Dawn Pfaff, President and founder of My State MLS – the nationwide multiple listing service, explains broker and agent listing agreements with sellers and buyers, and the way commissions are broken down - and who pays the commissions.
It’s really quite simple when you hear this explanation.
00:00:07 - 00:00:28
I'm here to talk today about some things I've seen on Facebook lately. I mean, people are posting all kinds of stuff to real estate mastermind Facebook groups. There's a whole bunch of them on Facebook. And it's just I got to clear something up because it's really been getting to me. Recently I read a post where somebody said, “Why does the seller pay the buyer's agent?”
00:00:28 - 00:00:52
The seller doesn't pay the buyer's agent. The seller has never paid the buyer's agent. In fact, right now, the way it works, is the seller allows their agent to split the commission with another agent who brings a ready, willing, and able buyer. If that buyer is willing to pay the most money and the seller gets to walk away with the most money, the best deal for the seller.
00:00:56 - 00:01:30
Here's how it all started. Years ago, real estate listing agents didn't have the Internet. They didn't have a way to advertise to absolutely everybody in the world that they had a house for sale. And how much that that house for sale was listed for. They had to rely on, they had MLS books and sheets, but they had to basically say, “All right, it's either got to be my customer that I bring to this house, or I have to find a way to find another customer, but I have to get my client the most money. So, here's how I'm going to do it.”
00:01:30 - 00:01:44
I'm going to tell all the other agents in town that I have a listing and I'm going to say, “Hey, listen, if you have a buyer that you think might be interested in my listing, I'll share my commission with you.” So back in the day, when that happened, everyone worked for the seller.
00:01:44 - 00:02:09
They were called brokers agents or sub agents. So, there was sub agency and broker agency, no one was representing the buyer, at all. Well, this became a problem. This is before license law [for real estate license]. Even then, [states and real estate boards] license law came in and said, “You know, I think the buyer's getting cheated here. The buyer has absolutely no idea that the person they're working with is working on the seller's behalf.”
00:02:09 - 00:02:32
So, they [the states and real estate boards] created license law and they created these agency disclosures. You had to all of a sudden sign an agency disclosure in your state telling your seller or your buyer who you work for. The state governments made these rules. They enforced them on all the licenses in their state. And I actually agree with agency disclosure. I think it's a really important part of the transaction.
00:02:32 - 00:02:54
And now that all the rules are in place and the government has license law in all 50 states, and even though it's different across all the states, it's fairly similar. There are similarities when you represent a buyer or seller, there's a listing contract in place. Now, here is a copy of the My State MLS Listing contract. And even though you may have used a different listing contract, it says pretty much the same thing.
00:02:54 - 00:03:15
It basically tells you that the seller is making a deal with their agent, to pay that seller a brokerage fee of blank percent. Or it could be blank dollars, of the selling price, when earned. And in no event, later than the time of closing in a purchase offer, after the seller accepts that offer.
00:03:15 - 00:04:27
Now, here's the clincher. A little lower on the paper. It says “Seller hereby authorizes the principal broker to offer the following compensation to be a portion of the agreed upon commission or other compensation.” So, the seller is not saying, “Hey, I'm going to pay the buyer's agent”. No, they don't say that. The seller says, “Mr. Agent, I want you to bring me the best deal. I want you to bring me the buyer who's willing to pay the most, so that I walk away with the most money after closing.” Now, that client, that buyer, that might not be your client. That client might belong to another broker, or it might be somebody that somebody else knows. And so, I don't care. I want the best deal. I want the most money. So bring me as many people as possible. Bring me as many offers as possible, and get me the most money for my house. And Mr. Listing Agent says, “Great. Do you allow me to share my commission with another agent, who has a buyer that they bring? If that buyer represents you, the seller, wait….
00:04:27 - 00:04:59
They can bring a client and still represent me as the seller? Yes, they can do that as a sub agent or as a broker’s agent. If they don't have a buyers agency relationship with the person they bring, which can happen, then that broker that they're splitting with works for you, and you can authorize that. Yes, I agree that you can split your commission, give them a share of your commission, if they are what is called a broker’s agent or a sub agent.
00:04:59 - 00:05:37
Well, okay. But maybe the buyer that's going to bring you the most money has a buyer's agency agreement with another broker. Do you want to keep that person away? Because you don't want to allow me to share any of the commission with them? Because you know, we can put zero here where it says buyer's agent. Well, I mean, if I'm going to get the most money at the end of the deal, then I guess it's okay if you give a compensation to the buyer's agent and it can be a different amount. It doesn't have to be the same amount that you're offering to a broker’s, agent or a sub agent.
00:05:37 – 00:05:55
That's why there's three different lines. It's all spelled out in the listing contract, and I hope this clears it up for everybody. Yes, I was clearing it up for the agents, but also for the consumers, because we like to give a lot of information about real estate here on the Go Home TV channel.
00:05:55 - 00:06:18
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