Recently I received an e-mail from a buyer starting the search for a home. He and his girlfriend were trying to choose a realtor and get an understanding of the process by asking a few basic, but very good questions:
How are commission rates determined?
The most important thing to remember about commissions is that they are not allowed (by law) to be set at a certain rate between brokerages. However, brokers responsible for their own brokerage are allowed to independently set their own rates and to have their own internal guidelines regarding what those rates may be.
The commission rate may also be influenced by the type and condition of the property for sale. Some properties, such as land, rural or commercial properties, require more time, attention and expertise than other types of properties. As such, a higher commission rate might be office policy.
Who pays the commission?
Nobody gets paid until the property is legally sold. At that time, a commission will be paid to the brokerage who listed the property - the Listing Agent's Brokerage. Most, but not all, sellers authorize the listing brokerage to share that commission with the brokerage who represents the buyer in the sale - the Buyer's Agent's Brokerage. This is common and allows buyers to have an agent represent their interests while allowing payment for this to be paid out of the seller's proceeds from the sale.
Why would a seller agree to pay the commission of the brokerage negotiating for the buyer - against the seller?
Good question! For one thing, there is no money paid to anyone until a sale takes place. The seller has no sale proceeds - until paid by the buyer. No buyer, no sale, no money.
Another reason is that in the past, buyers were rarely represented unless they could pay up front. This resulted in a huge disadvantage to buyers. It was finely realized that buyers needed to be assured of representation, too. Over the last few decades this has evolved into the current practice of sellers generally paying the commissions of both brokerages. In many states (but not Wyoming), it's the law.
Lastly, offering a commission to the agent who brings a buyer to the table gives other agents a reason to show the property. After all, no one gets paid until a buyer is found that is ready, willing and able to buy the property.
Can a buyer pay for their own representation?
Of course! There are buyers out there who prefer to pay their agent themselves. This can easily be negotiated between a buyer and their own agent.
So does that mean a buyer in Laramie,Wyoming, can be assured of representation in a real estate transaction?
Unfortunately, the answer to that is Yes and No. Yes, you can get representation - No, it is not assured. In Laramie, Wyoming, some listing brokerages will NOT compensate Buyer's agents. In this situation, a buyer can:
a) Contract to pay for a buyer's agent on their own, OR
b) They can be served by an agent who will act as a Seller's subagent.
The buyer will be a customer - relinquishing some of the
confidentialities assured to a client.
Huh?. . .
Clear as mud, right?! The best course of action for a buyer in Laramie is to disclose as little information as necessary until you are positive that your relationship with your agent is one that protects your best interests and includes confidentiality. That way if you end up wanting a house that is being sold by a brokerage that will not compensate a buyer's agent AND you don't want to pay a buyer's agent yourself, you will still be well protected as a customer.
*This information is intended only to provide further clarification of real estate issues in Laramie, Wyoming. I am not an attorney. This article is not endorsed, approved or affiliated with Century 21 Real Estate Center, Inc. Any consumer with questions about the real estate process should always consult an attorney of their own.