Broker fee

10 Replies

Hi all,

I'm looking to purchase property in the Philadelphia area and an talking with an agent there. He sent me a document to sign. Is it normal to sign a buyer agency contract and also for it to contain an agreement for the buyer to pay the agent 3% of the house upon purchase? I thought the seller usually pays that.

Thanks in advance.

Hey there Chaim,

The standard practice is that the seller covers the commissions paid to the brokers at closing. Occasionally when dealing with FSBOs, an agent may work something out with a buyer. It is one of the reasons why I recommend buyers work with an agent when looking at properties, as they are paid for by the seller. 

-James

Hello Cham,

Im a broker in NYC. Every market is different. With that said, here in NYC, I have never heard of buyers agents using binding agreements with buyers to find them properties.

I personally would never sign one. What if the agent is too busy to look for properties for you? What if you find a property on your own? 

I would tell the agent I'm happy to work with them and if they send a listing that I'm interested in, I would make an offer through them. Tell the agent if he doesn't trust you, he can send you general details without an address or picture. If you're interested, tell him you are willing to sign a non-disclosure/non-circumvent agreement so he can feel safe disclosing the address and showing you the property.

When I got into building sales I realized most owners do not sign exclusive listing agreements. They just put the word out that they are trying to sell. Some sellers will pay a broker a finders fee, some will not. So I had to use a NDA to protect myself once a buyer would tell me they were interested. And I would make both the property owner and buyer sign separate agreements. 

Fee agreements are the norm for finding a rental apartment. But for buyers, here in NYC its a matter of trust that an agent is working with a serious buyer who will eventually buy something or the agent can seriously waste weeks and months looking for properties with that buyer.

I would be interested in hearing more about your potential deal. I am interested in the Philadelphia market also.

That depends if the property is listed with an agent who is willing to share his commission with your agent. 

Additionally, I would not recommend signing a one-year contract if you are an investor. You do not want to be bound to the same agent for all properties you buy. By signing the agreement you are committing to pay the agent 3% on any property you buy. Even if he is not involved in any way.

What I have done in the past is sign agency contracts and write in the "additional terms" section of the agreement that the contract was only valid on that particular property transaction. 

If your agent will not agree to this I would recommend finding another agent who has experience dealing with investors. 

Originally posted by @Chaim Zigelman :

Thanks James. 

The contract is for one year with the agent. If I sign it, the seller would pay his commission and not me?

 By your description it sounds like you would be responsible for paying the agent 3%. It could be the agent did not realize he was requiring you to do so, but I would not agree to that. The standard is to have the seller cover the broker fees, and unless working on a specific property that is unique, that is how you should operate with your agent.

-James

Originally posted by @Armando Ramirez :

Hello Cham,

Im a broker in NYC. Every market is different. With that said, here in NYC, I have never heard of buyers agents using binding agreements with buyers to find them properties.

I personally would never sign one. What if the agent is too busy to look for properties for you? What if you find a property on your own? 

I would tell the agent I'm happy to work with them and if they send a listing that I'm interested in, I would make an offer through them. Tell the agent if he doesn't trust you, he can send you general details without an address or picture. If you're interested, tell him you are willing to sign a non-disclosure/non-circumvent agreement so he can feel safe disclosing the address and showing you the property.

When I got into building sales I realized most owners do not sign exclusive listing agreements. They just put the word out that they are trying to sell. Some sellers will pay a broker a finders fee, some will not. So I had to use a NDA to protect myself once a buyer would tell me they were interested. And I would make both the property owner and buyer sign separate agreements. 

Fee agreements are the norm for finding a rental apartment. But for buyers, here in NYC its a matter of trust that an agent is working with a serious buyer who will eventually buy something or the agent can seriously waste weeks and months looking for properties with that buyer.

I would be interested in hearing more about your potential deal. I am interested in the Philadelphia market also.

 Armando raises an applicable point regarding buyer agency agreements. Some agents feel that it puts off clients to get them to sign a contract. That being said, an agent is at risk if their client is not contractually bound. I personally would not have someone sign a buyer agency agreement until after we have gone out and looked at a few properties. It is good to get to know one another, and how you will work together before agreeing to work together. This way both parties know what they can come to expect from one another.

-James

Thanks for all the responses. When I asked about the broker fee, this was his response:

The 3% or $2,500.00 and $495.00 comes into effect once we identify a property and one of two things happen. If it's a for sale by owner where the owner is not represented by a broker, usually for sale by owners refuse to pay commissions. Or if the commission is under 3% or $2,500.00, you pay the difference. That would be part of closing costs. The one charge that is always part of closing costs is the $495.00. That is for when an agreement of sale is accepted, it covers some of my overhead in the transaction, the conveyance department in my office handles the transaction once we go under contract with a property. That entails, ordering title, gathering information requested from title, lender, insurance, etc.

If you notice below that, it states that it is policy for us to accept compensation from listing broker. All of the properties I send your way are listed with Brokers. The 3% or $2,500.00 and $495.00 will apply to off market properties. I have to disclose prior to you submitting any offer on a property. That is why closing cost estimates are given prior to submitting an offer.

Thoughts?

Hi @Chaim Zigelman I have come across this a couple of times.  The first agent was relatively new to the business and wanted to ensure that after looking at a number of homes I wouldn't walk away and buy through another agent.  She was not asking for a commission so I entered into an agreement to have as my exclusive buyer's agent.  The second agent was for a purchase in the suburbs and he explained that he was asking for a 3% commission fee from me in the event the seller did not pay him the 3% for bringing in a ready and willing buyer.  But this was only in the event the seller did not pay him, not in addition to.  I did not agree to this and did not sign the buyer agency.  The agent didn't walk away and eventually I purchased through him.

Take another look at the agreement to ensure that the language isn't written that the 3% would be due from you upon a default by the seller.  Either way I would suggest not signing an agreement such as this and a year is way too long.

As a side note, most people assume that a 6% commission is the industry standard throughout the US.  In fact, this is not the case.  It is closer to 5% and in some states it is as low as 4 %.  So I would say any commission you agree upon in a buyer's agency situation should be closer to 2-2.5%.

That's pretty common. Our Texas representation agreement states that the buyer will pay the agent 3% commission, but it also states that the agent will attempt to collect the commission from the seller.

If it's a property listed with another agent on MLS, it's a no-brainer. They have to pay the commission.

You run into problems with non-listed properties where the seller wants the buyer to pay the commissions and closing costs. It's especially common with wholesalers. My inbox is filled every day with these kinds of deals.

A one year agreement seems a little crazy to me. I would look for something more like six months. I personally do three month contracts. I figure if I can't find a property within three months, then I should release the client to pursue properties elsewhere.