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Who Pays The Buyer's Agent?

Written by on Wednesday, 17 November 2004 6:00 pm
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A future buyer's agent writes Realty Times because he is curious as to how he would be paid. His question is at the heart of consumer confusion over how the real estate industry operates.

I recently read your article in becoming a buyers agent and found it extremely interesting. I did have a question regarding the services. I understand that a buyers agent receives commission from the seller just as the sellers agent does. But is there any conflict with the buyers agent getting paid? Do most buyers agents have a contract written up that is signed by the sellers agent? Also what percentage of the commission is the buyers agent entitled to? I appreciate your time in answering these questions and if there is any other sources for becoming a buyers agent you can recommend that would also be very helpful.

Sincerely Yours,

William Hoskin

Here is Realty Times' response:

Who pays whom is one of the great debates of the real estate industry.

Before buyer's agency was introduced in the 1980s, it was generally understood by everyone - except the general public - that real estate agents represented the seller and were paid by the seller. Listing brokers put their listings in the local multiple listing service accompanied by a declaration of the co-op fee to be paid to the buyer's agent who brings a buyer. All participants of the MLS were regarded to be sub-agents of the listing agents. In other words, the sub-agents could bring and assist buyers, but they owed their loyalty to the seller. The listing agent negotiated the commission for both agents from the seller.

In 1983, the Federal Trade Commission (FTC) released a report called The Residential Real Estate Brokerage Industry. It was the first report of its kind to examine the real estate industry, and its findings spurred change in agency law and disclosures as well as debates about who pays whom ever since.

The report indicated that in cooperative transactions, 72 percent of potential home buyers believed that the real estate practitioner working with them was working for them. But by failing to disclose whom the agent/broker truly represented, the real estate industry made itself appear deceitful, a taint which continues to affect practitioners today. Consumers reacted, and within two years, the NAR formed its first Agency Task Force to study agency issues. NAR encouraged state Realtor associations to work with their state legislatures to enact statutes providing for mandatory agency disclosure.

Buyer's agency was also introduced, but has faced a rocky uphill climb, as old-time practitioners continued to place more importance on sellers than buyers because listings are not only inventory, they are double-duty ads that can market the listing agent and broker as well. In addition, MLSs are still widely used by listing agents to share co-op fees negotiated by the listing agent with the seller. Local custom has much to do with how real estate is practiced.

However, despite resistance, the industry is undergoing change. By waving the magic wand of rhetoric, sub-agents have been turned from pumpkins into "buyer's agents" and "designated agents." In fact, brokers, who once were the fiduciaries of the sellers, now act as non-agents in some states like Oklahoma and Florida, and can "appoint" transactional salespersons within the same office to work with both the seller's and the buyer's sides in the same transaction.

Although they still accept payment from the listing agent, modern buyer's agents consider themselves far removed from their sub-agency past. Any agent can be a buyer's agent as long as he or she is working with the buyer. Exclusive buyer's agents are more rare, but some have developed sound businesses based on representing buyers and not taking listings. Some agents go so far as to insist that their buyer clients sign representation agreements, decline the listing broker's offer of compensation in the MLS, and submit offers that assign the transaction proceeds which come from the buyer as payor of their fees. Some contract separately with the buyer to pay the fees out of the transaction proceeds, cash or mortgage loan.

Each state has its own terms and regulations for agency representation and disclosure to consumers. To find out how your state regulates real estate commissions, visit www.arello.org .

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  About the author, Blanche Evans

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.