Follow the Money
by Glenn Freezman
As a champion for home-buyers and alternative compensation agreements, I'm often challenged by Realtors and homebuyers alike regarding who ends up paying what at a typical real estate closing. 
The most common belief is that homebuyers don't pay the commission costs that go to the sellers and buyers agent - because that money ends up coming out of the seller’s pocket.
While I won't argue that that's what the mechanics of the deal look like, I will point out that every single cent involved in the transaction came out of the home buyer’s pocket first. Pretty simple math: no home buyer = no money to pay the agents.
Let's say, as an example, that the buyer’s agent for a sale has been earmarked to receive 3% of the home’s selling price at closing. This means that if the house sells for $400,000, the buyer’s agent and brokerage will receive $12000. Depending upon the amount of work that was put in on the buyer's behalf, this could be a moderately good to fantastic payout for the work performed.
But is it a good deal for the home buyer? That all depends upon what support they need in order to get to a successful closing. In some cases, the homebuyers need plenty of hand holding to find the right home and to make it all the way through the closing. In these cases the commission payment is often money well spent.
However, there are plenty of home buyers today who are willing to do a lot more of their own legwork in exchange for less money coming out of their pockets. By being able to pay their agents by the tasks being performed on their behalf or by the hour they can get the support when and where they need it and take on a lot of the other home buying tasks (mostly not fiduciary) themselves. This means that instead of paying $12000 in commission payments to the agent for the buyer, they may only need to pay $2000 for those services.
What does that extra $10000 savings mean in the long run? Well, in most cases the commission payment gets paid out of the money borrowed by the buyer as a mortgage. This means that the commission payment is also being paid off over 30 years along with the rest of the loan balance! If the home buyer were able to save that $10000 in closing costs then that would translate into over $20000 in savings over 30 years (at a 5.5% rate). That’s not nothing!!
The best part of this scenario is that the home-buyer isn't the only one to benefit. Alternative compensation models also mean that Realtors get paid for their time when they perform tasks on behalf of their buying clients, whether or not the agreement ever makes it to the closing table.
It's math that makes sense for everybody.
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