Buyer Agent's Commission Fees

Buying & Selling Real Estate
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Buyer Agent's Commission Fees

Nick Louie
Attorney · Weehawken, NJ · Member since 2021 · 56 posts · 35 votes

Hi BP Community,

I was wondering whether it's customary (in your respective communities) for a first-time home buyer to work with a buyer's agent and agree to exclusivity for 3 months and to pay the agent 2%. In this situation, the 2% would be deducted from the seller's closing costs, but in the event the seller doesn't give 2%, then the buyer would have to cover the buyer agent's commission by including the costs in the mortgage. 

From searching on the BP forums, I know whether to enter into exclusivity for 3 month is subjective. But whether to agree to cover 2% commission fees is more questionable. I was just wondering the BP community's thoughts on this payment arrangement. 

Thanks! 

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Joe Norman
Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
5y

That type of arrangement is very customary in my market, except that the number is usually 2.5-3.0%. I volunteer my time at my local rec council and a community group, I expect to get paid when I help someone buy or sell a house.

That said, the vast majority of the time the seller is covering the full 2.5% commission, so my buyer clients generally don't owe me anything more than a $495 admin fee - a pretty small price to pay for the services I provide IMO.

If the seller is not offering at least 2.5%, then I will notify my client of that before writing the offer so that they can factor in the additional commission into their closing cost calculations and into their offer. 

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  • Aaron W.
    Rental Property Investor · Northern Virginia · Member since 2019 · 793 posts · 620 votes
    5y

    @Nick Louie I would not work with a broker where I would need to cover the commission if it does not meet a certain percentage unless they were an awesome broker and I could not find anyone else as good as they are. 

    5Reply
  • Nick Louie
    OP
    Attorney · Weehawken, NJ · Member since 2021 · 56 posts · 35 votes
    5y

    @AJ H. Thanks! I agree with this. So you agree that type of arrangement isn’t “customary” in most markets, or at all right?

    Just curious, how would you evaluate whether a buyer’s broker would be worth assuming this type of obligation?

    0Reply
  • Joe Norman
    Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
    5y

    That type of arrangement is very customary in my market, except that the number is usually 2.5-3.0%. I volunteer my time at my local rec council and a community group, I expect to get paid when I help someone buy or sell a house.

    That said, the vast majority of the time the seller is covering the full 2.5% commission, so my buyer clients generally don't owe me anything more than a $495 admin fee - a pretty small price to pay for the services I provide IMO.

    If the seller is not offering at least 2.5%, then I will notify my client of that before writing the offer so that they can factor in the additional commission into their closing cost calculations and into their offer. 

    15Reply
  • Nick Louie
    OP
    Attorney · Weehawken, NJ · Member since 2021 · 56 posts · 35 votes
    5y

    @Joe Norman

    Thanks Joe. This approach is very reasonable. If the seller isn’t offering to cover the buyer agent’s commission, then the agent should notify the buyer beforehand, so the buyer can determine whether to submit an offer.

    So before the agent submits an offer on behalf of the buyer, we would all know whether the seller will cover the buyer agent’s fees, correct?

    0Reply
  • Account Closed
    Member since 2020 · 983 posts · 1k+ votes
    5y

    never ever sign an exclusive agreement with a broker because you cannot limit yourself to only the listings one broker has. Brokers have some sort of sick thinking that clients should be loyal to them, but every broker tells you that every property he has for sale is great for you as long as you are willing to purchase one of the properties he has.

    The problem is; the broker across the street may have a MLS listing, or a pocket listing that is a goldmine.

    I won't lie! Between 1973 and 1978, I purchased 6 single family homes and every time I wanted a home I called the same friendly broker like I was a Macho Man and my broker came running to me like I was Easy Money. No woner! I didn't shop with other brokers and I was an Easy Sell. 

    But...one thing my friendly broker never ever told me was that the big money was when investing in multi-unit properties and when I think back today there are many reasons my broker never told me; 1) because he was ignorant and didn't know, 2) if he did know he cared more about his walled and didn't rock the boat and 3) maybe he thought multi-unit properties were too hard to deal with.

    After 1978, I got into a limited partnership for two K-mart shopping centers. In 2001, I learned that the big money is in multi-unit properties and since 2001, I purchased several multi-unit properties and was never loyal to one broker where I called only that one broker because the way you find both multi-unit properties and single family properties where you can earn the most money is when you walk into many brokers offices and they seem to always have properties that are not yet listed and pocket listings where they don't intend to advertise or lost the properties. 

    Like everyone else on this planet, I surf the internet on websites like zillow.com, loopnet.com and never ever found a property that made good business sense. After searching on the internet I drove to hundreds of properties in California, drove to Las Vegas no less than 20 time, flew to Idaho, Arizona and Massachusetts several times to look at properties, but every property I ever purchased since 2001 was by going directly to a broker and purchased properties that were not on MLS and not on any website on the internet. Those properties are always priced too high.

