First Time Buyer-Real Estate Broker Commission?

Question

I am a new investor about to buy my first property. I never signed a contract with an agent, but have been working with one for several months. Seeing as he is a "buyers" agent I was under the impression that he would split commissions with the sellers agent at closing. I am going over the sales contract and he is asking for a commission of 3% of the sales price from the seller. This is the first time he has talked about a specific number he will charge. Does this sound right? This will ultimately effect what I am able to purchase the property for right? This is my first property and I want to be sure he is not taking advantage of me.
Thanks!

Will Barnard · Answer

Ryan,
You need to realize that the seller has already negotiated a listing contract with the listing agent and that contract most likely states that the seller will pay a commission of 6% to the listing agent. In addition, the contract probably also states that the listing agent will cooperate with other brokers and offer a buyer's agent 3% of the total 6% commission. To negotiate with your "buyer's agent" now is futile as the seller is paying the fee and has plugged that figure into the calculations of their price. Next time, before your agent has already shown you properties and done work on your behalf, negotiate what you are willing to have them receive before you go out looking. This way (if you both agreed on 2%) and you find a property where the seller's agent is offering 3% to the buyer's agent, you can use the reduced agent fee on your side of 1% to reduce the asking price during negotiations. Of course you can also negotiate to reduce the price on many other items as well. Knowing how to negotiate contracts is instrumental in any RE investing business.

Kim Rock · Answer

You COULD ask.. but I would only do that if you really felt comfortable with your agent.  It would be seen as kind of rude if after months of showing you houses you decided to try to get him/her to take less of a commission just to help you negotiate the price of your house.

Mark Brian · Answer

Don't ask on your first deal, develop a relationship and he will be more willing as deal after deal go down. Or let him keep whatever the seller pays, but let him list it for less. Build trust first, leading to a relationship leading to you making much more money in the future. I'm not saying it is OK to get screwed today but let the agent make a living.

Ryan D · Answer

Thanks Adam...so I wouldn't be out of line if I asked my agent to drop his commission from 3% to 2.5%? I never signed a contract or anything where I agreed that he would get a specific commission. This could help me with negotiations with the seller because I need to either accept or counter their offer by tomorrow. I already know I am going to counter it, but I am trying to think of everything to come up with the best scenario.

Adam Spears · Answer

I am a Realtor in Calfornia and our typical commission is 2.5-3% for both sides....remember this is negotiable

Ryan D · Answer

Awesome thanks for the insight Wheatie!

Jon Holdman · Answer

That sounds right.  Typical commission is 6% of sales price, paid for by the seller.  It gets split 50/50 between the listing agent and the buyer's agent.  It does affect the price, but the seller signed up to pay this amount when he listed the property.

I see you're a new poster.  You might want to introduce yourself in the new member forum.  If you want us to evaluate your deal, post it in the deal analysis forum.  If you're buying at retail, i.e., a comparable price to other properties in the area, you're probably paying too much for it to be a profitable investment.  That would be the real point where you're being taken advantage of.