Negotiate The Buyer Broker's Commission Before You Look For a Home

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A good read for all buyers.

Understanding the process of home buying can save lots of money over time. Don't just blindly walk through the home buying process.
Ask lots of questions and get many different opinions.


Original content by Brian Brady

Are you seeking a new home and deliberating over which real estate agent to use?  Beware of the five most common things real estate agents, representing buyers, say about their compensation:

1- My services are free to you; the seller pays me.

This one is the most common and it is entirely untrue.  The current compensation model provides for the buyers’ representative to be paid a co-brokerage fee from the listing agent.  The listing agent is paid by the seller who receives the proceeds from the sale by…

…YOU.  The buyer.  The trick is that the 2.5% to 3.0% co-brokerage fee your agent earns, is most likely “financed” by you over the life of the loan.  That makes the buyers’ brokerage fee “feel” like 6-7%.

2- My compensation does not conflict with my ability to represent your interests aggressively.

This one is simple math.  If the buyers’ agent is paid a percentage of the purchase price, her financial interests are aligned with a higher sales price.  Most agents I know operate ethically but make no mistake about it, until real estate commissions are divorced, the compensation is never mathematically aligned with aggressive buyer representation.

3- We’re not allowed to “rebate” the commission to you.

That’s only a lie in 35 states.  In most states, you can negotiate a buyer brokerage fee and have the “excess” compensation from the co-brokerage fee either

(a): credited towards your closing costs (if allowable) or

(b) sent to you post-closing by check.

4- Only discount real estate agents, like Redfin, can negotiate the buyer’s brokerage fee.

See #3; all commissions are negotiable.

5- The Buyers Brokerage Agreement is not something we really enforce.

It’s a contract, folks and it’s often slipped in the pile of documents you sign when you make an offer.  Sometimes, it isn’t even explained until your offer is refused by the seller. Then, the agent reminds you that you’re “joined at the hip” for twelve months.  Read these documents before you sign them.  If you only want this agent’s representation for the duration of the negotiation for a particular property, make her specify that in the agency agreement.

Most real estate agents are good and honest professionals.  Even the honest ones though, won’t necessarily offer you an opportunity to discuss their compensation unless you bring it up.  Feel free to print this article and review each “statement” with them before you look for a home.  It could save you thousands of dollars.

PS:  Food for thought-

Why would a buyer pay an agent twice as much money for an “easier” transaction?

Ask your agent about a recent difficult transaction she negotiated.  She’ll most likely brag about a first-time home buyer who bought a bank-owned property.  She’ll dazzle you with war stories and perhaps even tear up a bit about the pride she felt when the new homeowners moved into their home. Ask her how much the price was, then…

…explain that you’re buying a home from a seller with equity (no bank involved), are impeccably qualified, and intend to close quickly.  Compliment her on her dedication to the first-time home buyer and have her acknowledge that your case should be much easier for her to handle…

…then offer to pay her the same amount as the first-time home buyer did.

Comments (2)

Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA

Agents get all worked up over what should be common sense.  The smart ones would be hijacking my thread and arguing FOR this practice.  Remember what we learned from Jeff Corbett, back in 2006?  Once I embraced the concept of transparency, I sold to that strength

Jun 28, 2011 05:07 AM
Donna Harris
Donna Homes, powered by JPAR - - Austin, TX
Realtor,Mediator,Ombudsman,Property Tax Arbitrator

And after you ask a lot of questions, then get the correct answers to the statements above...  Sorry, Tom, but I disagree with the vast majority of the information.

Jun 28, 2011 05:49 AM