Who Really Pays the Commission?

Every time I talk with a customer about Buyer Agency, they always ask "Am I going to have to pay the commission?" My short answer is, you already will be.

Who brings the money to the transaction when a house is purchased? The buyer does. Unbeknownst to the buyer, the seller has entered into a listing contract stating how much commission he is willing to pay for the sale of the home. For our example, let's say 6%. In that listing contract, the seller and listing agent agree to offer compensation to a cooperating agent (a buyer's agent). Again, for our example, let's say it's 3% being offered to the cooperating agent. So the buyer, without being consulted, has agreed to pay a 6% commission...because it is included in the purchase price.

Is the buyer paying any more for representation in this scenario? Probably not. But let's cover some other scenarios.

A buyer enters into a buyer representation agreement with an agent and agrees to pay 3%. The buyer decides to purchase a property where the cooperating agent is being offered 2 ½%. What happens to the other ½%? There are several answers to that. The buyer can ask the seller to pay the difference or the buyer can pay the difference at closing. If the buyer has to pay the difference at closing, perhaps he would offer ½% less in the purchase price to cover the difference.

Another scenario is that the buyer wants to purchase a house where NO compensation is offered to a buyer's agent (e.g. a for sale by owner property). Again, he can ask the seller to pay the buyer agency commission or the buyer can offer less for the property to compensate for the commission that is being paid to the buyer agent. Either way, it is coming from the buyer's cash at closing!

Bottom line is that the buyer pays no more for representation than without it...and may actually pay more going without representation because there is no advocate for the buyer in the transaction. Remember, a buyer ‘s agent is working only for the buyer to get the best price possible regardless of the commission offered, implied or sought.