    I can tell you stories all day long why you don't want to sign an exclusive agreement, but I will stop.

    6Reply
  • Joe Norman
    Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
    5y
    Originally posted by @Nick Louie:

    So before the agent submits an offer on behalf of the buyer, we would all know whether the seller will cover the buyer agent’s fees, correct?

    I don't think there is a hard requirement for the buyer to be notified of the commission being paid by the seller to the buyer's agent, but that is how I operate my business. I think it would be reasonable to ask your agent to amend the compensation section of your agreement to state that you would only owe him additional Commision if he notified you before submitting your offer so that you can have some certainty.

    5Reply
  • Nick Louie
    OP
    Attorney · Weehawken, NJ · Member since 2021 · 56 posts · 35 votes
    5y

    @Joe Norman

    Great advice! Thanks. I’ll let you know how it goes!

    1Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    5y

    @Nick Louie I have not seen this. Especially with a first time home buyer it is not in their best interest, often they haven't picked a specific town and although agents say they can sell anywhere typically they are only knowledgeable regionally. I have seen agreements that commission be paid in FSBO situations and rolled into the mortgage.

    0Reply
  • Jon Schwartz
    Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes
    5y
    Originally posted by @Account Closed:

    never ever sign an exclusive agreement with a broker because you cannot limit yourself to only the listings one broker has. Brokers have some sort of sick thinking that clients should be loyal to them, but every broker tells you that every property he has for sale is great for you as long as you are willing to purchase one of the properties he has.

    Signing an exclusive representative agreement with a broker doesn't limit you to that broker's listings; it merely limits you to transact with that broker — on any transaction listed by any broker (or even off-market).

    10Reply
  • Vesna Marcina
    Member since 2019 · 7 posts · 1 vote
    5y

    Several years ago, an agent wanted my husband and I to sign an exclusivity agreement with him. We refused, and he told us we had wasted his time. Of course, had he shared with us from the beginning that he would want us to sign such an agreement, we would not have met with him in the first place. 

    Now, I don't necessarily think an exclusivity agreement is so bad, as long as there are expiration dates in it to end the relationship. If it's working out, then the agreement can be extended. If not, the agreement expires and the buyers can find a different agent. But three months is too long--maybe 2 weeks. That's enough time to figure out if it's a good fit. 

    I have no experience with the commission aspect of your question. 

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    5y

    It is now illegal for a buyers agent to represent their services as free, even though that is the reality of what happens. 

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  • Don SpaffordPro Member
    Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes
    5y

    In regards to commissions, it is usually paid by the seller anyway. Possibly in a case of a For Sale by Owner, where the seller does not want to pay, then perhaps the buyer would need to pay it, or just not buy that property and keep looking for one that does.But that generally will come up at the time of an offer if the seller is not paying it. But just because it is in the agreement is not bad if it is worded the way you said it, "if the seller does not pay". And 2% is not bad, it is usually 3%.

    As for the exclusivity agreement, the way we handle that is if you sign one, you are a client, if not you are a customer. A client gets full attention and we go above and beyond for that client. The reason being, if one is not signed we could show dozens of properties, spend time analyzing, etc, and then they end up buying one of those properties with another agent anyway and then, yes, it was a waste of our time and resources. So a customer will not get as much attention and time allotment as a client will. When you sign that document, the agent therefore has a legal obligation to work for you and see to your best interest. As a customer, who does not sign an agreement, you do not have that obligation.

    5Reply
  • Oliver Evans
    Real Estate Broker · Wilmington, NC · Member since 2017 · 34 posts · 25 votes
    5y

    @Nick Louie

    You definitely wouldn’t want to agree to paying if a buyers agent even if you choose not to buy. However, if you do close with the help of an agent than they’d be paid the cooperative commission amount at closing by the seller. In the case of a fsbo - they might say they aren’t paying anything with which you’d be responsible for the commission. If the deal is good enough than maybe it’s worth it. Most of the time the a motivated seller will cooperate with paying your agent.

    0Reply
  • Brian Walters
    Las Vegas, NV · Member since 2019 · 173 posts · 78 votes
    5y

    I'm just getting started in this, don't have our first investment property yet but met with a local agent who was professional and more than nice.  Then at the end threw in a quick mention of the exclusivity agreement.  Told him I would think about it, called him a few days later asked him to explain what it included and it's exactly what it sounded like, and the term he wanted was 7 months.  

    While I understand the agents concern of putting time and effort in and then the chance of the property being taken to someone else, especially as someone starting out to limit your sources of leads to 1 person seems like it helps them more than you.  

    Did some further research and found this agent had 4 sales in the past 12 months.  Feel like I definitely made the right decision sticking with my gut on this one.

