.
Paying a broker or agent 5 to 6% of the home sale price is very expensive, especially when you are trying to keep the cost of buying a home within a budget. This can be a considerable amount of money depending on the value of the home once it is listed for sale.
Hiring a buyer’s agent is not required. But if you are a first-time home buyer, it is advisable that you work with one. The Balance states that 80 to 90% of buyers end up hiring an agent. A lot of buyers think that they can go into a real estate transaction and negotiate the home buying process on their own. However, they soon realize that working with someone who is informed about market conditions and the process can make the process less of a headache, not to mention helps them to save money in the long run.
With that said, many of those who’ve worked with a buyer’s agent before can attest to the fact that any fee paid towards the services of a buyer’s broker or agent can actually pay for itself in the end.
If you are willing to pay the extra commission towards hiring an agent and then making the real estate transaction as seamless as possible, then go for it. If not, then be prepared to do all the legwork on your own.