Real Estate Agent Contract - Is this normal?

18 Replies

So I’m making an offer on a place in Pittsburgh, PA and my realtor sent over the purchase agreement and agent contract. I’ve never seen a contract like this (my other property is in OH and my friends have purchased in CA)

It seems like I’m being asked to pay $595 whether or not my offer is accepted. Also, since 3% of the sales price is less than $2000 I will have to pay the difference. Is this normal!?

The contract lays out the following stipulation in regard to the fees:

Broker’s Fee, paid by Buyer to Broker, is as follows

  • (a) In a purchase transaction with a seller represented by a real estate broker the fee is 3% of the sales price OR $2000, whichever is greater, AND
  • (b) In a purchase transaction with a seller who is not represented by a real estate broker the fee is 3% of the sales price OR $2000
  • If the amount received from the listing broker is less than the amount in above, Buyer will pay Broker the difference, unless seller agrees to pay the difference as a term in the agreement of sale.
  • $595 of Broker’s Fee is earned and due (non-refundable) at signing of this Buyer Agency Contract.

A minimum commission is understandable, but this should have been discussed early on.  But, $595 up front, no matter what?  Never seen that.

Thanks, I thought it seemed crazy! 

Can anyone from Pittsburgh weigh in? Maybe this is some regional thing?

Wonder if it's $595 so it doesn't have to be on a 1099...? 

In TX, real estate agents are not allowed to give advice or opinions to non-clients (i.e. customers). The way for them to become a client is by signing a Buyer Representation Agreement (or a Listing Agreement if they are a seller). It states that my commission will be paid by the seller, landlord or their agents, but if they fail or refuse to pay, the client will pay. Since rarely is a seller in control of paying out commissions (unless it is some off-market situation), the title company will make sure the realtor gets paid and the buyer has no risk of doing so.

I can't imagine asking my clients for a flat-fee if an offer isn't accepted. Is this something s/he expects for every offer you make? If I don't perform (i.e. find them a suitable property), then I don't get paid. That's the nature of the business. I know some listing agents put a clause like that in to get reimbursed for marketing in case the house doesn't sell, but never heard of a buyer's agent doing that. I'd find a new realtor if I were you.

It seems like the $595 will last the duration of the contract (until August 1). I've emailed the realtor asking to remove this charge since it wasn't discussed up front. Switching realtors now could blow the deal since there are multiple offers. @Sharon Tzib It's a Re/Max realtor by the way. I guess there is no standard contract you guys use? 

Thanks for the responses!

No @Vlad K. the contracts are state specific. I hope s/he removes it for you! 

What Sharon describes is fairly standard.  I haven't seen a "greater of 3% or $2000" arrangement before though.  I definitely wouldn't pay $595 up front before I decide to buy anything.

I suggest you find a new agent.  A better question is why do you think you need an agent?  If the seller has one and you don't then the listing agent will just keep all the commission so there's no advantage to not having one.  But if the seller doesn't have an agent, then having one may cost you 3% directly out of your own pocket if the seller refuses to pay.  If neither one of you have agents, then you can use this as additional leverage for a discounted sales price.

Did the agent show you this property?  Have they been working with you for a while showing you lots of properties?  If so, then they've already earned compensation from you and you need to come to some agreement.  Remember that everything is negotiable though.  If you do need to compensate this agent, I would push back on anything you don't believe to be fair.

Reading between the lines, it sounds like your realtor has been working with you for a while and just didn't put the agency contract in front of you until now.  If so, shame on them.  My first agent did the same to me a long time ago.

Disclaimer:  I'm not an agent... yet.  I've taken the class and I'm studying for my test.

The agent showed me the one I'm offering on now. Another agent from the agency also showed me properties on a prior occasion. There is a listing agent so I won't be in a position where I have to pay $2000 out of pocket.I agree that they deserve something for their time but I don't want to burn cash and come away with nothing. 

I'm still waiting to hear back on my request to remove the charge. 

Well they should definitely be paid then, just not quite what they're asking for :)

Keep in mind though you may still owe them in a few circumstances.  Your agreement says 3% or $2000.  If the listing agent is offering the standard 3%, then you may need to come up with the difference if that is less than $2000.  The other possibility is that the listing agent is only offering 2% in which you'll need to come up with the difference there too.