    2Reply
  • Peter K.
    Real Estate Broker · Raleigh, NC · Member since 2017 · 174 posts · 69 votes
    5y

    Hey Nick,

    In this instance, it would be difficult (as a selling point) to buyer's since sellers cover buyer's agent commissions and there are many agents out there that are willing to work with buyers w/o any retainer fees and/or guarantee of payment. At the end of the day, you'll have to make the judgment call with your buyer-client to see if it's worth your time to work with them and have the potential to lose out on a commission if they don't close. Really comes down to your comfort level and judgement call.

    0Reply
  • Account Closed
    Member since 2020 · 983 posts · 1k+ votes
    5y
    Originally posted by @Jon Schwartz:
    Originally posted by @Account Closed:

    never ever sign an exclusive agreement with a broker because you cannot limit yourself to only the listings one broker has. Brokers have some sort of sick thinking that clients should be loyal to them, but every broker tells you that every property he has for sale is great for you as long as you are willing to purchase one of the properties he has.

    Signing an exclusive representative agreement with a broker doesn't limit you to that broker's listings; it merely limits you to transact with that broker — on any transaction listed by any broker (or even off-market).

     Sorry! I don't understand. Are you saying that when a person has an exclusive agreement with a broker the person has to transact with that broker even if the person finds a listing that another broker has?

    Sorry, I thik I have a misunderstanding from the beginning.

    0Reply
  • Alexander Murillo
    Real Estate Agent · St George, UT · Member since 2019 · 56 posts · 30 votes
    5y

    @Nick Louie the buyer broker agreement obligates the agent to represent your best interests. It does not limit the listings you have access to, unlike what some have said in here. All agents should have access to their local MLS, where they can see EVERY agents listings and set you up on a search so you're notified when a deal comes along. Very few agents will steer you only their listings, which is a good way to lose your future business.

    My brokerage requires the agreement, and personally I wouldn't be fully motivated to help you if you didn't agree to sign it. If a couple weeks pass and the relationship isn't working out, I'm happy to let clients out of it because I try to avoid unnecessary headaches and wasting my time. But if I've spent hours, miles, and opportunity cost on a specific client, only for them to call the listing agent (who will not represent your best interests) then I'll want to be paid. Just like a contractor will want to be paid after remodeling your house.

    But this almost never happens, and I've never had a situation where the seller wasn't paying the commission in my market.

    1Reply
  • Matthew Irish-JonesBusiness Member
    Real Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    @Account Closed if one chooses to sign with a buyers agent you can buy from any listing broker, you are not required to buy a listing from that agent.   The agent is representing you as a buyer and can do a deal with independent listing brokers. 

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  • Nick Louie
    OP
    Attorney · Weehawken, NJ · Member since 2021 · 56 posts · 35 votes
    5y
    Originally posted by @Peter K.:

    Hey Nick,

    In this instance, it would be difficult (as a selling point) to buyer's since sellers cover buyer's agent commissions and there are many agents out there that are willing to work with buyers w/o any retainer fees and/or guarantee of payment. At the end of the day, you'll have to make the judgment call with your buyer-client to see if it's worth your time to work with them and have the potential to lose out on a commission if they don't close. Really comes down to your comfort level and judgement call.

    I agree. I think it also just comes down to the language within the agreement. In my instance, the language put a limit on the duration of the exclusivity, and it was a short period. I found this acceptable because I like the buyer agent and the team. 

    For the commission arrangement, I felt like the terms of the contract weren't overly aggressive, but it definitely wasn't market standard. My stance is if the buyer agent wants a guaranteed 2%, then they need to help me locate a property where the seller is offering this commission with the listing agent. The terms in the contract, as stated, essentially said I had to personally guarantee the buyer gets 2%, and if the seller gives less (e.g., 1.5%), then I have to make up for that .5% at closing, which could be added onto my mortgage (that I need to pay back eventually). 

    If the buyer agent is getting a guaranteed 2% + exclusivity, then I could imagine they definitely have an incentive to get the ball rolling. But the problem for the buyer agent is the market is competitive. At the outset, it's difficult to justify this arrangement, when other brokers are even going so far as to offer rebates on commission fees. It's also hard to demand these type of "aggressive" terms before demonstrating value or distinguishing your services from the other agents in the market. This has been my introduction into the world of real estate investing. Game on! 

    1Reply
  • Nick Louie
    OP
    Attorney · Weehawken, NJ · Member since 2021 · 56 posts · 35 votes
    5y
    Originally posted by @Alexander Murillo:

    @Nick Louie the buyer broker agreement obligates the agent to represent your best interests. It does not limit the listings you have access to, unlike what some have said in here. All agents should have access to their local MLS, where they can see EVERY agents listings and set you up on a search so you're notified when a deal comes along. Very few agents will steer you only their listings, which is a good way to lose your future business.

