People seem to be confused about who pays Real Estate commissions these days. In California, I am here to clear that up: It depends on how the deal is structured.
Like everything in Real Estate, it is negotiable.
Negotiable does NOT mean that agents will work for free, or even for cheap. It means that it varies from transaction to transaction, from Agent to Agent, or maybe even from Brokerage to Brokerage. But it is NOT set in stone and there is no law, as I write this, that regulates the amount.
What the NAR lawsuit was about, was to make clear that compensation is negotiable. As it always has been, but they wanted to make it clear.
In California, it used to be that a Seller signed a listing agreement with their Agent that included, among many other things, setting a TOTAL commission amount for the services rendered. Then a few paragraphs down it would show how much of that would be paid to the Buyer‘s Agent, but only at a successful close of escrow. For example, the total commission might be 6%, and 3% of that would be paid to the Buyer‘s Agent.
The Seller‘s Agent would then include Buyer Agent compensation, along with all the other listing information, when they listed the property in the MLS . Some people felt that some Agents might be steering Buyers to properties that paid higher commissions. The NAR lawsuit ended that. And here we are.
Now things are a little different and more redundant, to make sure that everyone knows how everyone is getting paid.
Now the Listing Agreement has only ONE spot for compensation and that is for the Seller‘s Agent. The Buyer‘s Agent must negotiate their own compensation with the Buyer, and then again (usually) when they present their offer.
The NAR lawsuit also made it so Buyers and their Agents must have a written agreement, just like Sellers do. Now when a Buyer sets out to work with an Agent there is something called the BRBC (Buyer Representation and Broker Compensation Agreement). This document is between the Buyer and their Agent and it makes clear:
– The start and end date of the representation, which can be renewed, but cannot be longer than 3 months at a time.
– The type of representation, whether the Buyer is working exclusively with that Agent or if that Buyer is working with several Agents.
– The property type.
– The location of the potential properties.
– The amount of compensation the Buyer will be paying the Agent. That could be a flat rate, hourly, a percentage… whatever the Buyer and their Agent agree on. Whatever they agree, the Buyer‘s Agent cannot be compensated more than what is agreed upon–even if the Seller is willing to offer more. (NOTE: no one knows what the Seller is willing to offer because it is no longer published like it used to be.)
HOWEVER, in the RPA (Residential Purchase Agreement) currently, on Page 2 of 17, item G(3), reads “Seller Payment for Buyer’s Obligation to Compensate Buyer’s Broker” and “Buyer Compensation Affirmation” and next to that:
Seller agrees to pay, out of the transaction proceeds, ____% of the final purchase
price AND, if applicable $ ____________ OR, if checked □ $ ____________ toward
the obligation of Buyer to compensate Buyer’s Broker.
Buyer affirmatively represents that, at the time this offer is made, Buyer has a written
agreement with Buyer’s Broker that: (i) is valid; (ii) covers the Property; and (iii)
provides for compensation for no less than the amount stated above.
The Seller may agree to pay for SOME or ALL of the Buyer‘s Obligation to Compensate the Buyer’s Broker.
This will depend on the offer:
- If the offer is higher than the asking price and the Buyer wants the Seller to credit the difference back to their Agent/Broker, they may agree to pay all of it.
- The Seller may be having trouble selling the property and are so thankful for the offer, they may agree to pay all of it.
- Or the Buyer may be in a competitive situation and they happen to have the cash on hand to pay their Agent/Brokerage separate from the Seller’s proceeds and write that into the offer to entice the Seller to take their offer.
- There is also a possibility that the Seller is willing to pay some or most of the Buyer Agent/Brokerage Compensation and then the Buyer makes up the difference.
- Sometimes the Buyer’s Agent will accept what the Seller is willing to pay and not enforce the BRBC compensation amount because they know their Buyer doesn’t have the cash to make up the difference.
LONG STORY, SHORT: The compensation for the Agents involved has historically been paid out of the Seller‘s proceeds. The funds for the purchase have always come from the Buyer. So, depending on how you look at it, the Buyer has always paid all the commissions for both Buyer and Seller Agents, via their purchase price. Or the seller does out of their proceeds.
In any case, it has been my experience that Sellers realize that Buyers don’t usually have the funds, in addition to down payment and closing costs, to also pay their Agent. So the compensation for all Agents are rolled into the transaction. Now we just use different forms.
The point of all this is that the compensation is NEGOTIABLE.
What the compensation is and how it is paid depends on how the deal is structured.
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Representing The Best Interests Of Sellers and Buyers Of Residential Real Estate Since 2002.
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