The other day I had an interesting situation happen to me. Someone contacted me about wanting to lease a home. They had the home picked and just needed someone to give them the application. Having been in this business long enough, I have learned to never get excited about something until it closes, funds, and the check clears the bank!
This sounded too easy and I had a feeling that something would go horribly wrong. Without fail, as soon as I sent this person the Buyer / Tenant Representation Agreement, I receive notification saying that they don’t want to pay for brokerage services. I tried to salvage the situation by explaining the process, but it was too late. They were already convinced that they would have to pay me. Rather than getting upset over this situation, this seemed like it would be a good topic for a blog since it is a common issue. It is particularly so with first time home buyers or renters.
The Agreement
Section 11 Paragraph A from the Texas Buyer / Tenant Representation Agreement states:
Commission: The parties agree that Broker will receive a commission calculated as follows: (1) __ % of the gross sales price if Client agrees to purchase property in the market area; and (2) if Client agrees to lease property in the market a fee equal to (check only one box): __ % of one month’s rent or __ % of all rents to be paid over the term of the lease.
This means that the client and the broker are agreeing that the buyer’s broker will be paid a certain percentage of the either the sale price or of the rent. In Austin, the generally accepted standard is 3% of the sales price when a client is buying or 35% of one month’s rent. The actual values of the commissions are highly variable, depending on the motivation of the other party. The next paragraph is what really throws people:
In Section 11 Paragraph B, it states:
Source of Commission Payment: Broker will seek to obtain payment of the commission specified in Paragraph 11A first from the seller, landlord, or their agents. If such persons refuse or fail to pay Broker the amount specified, Client will pay Broker the amount specified less any amounts Broker receives from such persons.
That statement, about if such person refuses to pay, is what scares off a lot of people. So what does this mean to the consumer? When a home is listed in the Austin Central Texas Realty Information System, commonly known as ACTRIS or The Austin MLS, the listing agreement specifies the commission structure that will be paid to the buyer’s agent. This commission rate is shown on the agent’s screen clearly stating what the commission will be for that sale or lease. With properties that are listed as being for sale or lease in ACTRIS, the commission is always paid for by the seller or property owner. As long as the buyer is looking at properties listed in ACTRIS, the buyer does not pay for brokerage services at all.
If I am representing you as a buyer, I will be happy to show this to you.
While there are standards for commissions in Texas, depending on a seller’s or rental property owner’s motivation there may be more or less commission offered. If a seller is highly motivated to sell their home, then they may offer a buyer’s agent 4, maybe even 5% commission. The same is true about a rental property. If a property owner has a vacant rental property they are losing money for every day that a home is vacant. If a rental property has been on the market for a long time, they may offer the buyer’s agent a 50% commission!
When could a client legally be obligated to pay for brokerage services?
Under the terms of the Buyer / Tenant Agreement, the only time when a buyer might be obligated to pay for brokerage services is when looking at properties that are not listed in ACTRIS. These could include homes advertised to rent on Craig’s List or For Sale by Owner (FSBO) properties. Should a client decide on one of these and the broker found them that property, then they may need to pay for brokerage services. Most people that are honest do not have a problem with that, should it be necessary. They are savvy buyers that have been through the process enough to know that off-market listings are not always a paycheck for a buyer’s agent. However, even with FSBOs, most FSBO sellers realize the value that a buyer’s agent brings to their transaction and will offer a commission to a buyer’s agent.
When does an agent receive their commission?
In Austin, TX a broker does not earn their commission until either a tenant signs a lease and moves in or a buyer closes on a house. Essentially those of us work that work under the commission payment structure work for free, and incur our own expenses until a transaction is completed. This is what the clause “Earned and Payable” means. A commission is earned in Texas when a client signs an executed contract to buy a house. It is payable when they actually close, and the checks are disbursed by the title company.
I hope you have enjoyed reading my blog about buyer representation in Texas. If you are looking to buy a home for yourself or as an investment property, please contact me at jordan.gouger@kw.com or at 512-693-9297.
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