    My brokerage requires the agreement, and personally I wouldn't be fully motivated to help you if you didn't agree to sign it. If a couple weeks pass and the relationship isn't working out, I'm happy to let clients out of it because I try to avoid unnecessary headaches and wasting my time. But if I've spent hours, miles, and opportunity cost on a specific client, only for them to call the listing agent (who will not represent your best interests) then I'll want to be paid. Just like a contractor will want to be paid after remodeling your house.

    But this almost never happens, and I've never had a situation where the seller wasn't paying the commission in my market.

    Thanks for sharing here. Just out curiosity, how long is your exclusivity period? Feel free to give a range if you'd like to keep confidential. In my instance, the exclusivity period was three months. 
     

    0Reply
  • Nick Louie
    OP
    Attorney · Weehawken, NJ · Member since 2021 · 56 posts · 35 votes
    5y
    Originally posted by @Brian Walters:

    I'm just getting started in this, don't have our first investment property yet but met with a local agent who was professional and more than nice.  Then at the end threw in a quick mention of the exclusivity agreement.  Told him I would think about it, called him a few days later asked him to explain what it included and it's exactly what it sounded like, and the term he wanted was 7 months.  

    While I understand the agents concern of putting time and effort in and then the chance of the property being taken to someone else, especially as someone starting out to limit your sources of leads to 1 person seems like it helps them more than you.  

    Did some further research and found this agent had 4 sales in the past 12 months.  Feel like I definitely made the right decision sticking with my gut on this one.

    A 7 month term sounds overly onerous. I agree, it's important to due our due diligence before signing an exclusivity agreement. 

    Do you recall the precise terms of the exclusivity period? For instance, did the exclusivity period prohibit you from purchasing a property in any manner, either by yourself or through another agent that listed property your agent did not list? 

    I think an exclusivity arrangement is acceptable, but it has to be drafted properly. Most of the time, the agents have boilerplate templates, and they don't want to change the terms. But all contracts are negotiable. 

    0Reply
  • Peter LoudisPro Member
    Real Estate Agent · Dallas, TX · Member since 2017 · 23 posts · 10 votes
    5y

    @Nick Louie @Joe Norman  I second what Joe Norman said. I can only speak to representation in Texas, but this is a very typical agreement for Buyer's Representation.  Professional Service Compensation with a time period with an expiration date. 

    I do what Joe mentioned, and let my buyers know should there be a situation where the property/seller is not covering my professional service fee, and then ask what they would like to do.  There was discussion on one of the BP podcast episodes about working with an agent vs getting your license that touches on this same concept. The expertise of an experienced buyer's agent working for you, you will likely negotiate more than whatever the professional compensation for your agent is. The truth is, if it is a good deal and the number make sense, everyone will win.

    Speaking as an investor and real estate agent, both parties need to be motivated for a successful relationship and transaction. Especially when good agents spend lots of upfront time, energy and expertise locating, networking and negotiating deals for their clients. In Texas, a signed agreement solidifies the fiduciary relationship between agent and client, and in my opinion, both parties are much better served.

    1Reply
  • Brian Walters
    Las Vegas, NV · Member since 2019 · 173 posts · 78 votes
    5y

    @Nick Louie no agreement was ever put in front of me to review but when asked it was bluntly stated that it means I work with no one else.  It was made clear the expectation was there would be no purchases of any kind that did not involve him, including not working with any other agents.  Everything would have to go through him.

    I don't see how that benefits me in any way.  I'd be more apt to sign something that says anything he presents to me, maybe outside of the automated email notifications he set up (that I'm still receiving BTW), I would have to work with him on.  The goal is to make sure everyone's effort is being put to good use and not looking to screw over anyone but to limit myself to 1 source of leads for any amount of time doesn't help me at all.  While speaking with him I have been speaking with other investors in the area, so if 1 offered to bring me in on something or another agent I'm already in contact with calls me about something I have to turn down leads?  Signing the exclusivity, if it's 100% full exclusivity as this clearly was meant to be, benefits the agent only in my opinion.

    1Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    5y

    It's pretty rare to pay the buyers agent over and above what they will get from the seller if they find a property. I don't think that would be necessary to procuring a good agent honestly and would just be an unneeded cost. And I'm not sure exactly how you would deduct the commission from the sellers closing costs.

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  • Alexander Murillo
    Real Estate Agent · St George, UT · Member since 2019 · 56 posts · 30 votes
    5y

    @Nick Louie 6-12 months. Could be shorter but it doesn't really matter that much since the agreement ends as soon as you buy a house (at least in Utah it does). This could be after 1 month working with them. At that point I've done my job as their agent. I've rarely had to extend it, since typically the only people I have sign an agreement are the ones actively searching, making offers, etc. 99% of buyers don't have a problem signing an agreement once I explain my fiduciary duties to them

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