REAL ESTATE FEES OR COMMISSIONS EXPOSED!!!
HOW DO WE GET PAID?? HA! Usually rather circuitously. Follow closely.
To answer the question. How does the real estate agent get paid? The Buyer's Agent is usually paid through a split of the listing agent's fee to the seller. THIS IS WHY I ALWAYS SAY "THANK YOU" TO THE SELLER at closing!
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1. THE SELLER HIRES AN AGENT/BROKER TO SELL THEIR HOME.
2. THE LISTING AGENT/BROKER LISTS THE PROPERTY IN THE MLS AND MAKES AN OFFER OF COMPENSATION TO BUYER'S AGENTS/BROKERS TO BRING A READY, WILLING AND ABLE HOME BUYER.
3. AT SETTLEMENT, THE LISTING AGENT/BROKER'S FEE IS DEDUCTED FROM THE SELLER'S NET PROCEEDS OF THE SALE.
4. AT SETTLEMENT, THE TITLE COMPANY PAYS THE LISTING AGENT AND THE BUYER'S AGENT THE AGREED FEE/COMMISSION.
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LOOK AT THE HUD-1. The commission is deducted from the SELLER'S NET PROCEEDS.
Where does the money come from? It usually comes from the Seller's Net Proceeds of the sale of their home. If there is no equity for net proceeds, the seller pays their listing agent out of pocket, which the listing agent splits with the buyer's agent.
In a short sale, the seller's mortgage company/bank pays the agents a percentage of the final sales price.
In a rental, the owner pays the agents, usually a percentage of a month's rent.
The question is often asked, "Why doesn't the home buyer pay their agent directly?" HA! If the buyers were required to pay their buyer's agent directly out of pocket, there would probably be no such thing as a buyer's agent/broker. The buyer has the exorbitant fees to the state/county/town for the liberty of transferring property; down payment, lender's fees, appraisal, inspections, survey, and the biggie, TITLE INSURANCE (in most states the buyer pays title insurance) title company fees, abstract, and more, more, more.
If you are a BUYER'S BROKER, you will usually have a representation agreement between the buyer and their buyer's agent/broker. That specifies the fee you agree to pay your agent/broker for their services in helping you find/buy a home. However, that agreement will also usually state that the fee will be collected through the MLS co-op offered by the listing agent/broker.
Look at the HUD-1. With rare exceptions, the fee to the buyer's agent/broker is from a split of the listing agent's fee to the SELLER.
WHY DO BUYERS AGENTS ADVERTISE THAT THEIR SERVICES ARE FREE?
Because they are advertising their services to home buyers and they know that the buyer does not pay the agent directly out of pocket. Many listing agents object to buyer's agents advertising that their services are FREE. However, in many states, the real estate license laws clearly permit this advertising.
WHAT DOES THE NAR CODE OF ETHICS SAY??
Standard of Practice 12-1
REALTORS® may use the term “free” and similar terms in their advertising and in other representations provided that all terms governing availability of th
e offered product or service are clearly disclosed at the same time. (Amended 1/97)
How can this be you ask?? Because, some years ago, in the late 1980s, most states enacted license law that separated BUYER'S AGENCY from the fee.
FACT: Home buyers can be fully represented by your own agent/broker in the real estate transaction and your agent can be paid by the seller.
For home buyers, the services of their buyer's agent is FREE.
** Agency laws differ from state to state. The above represents MD and VA.
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Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.
Serving home buyers in Maryland and Northern Virginia.
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