Keep us posted.  I really want to hear if you're able to get the $595 removed.

Will do. And yes, 3% of the offer price (assuming that is what the listing agent is offering) will be less than $2000 and I'll be on the hook for around $600 to make up the difference. But then I'll have a house. 

My first thought was to just submit your own offers until I saw you are investing way out of state.  Ambush tactics aren't cool in RE or any other industry.  This person has 'shady' oozing from their pores.   Funny the amount up front is just below the $600 threshold for a 1099 like @Sam Garner states.

While you're waiting for a response on this, the deal may be slipping away as you said.  If he/she hasn't already submitted the offer and you know what you would like to offer, just get another one of the 68,000 agents in Pittsburgh from another office to submit for you.   Obviously this agent hasn't been carting you around every Saturday like a  dramatic tv show.  Get someone else already @Vlad K. !

Unfortunately there is already an established "agency relationship" with him and his agent called "implied agency" even though no contract was signed.  That alone may entitle the agent to a portion of the commissions.

Definitely going to look this scenario up when I get back to studying.

It's not uncommon. Often I see that it is paid at close and not up front. I know of a couple agents though that do this because if you search for 6 months for houses with them and then never buy it's the only $ they get out of showing you homes for 6 months. I doubt it's per house. I would just pay it and if you don't feel your agent is doing their job well then go to them and say so. If they don't cooperate, go to the broker. Then remind the agent that you will be leaving reviews all over. I don't know a single agent who would trade bad reviews for $595. 

The only problem with this is if the agent isn't worth it. Otherwise, you want a professional agent and someone who values their time often (not always though) brings value to the table. 

As far as the difference in 3% and $2000. Is it an issue for you? Will you be buying houses that don't meet the $2K cut? If not who cares. If so then talk with your agent. Let them know you plan to buy several houses over the next few years and you want to build a mutually beneficial relationship. I work deals with investors I work with because I will be working with them for many years. Heck if they are an amazing agent and get you a better deal than you thought you could get make them get an extra $2k out of the sellers price to cover the commission. 

hi

im an investor friendly agent in Pittsburgh. I work with out of state clients ;)

 the a and b is standard agency wording. its if seller doesn't pay commission.

as for additional. that is agent own nego. not standard.

we as agent have to pay additional fee. and depending on the company the charges is different.  I charge an additional fee but will not collect unless we close.  All fees are negotiable. meaning all my deals are different. but I'm with Kw now. so more flexible on what I can do to get things closed or done!

and since I'm also foreclosure and shortsale specialist.... I nego with my brokerage over min commission when I was with Coldwell. with Kw there is no minimum commission :)

Found this interesting tidbit:

Is A Written Commission Agreement Required?

A written commission agreement although preferable is not required. In this regard it is noted that General Obligations Law section 5-701 (10) specifically exempts licensed real estate brokers and salespersons from the requirements that such agreement be in writing.

The contract of employment may be established by facts showing, in the absence of an express agreement, a conscious appropriation of the labors of the broker, and in some cases by the mere acceptance of the labors of the broker. Even if there is no agreement, express or implied, between the principal and broker, if the principal receives a benefit from the real estate broker's services under circumstances which, in justice, preclude him from denying an obligation to pay them, the broker is entitled to some relief.

It cannot be assumed that a broker works gratuitously, and the lessor and lessee are held to such knowledge when they accept the result of the broker's services. When the lessor has accepted the lessee brought to him by a broker, and when the lessor and lessee have agreed upon terms and execute a lease agreement, the broker's work is done and he has earned a commission.

Further, where a contract of sale or lease agreement admits the broker's performance of services and includes an express promise by the seller to pay the broker's commission, the broker is entitled to summary judgment on its claim for a commission as a third-party beneficiary of the contract or lease.

from:

http://www.garywachtel.com/PracticeAreas/Real-Estate-Brokerage-Commissions.html

(New York Attorney)

The $2000 is a minimum commission, most good agents have a minimum. You would pay the difference between the 3% and the 2k.

The $595 is allowed but I don't know of any agents that charge it. 

If you are submitting a low ball offer maybe that is what he is charging for what he feels is a waste of time?

Hope this helps.

I got them to lower it to 485 and change it to be due only on closing. 

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