Who pays an Exclusive Buyer's Agent?
Since everything in life boils down
to dollars and cents -- or so it seems, let me address one
of the first questions that comes to mind when a buyer is
considering using an Exclusive Buyer's Agent -- “If
I hire you will it cost me anything extra? Who pays the
fee?” First of all, let’s call this a ‘success
fee’, because neither the seller agent nor the buyer
agent gets paid unless there is a successful purchase and
Note: From a legal standpoint,
the source of an agent's fee does not determine whom the
agent represents. For example, bank attorneys, who are considered
agents, represent the bank not the borrower, but the borrower
pays their fees.
It is important for a buyer to understand even though technically
you are hiring a fiduciary representative; the compensation
nearly always comes from the transaction itself. Both the
seller agent and the buyer agent are conditions of the sale
and are paid through a disbursement from the proceeds of
the sale. The buyer pays no more for the client level services
of an Exclusive Buyer's Agent than he/she would if using
a traditional seller's agent in the purchase of Martha's
Vineyard real estate.
THE MECHANICS OF EXCLUSIVE BUYER'S AGENT COMPENSATION.
The The most common method of compensation is through a
"co-fee" from the listing broker. Listing brokers
routinely offer co-fees to agents regardless of whether
those agents are cooperating seller's subagents or cooperating
buyer's agents. They can decide whether or not to offer
compensation to sub-agents or facilitators as per the wishes
of their seller client.
During the pre-listing discussion between
a seller and a listing broker three important decisions
are made: The price that the property will be listed at;
the amount of the success fee the listing broker will earn,
and whether the seller will allow the listing broker to
invite the participation of cooperating brokers in the market
with a co-fee. It is up to the listing broker how much of
a co-fee they will offer; it is not always 50%. Neither
the seller nor the cooperating broker has any say in that.
If a buyer agent does not like the amount of fee offered
they can either reject the offer of compensation and write
in their own fee when submitting an Offer To Purchase, according
to what is stated in their buyer agency contract, or
ask their client to make up the short fall. It is customary
for the co-fee to be published on the MLS/LINK listing data
Most listing brokers know that professional
exclusive buyer's agents have serious, pre-approved buyers
under contract who have made a commitment to purchase Martha's
Vineyard real estate. Listing brokers know it is in their
sellers' best interest to cooperate with exclusive buyer's
agents and they welcome our participation. .
HOW DOES AN EXCLUSIVE BUYER'S AGENT GET PAID?
Now we can get back to the original question, how does an
exclusive buyer's agent get paid? In my opinion, this is
the classic chicken-and-egg debate. As I said before, the
success fee is a disbursement from the settlement funds
with the expense being assigned to the seller on the HUD-1.
BUT, who brings the bag of money to the closing table? The
Buyer! If the buyer is the primary source of funds at the
closing table, then there is no need for the buyer to incur
any additional costs. Furthermore, it stands to reason that
one of the agents being paid should represent the buyer
THE REPRESENTATION AGREEMENT.
Most Exclusive Buyer's Agents define how they receive their
success fee and method of payment by a written Exclusive
Right To Represent Buyer Agreement with their buyer
clients. This is similar to the Exclusive Listing
Agreement a listing broker has with his/her seller.
Most buyer agents charge a retainer fee, which may or may
not be refunded to the buyer client should a successful
purchase be made during the contract period. The retainer
serves to cement the relationship and commit both the buyer
and the buyer’s agent to the task at hand -- finding
the right property at the right price with the right terms.
The contract can be for one property, one week or one year.
A buyer should make sure that his/her
representation agreement clearly defines the amount of the
exclusive buyer's agent's fee and method of payment. In
most cases, it is in the buyer's best interest to require
that the exclusive buyer's agent's fee be paid by disbursement
from the settlement funds. The buyer representation agreement
should also state that if the exclusive buyer's agent accepts
a fee from a listing broker or seller, such fee would be
a credit against the buyer/client's fee obligation.
Sometimes the exclusive buyer's agent
will set forth a commission agreement with the seller that
stipulates that the seller agree to pay the exclusive buyer's
agent fee on behalf of the buyer. Payment of this fee is
made solely as an adjustment in the transaction and does
not create or imply that an agency relationship exists between
the buyer's agent and any person other than the buyer.
Here are some other methods by which an exclusive buyer's
agent can receive compensation:
ONE MORE QUESTION?
- A percentage of the purchase price (most common).
- A percentage of the listing price.
- A percentage of the purchase price along with
a percentage of the difference
between the purchase price and the listing price.
- An hourly fee or hourly fee plus promotional
- An hourly fee plus a non-refundable retainer.
(Massachusetts law allows
agents to collect either refundable or non-refundable
- Either of the above hourly fee scenarios with
a minimum commission.
- In the case of an unlisted property, such as
a "for sale by owner" (FSBO), or new
construction. Compensation then becomes part of
the offer to purchase,
usually to be paid from the seller's proceeds.
Possibly, in the back of your mind there is still one nagging
question: if it all comes down to money, why does an exclusive
buyer's agent, who works on commission, advocate on behalf
of the buyer to negotiate a lower price and / or best terms
on a real estate purchase? If, for example, an exclusive buyer's
agent saves their buyer client $10,000.00 on the purchase
of their new home, they would earn approximately a $150.00
to $300.00 less in commission. My answer: the word of mouth
advertising and goodwill that comes from a job well done is
worth much more --- it is priceless.