Understanding Buyers' Agent Fees

Added January 9, 2006 by Ilyce R. Glink

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Summary: When a buyer's agent signs an agency disclosure agreement with a buyer, it's a legal document in which the agent essentially promises to be your fiduciary in the transaction. In other words, the buyer's agent is required by law to have the buyer's interests at heart. As for the agent's commission being paid, it technically comes from the seller.

Q: Can you clear up something which has puzzled me regarding buyers' agent fees?

As I understand it, at least some buyers' agents are paid half of the total fees collected by the seller's agent - the fee being based on the sales price of the property.

If this is true, then the buyer's agent makes more money (as does the seller's agent) if the sales price is higher.

Doesn't that create a conflict of interest? Isn't one of the buyer's agent's jobs to get the best possible price for the buyer? Have I missed something? Maybe I have the wrong idea about the reason to use a buyers' agent.

(I have one of your books, which may address this issue. But, ironically, I have misplaced it in the clutter - one reason I need a house!)

A: It does seem as if there could be a conflict of interest. However, state legislatures have gone to great lengths to separate out who works for whom when it comes to real estate transactions.

When a buyer's agent signs an agency disclosure agreement with a buyer, it's a legal document in which the agent essentially promises to be your fiduciary in the transaction. In other words, the buyer's agent is required by law to have the buyer's interests at heart.

As for the commission being paid, yes, it technically comes from the seller. However, there are two ways to see that cash. While the commission is paid as part of the agreement between the seller and listing agent (who then publishes the split with the agent who brings the buyer in the local multiple listing service), the cash for the transaction ultimately comes from the buyer. Without a buyer, there is no sale.

But if the buyer's agent and seller's agent were to conspire in order to get the seller more money, that would be collusion, which is against the law.

Ultimately, I think what keeps buyer agents honest is knowing that so much of their business relies on the satisfaction of their clients.

If you feel as though your agent pushed you into bidding too much for a home, you won't be happy. You won't feel as though you had a good home-buying experience, and you won't refer business to this agent in the future. If everyone feels the same way, your agent won't have much of a business in a year or two.

Agents live by their referrals, which is why they want their buyers and sellers to be as satisfied as possible with the experience. The good ones work very hard to ensure this happens.

My experience as a real estate reporter watching how transactions unfold over the past 18 years I've been covering the residential real estate market is that most good agents are only concerned that their buyers and sellers have made the best deal possible for their own personal financial situations. Commissions are counted only after the closing.

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