Investor / Broker Commission Split

8 Replies

Hello BP,

I am reading "Investing in Duplexes, Triplexes, and Quads" by Larry Loftis and came across the concept of partnering up with a "Buyer-Broker." The advice is to find a broker who works with real estate investors to help them close on MLS deals. Because the broker will normally receive the full 3% commission (as opposed to an agent who must split the 3% commission with the broker), he/she is able to split the 3% commission with the real estate investor. The expectation is that the investor is doing all the upfront work to research and evaluate the property. The broker helps to formally close the deal and doesn't invest nearly as much time through the evaluation process as with a typical buyer. The commission split between the broker and investor depends on the relationship between the two parties but in general is a 50/50 split.

I wanted to do a reality check on this concept.  Is this a common arrangement that investors are able to set up with buyer-brokers?  Does it just happen in certain states (Larry Loftis is an investor from Florida)?  How does one find a buyer-broker?

I don't know how common that is but even 50% split seems pretty generous if you're doing the work and the agent is just processing paperwork for you. An attorney could process the paperwork and watch out for your interests for a flat hourly rate. 

I don't understand the whole reference to "Because the broker will normally receive the full 3% commission (as opposed to an agent who must split the 3% commission with the broker)". We may have terminology confusion here but all brokers split their commission with their brokerage.

Nevertheless, you can find brokers willing to split their commission with you. Search for home buyer rebates. Also, if Redfin is in your area they offer small rebates - about 10 - 15% of the commission. And you might even be able to find a broker who would give you the entire commission if you pay them an hourly rate.

In the amount of time it takes you to locate a broker that can and will do this (not to mention contract and legal CYA to invent) you could figure out and master how to buy solo. Nothing says you have to have an agent or broker at all to offer on and purchase property.

If you are new and/or never purchased before, have quality represent you for sure.  But if you are knowledgeble and experienced, just offer 3% less and/or get the full 'commission' in seller concessions.  

Except for my first ever primary purchase in 1998, I've never used an agent to buy. He we a complete idiot so I got to work learning how to do it on my own. 

My offers simply state I have the right to obtain representation if my offer is countered.  The LAs seem to see fit counters are rare.

10 states have laws making it illegal to share the commission with the buyer. 

13 states have laws requiring minimum service requirements for agents/brokers, so in these states that might be hard to pull off because the broker has to do the work regardless if the client wants it or not.

Semantics, honestly.

All brokerages are created differently. 

- Some brokers only manage and don't work with buyers or sellers.

- Some brokers only work with sellers since buyer's typically require more effort.
- Some brokers may just refer you to another one of their agents since they can get money on the split and do no work.
- Some brokers run 100% brokerage houses and make their income on additional fees.

I hang my license at a 100% brokerage. Every agent here (who's done at least 10 deals) keeps their entire commission. There is an additional brokerage fee charged and an insurance fee... but I ALWAYS eat that fee rather than pass it on to my buyer/seller.

If you REALLY want to save some money on realtors, work out a deal to reduce commissions on the back end. (REALLY, if you're chasing a 1% rebate instead of flip or rental profit, you may already be stepping over dollars to pick up pennies.) When I work with my flip investors, I earn the full buyer's commission when they  purchase the property. I then save them money by reducing the commission when I sell the flipped house. For example, I may take 3% when you buy the house at $180,000... but when you sell at $300,000, the total fee is 4.5% (3% to the buyer's agent and only 1.5% to me). Any agent that would short the buyer's side is asking for increased marketing times. 

See... the way that works above, is that my investors and me are looking out for each other. Keep me working and I keep your costs down. 

I'm not sure why anyone would recommend just paying a lawyer when you BUY a house. In Florida, the seller pays commissions and buyer pays nothing. $0 on a buyer's agent is much better than $700 on a lawyer. 

Hi guys, thanks a lot for the input!  Sounds like there is room to get creative here.  I am new so I will definitely look for an agent or broker to help me with my first deal and I expect to give them the full buyer commission.

However, I would like to explore opportunities to reduce my acquisition costs when I get more knowledgeable with the purchasing process and will require less time from an agent/broker.  My plan is to buy and hold (not to flip) for a long time, so I would be looking for agreements where I can get reductions in acquisition costs, not reduction in selling costs later down the road.

@Steve Vaughan What do you mean you don't need an agent to purchase a home? I had understood that you need an agent when buying from the MLS. This is not true?

@Russell Brazil Hi Russel!  Thanks for the feedback.  Any chance you could clarify the states that don't allow sharing of commission with the buyer?  If there is a link where you can find this information, I'd like to get it.

Thanks!

Originally posted by @Oscar Beteta :

@Russell Brazil Hi Russel!  Thanks for the feedback.  Any chance you could clarify the states that don't allow sharing of commission with the buyer?  If there is a link where you can find this information, I'd like to get it.

Thanks!

 Alabama, Alaska, Kansas, Louisiana, Mississippi, Missouri, Oklahoma Oregon, Tennesee, Iowa are where commission rebates are illegal.

Also 13 states have minimum service requirements for agents. So that means regardless of what they charge you, they have to do the entirety of what a full service agent provides. So for instance they cant just post a property to the mls for a fee, they have to perform all the actions that an agent does. So negotiating a lower fee in those 13 states is likely harder since their work load doesnt change. I dont know all of the states, I just know DC is one of them as its one Im licensed in.