How Much is the Buyer Broker Fee?

Posted on September 23, 2010 by Jim Duncan
No matter how closely you look, you may not know how much your Buyer’s Agent may be getting paid …
A model community

“How much is the commission on that house?” That question is one of the many reasons that I choose to use Buyer Broker agreements with my buyer clients. (and why ending cooperative compensation would be a boon to the real estate world).

1 – The Seller and the Sellers’ Realtor are going to do whatever they can (legally and ethically) to induce a buyer to look at the house … and hopefully buy it.

2 – The Buyer’s Agent is going to earn a fee …

3 – Somebody is going to pay that fee. I like to think that the Buyer is paying the Buyer-Broker fee … they’re the ones choosing and hiring their representation, anyway.

And then there’s this -

… this highlights the conflict of interest inherent in the “seller paying” the Buyer-Broker commission.

As a buyer – when do you negotiate the fee you are paying your buyer’s agent? I do so very early on the process.

I’ve heard the arguments time and time again:

- “It’s FREE to use a Buyer’s Agent! The fee is paid by the seller!” (this argument becomes much harder when the seller has no or negative equity)

- “It’s none of the Buyer’s business how much I’m being paid!” (as argued by the Buyer’s Agent who ostensibly is seeking to “represent” said buyer)

Look, I’m not begrudging Realtors earning livings what I do encourage is for buyers to be aware of what may be going on behind the scenes.

** Disclaimer: The above represents the opinion of Jim Duncan, Charlottesville Realtor and author of RealCentralVA.com, and are not necessarily shared by my partners or agents at Nest Realty in Charlottesville or by the Charlottesville Realtors’ Board of Directors (of which I am currently a member) nor perhaps the majority of members of the Charlottesville Area Association of Realtors.

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  • http://www.805county.com Steve Baker

    There is nothing wrong with any realtor earning a commission if they bring a buyer to purchase a home. The flip side is also true; if a listing broker sells the clients home, they earn a commission. As long as the buyer does not have to reach in their pocket and pay anyone it’s a win win all the way around.

  • http://realcentralva.com Jim

    “There is nothing wrong with any realtor earning a commission if they bring a buyer to purchase a home.”

    Not at all. There is a problem if and when the buyer is 1) not aware of the commission being offered and 2) if the agent guides their buyer towards a house with a higher buyer broker commission.

    “As long as the buyer does not have to reach in their pocket and pay anyone it’s a win win all the way around.”

    On this point we disagree to a point … the buyer is paying the commission. They’re the ones getting the loan. Rarely are commissions paid out of equity anymore, so both sides need to be more cognizant of the commissions. The seller paying the buyer broker commission is arcane and difficult to defend.

  • http://smallchic.blogspot.com Jeannine @ Small & Chic

    I’m no expert…I’ve only bought one, little condo. But, I’m scrimping, saving, and doing research so I can move towards home ownership. Jim’s video referencing someone local who is making a 5% commission known sounds so sketchy. It’s as if the seller is seeking someone to go in with him on hoodwinking an unsuspecting buyer. It makes me even more suspicious of many of the real estate agents out there. Present company is not included, of course. :)

    Do sellers ever try to pay the home inspectors? How does that go over with buyers?

    • http://realcentralva.com Jim Duncan

      Jeannine – First, while yours may be a little condo, there are no little deals. :)

      No hoodwinking involved, unless the purchaser is being told by the buyer’s agent, “I’m free! The seller’s paying me; you don’t have to worry about my fee!”

      Note: Nothing is Free. Ever.

      I’ve never seen a seller pay for a home inspection.

      Proper amounts of skepticism and cynicism are healthy.

      • http://smallchic.blogspot.com Jeannine @ Small & Chic

        Thanks for the “no good deals” reminder, Jim. I worried and fretted about buying my condo and it didn’t seem like a big deal to some people involved.

  • http://www.coloradospringsteam.com Heather Lanoue

    I’m an agent in Colorado Springs. I charge a 3% buyer’s agent fee and have my clients sign a buyer agency agreement before we get too serious in the home search process. I tell my clients up front that they may have to bring money to the table for my fee, but in most cases the seller has already agreed to pay my commission. And I have yet to have a buyer tell me he/she isn’t willing to compensate me for my time and expertise.

    Not sure exactly how the business works in VA, but I think a lot of agents are afraid to ask for compensation. This is a shame, because the compensation conversation I have with my buyers helps establish trust in the relationship – and I can’t do my job well without trust.

  • http://www.realcentralva.com Jim Duncan

    Heather -

    Thanks for sharing. It’s a shame so few professionals feel comfortable/confident in defending/demonstrating/asking for justifiable compensation.

  • http://www.astutebuyersadvocates.com.au/ Buyers Agents

    Just my opinion and it’s simple – an agreement on the fee is good if the buyer and seller won’t spend way more than what they expect to, there should be no hidden charges that would make them regret ever getting an agent.

    Hoping all agents play fair

  • Wehaveyourback

    First Jim,

    A decent explanation of the buyer broker arrangement in your video. You are making the industry more transparent which is a good thing. I would like to ask, however, what percentage of the time are the fees/commission paid OUT OF POCKET? In my mind, stating that the seller pays the fees is not as transparent as typically the buyer is paying all commissions from the contracted sales price which in turn inflates sales prices and recording costs. I would say this mirrors (or mirrored due to changes in loan officer compensation) the way mortgage brokers and mortgage bankers were paid out of the higher interest rate by the mechanism called “yield spread premium” for brokers and “overage” for bankers.

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