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Buyer's Paying Realtor's Commission to purchase a home

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Real Estate Agent with RE/MAX Showcase Homes

I received a call for a mortgage lender who saw my website and flattered me on how aggressive I was on my marketing etc. etc.  The first thing I ask to such calls is--are you selling me leads and I am not buying leads.  He said he was just looking for a good realtor in this area who he could refer buyers that he had preapproved and the leads were free.  He said he has been successful in other markets and when he found the right realtor, he would start a marketing campaign to For Sale By Owners.  Something seemed a little off but, after all, I was flattered that he liked my web presence (www.cathytishhouse.com) and what he was selling was free.  We talked a few times and when I tried to zero in on how this all worked--there was a piece that did not sit well for me in all that he was promoting--he started getting annoyed.  I told him that would not go well if he wanted to work with me and I kept digging around trying to figure out why he was marketing to FSBOs.  They are "selling"--how was he going to preapprove buyers.  Finally I got that somehow he gets buyers and then he tries to market them to FSBOs as preapproved and that the buyers will pay my commission.  I don't quite understand how this all works and I immediately said no thanks--I am not asking my buyers to pay my commission.  Has anyone had this experience?

Royal Oak Realtor selling Real Estate in Southeastern Michigan.  TishHouse sells Houses - selling Oakland County Real Estate with RE/MAX Showcase Homes in Birmingham, Michigan. Helping People in a challenging market by specializing in Short Sales. See what my clients have to say about my extraordinary customer service

Comments (6)

Marlene Bridges
Village Real Estate Services, Inc. - Laguna Hills, CA
Laguna Homes|Laguna Condos|Laguna Real Estate

I haven't experienced it.  But, I've heard of lenders doing this to create business.  They aproach a FSBO---they can do that easier than an agent can becuase they can help sell the house.  They can sit with the FSBO at an open house and pre-qualify buyers.  Then, they can introduce the buyers to an agent to represent them in the transaction.  Since FSBO's don't want to pay for anything, the buyers need to pay an agent for their services.  In reality---the buyer's agent get paid, but they're really doing a lot of extra work.  Most FSBO's assume that all you need is a buyer, and and escrow comapny and they handle everything....we know better, don't we.

It's not a scam.  This is a lender that's trying to develop his business by handing you leads.  When you questioned him, he probably was not comfortable enough with the concept (that he'd probably just heard at a free seminar) and he became defensive.

All the best.

May 04, 2007 04:38 PM
Kay Van Kampen
RE/MAX Broker, RE/MAX - Springfield, MO
Realtor®, Springfield Mo Real Estate
I had one lender that had a preapproved buyer and wanted a realtor to write the offer on a FSBO.  Knowing the FSBO was not paying a commission, he ask if I would write the offer for a minimal fee.  Asking my broker, I was reassured that if buyer and seller agreed, the buyer could indeed pay the commission.  Before everyone agreed, the buyer went off on another home and bought a home already listed.  It can be done.
May 05, 2007 12:40 AM
Cathy Tishhouse
RE/MAX Showcase Homes - Royal Oak, MI
Royal Oak Real Estate

Marlene:

Thanks for explaining this further - I couldn't quite figure out how he was doing it and he was being vague - I think he thought he had me agreeing and when I asked further, I think he probably got annoyed as he could tell I was probably ready to bolt and he had spent a bit of time with me.  He indicated that buyers would probably pay the commission as they go a deal on the home but it is my experience that FSBOs don't sell for less - just want to keep the money that would be paid in commission.  Have you ever heard to buyer's agreeing to pay commission.  I can see it might be a way for me to get a buyer lead for another home if they refuse to pay the commission--but then they may not want to work with someone who was trying to make them pay the commission.

May 05, 2007 10:06 AM
Cathy Tishhouse
RE/MAX Showcase Homes - Royal Oak, MI
Royal Oak Real Estate

Kay:

This is what I was thinking would happen if we asked the buyer to pay commission - if they REALLY love a FSBO home, they may on a long shot, but I would think they would just find another and there are so many choices out there - especially in my area of Oakland County Michigan.  I would waste a lot of time only to have them go find a listing to purchase.

May 05, 2007 10:27 AM
Win Singleton
Summit Web Design and Long & Foster Realtors - Falls Church, VA
Web Designer & Associate Broker

While it may be unusual for the buyer to pay the Buyer Agent fee, it certainly isn't unheard of. Most buyers usually don't have the additional funds to not only pay for their down payment and closing costs, but also pay their agent. That is why they want the seller to pay the Buyer Agent fee on their behalf. But representation has nothing to do with compensation - you may get paid by someone who you do not represent... as long as your client agrees. In this case, he is proposing that you actually get paid by the buyer who you do represent!

As we all know, most FSBO's price their home the same as sellers using a brokerage firm. They hope to get the same sales price without paying a brokerage fee. A savvy buyer with no agent, realizing that, will usually write their offer at X% below the asking price, figuring that they should be the ones to save the brokerage fee instead in the sales price - since the seller is not paying any. So both sides can't both save the same brokerage fee. 

In our area, smart FSBO's will usually offer to compensate a Buyer Agent while not paying any listing firm. "Bring me an acceptable buyer and I will pay your company a selling commission" But his scenario seems to be based on the "true" FSBO not being willing to compensate anyone - listing agent or selling agent. So if the buyer is willing to pay for representation to pursue that particular property, you could represent them and try to get the property at a price that would make it worthwhile for the buyers to pay you out of their own funds for your service and skill.  

Lastly, you should be getting Buyer Agency agreements in writing with your buyer clients. That way, if they decide later not to pursue this or another FSBO, you still have a written agreement with them for all of the other properties on the market. There you could amend your agreement if on any other homes, they now want the seller to pay your Buyer Agency compensation on their behalf. So this would protect you against them now going off on their own to other homes for sale.

May 06, 2007 02:17 AM
Cathy Tishhouse
RE/MAX Showcase Homes - Royal Oak, MI
Royal Oak Real Estate

Thanks Win -

I agree the FSBO is not usually selling their home for less to entice a buyer but just trying to save the commission on both sides - and we can't blame anyone for trying.  I have had clients who saw a FSBO home and told me to look into it.  When I contacted the For Sale By Owner, they have always been willing to pay a commission to me when I bring the buyer and I get an agreement signed before I show it.  I had a situation where I was driving the neighborhood with a buyer when we happened on a FSBO and took their flyer.  They really liked the home and the seller agreed to pay me a lessor commission because the seller actually had to bring money to the table.  I had shown my buyers over 50 homes and they did not want to leave me out yet they really wanted the home.  So it worked for all of us.  When I first posted this, I was such an automatic no to the lender who was asking me to have the buyer pay--it seemed like a lot of work to find out the buyer will go elsewhere in the end.

May 07, 2007 03:22 PM