Buyer Agent's Commission Fees
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!
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.
Interesting.
Well, when it comes to investing, it's all a bit of a "When in Rome, do as the Romans do" kind of thing. In The Sedona area, normal for residential and most commercial properties (not bare land- which typically has higher commission) is 3% buyer commission / 3% seller commission, simply based on the closing price of the property. The commissions come out of the sales proceeds that go to the seller, so the buyer doesn't pay the bill- the seller does.
I *NEVER* work with someone who will not sign a buyer broker agreement, as I value my time/expertise/energy too much to invest potentially hundreds of hours into someone and their needs, and not be paid. However, if someone is not happy (has never happened) I would quickly sever the agreement, as life is too short and everyone deserves to work with whom they want to work with. This feels like business practice all realtors should honor. And it feels reasonable to expect buyers to either say- 1) Yes, I like your plan and I like you and your agency- let's work together, we are both committed to this. Or- 2) No, I don't like you, your plan or your agency and I'll work with someone else.
If the agreement feels complicated, but you like the realtor- talk with them about it some more. If you aren't excited to work with them, then definitely don't- move on. Find someone fantastic who will take exceptional care of you throughout the entire process.
Your question can't be answered properly (except by luck) unless we know where you're looking to buy. If it's in NYC then it depends where in NYC. In Manhattan and prime Brooklyn and Queens the seller customarily pays both the seller's and buyer's agents and there is customarily no buyer's broker's agreement. As you get further out into the boroughs that starts to change.
I'm not a realtor and am wondering how common it is for a buyer to switch agents or jump ship and buy with another agent. I guess I can imagine a buyer visiting an open house and making an offer through the listing agent or the agent that conducted the open house?
In my experience, I have purchased a few homes over the course of my life, found the process time-consuming, and can't imagine working with more than one agent, especially if I am limiting myself to one community or area.
I also agree with the realtor who argued that their value comes in assessing the price, negotiating a sale, and managing the process once a contract is initiated. I do not need help finding properties. I need an agent to show me a property, but the real value is in providing me the data and information to determine whether the listing price is one that is market-based or based on the seller's delusions.
I agree with your thoughts in your post. I don't think too many buyers are not loyal to the real estate agent who shows them a house at an open house, but there probably are some buyers who have already been dealing with another agent who they have been working with and then they feel like they are not being loyal to that agent when they buy from someone else and maybe want to try to go around the agent at the open house so the agent they have been dealing with can get the commission.
I never did the above, but I have taken many listings from agents who were really ignorant and arrogant and I purchase those properties through other brokers, but not one of those agents actually showed me one of the properties and never discussed the listing for more than one minute. I don't feel an agent is entitled to a commission just because he (or she) shows me a listing for a property. Although, I do strongly believe that an open house agent is entitled to the commissions since the agent worked hard and took their entire day to set up the open house, maybe did some work to prepare the house, prepare the literature and showed the house to many people.
As I mentioned in posts a hundred times, I never purchased a property I saw at an open house, or on any MLS listing, or on any website like zillow, redfin, or loopnet because those properties are always priced too high and there is very little wiggle room to get a discounts. The best way to purchase properties is to walk into many brokers offices and ask for pocket listings and listings they have not yet put on MLS, or some other websites. These are the properties you get for a discount.
@Nick Louie if you are the first time home buyer I would negotiate that agreement if you want to work specifically with this agent. Look at the cancelation clause to make sure it is easily canceled and I wouldn't make it 3 months. Also if you change areas you are often better off with someone local to that area who knows the local market. This is particularly true in densely populated areas.
You are hearing an ongoing debate here on the value of agents. The key message is the agent that helps you gets compensated.
@Account Closed typically the open house agent is the selling agent meaning they are reimbursed from the selling side of the commission for all that open house work. If they represent you too that would be dual agency which may not be to your advantage.
@William Hochstedler, @Scot Howat, would you say people looking for a primary residence vs investors are handled the same way?
I 100% agree with not wasting an agent's time, and also would agree they should get paid so if the seller isn't paying that piece of the commission it should come from the buyer. However, it feels like limiting an investors options asking them to sign an exclusivity agreement. If we are working well together, and you are helping me bring on more properties, of course I want to keep you happy and continue to work together. There has to be a level of trust from both sides.
Buyer's agent commissions are typically paid for with a share by the listing agent however there are many times where this can be not the case, or the commission shared is less than what would be considered an average rate. If you're working with a buyer's agent they may require you to sign an agreement that they get paid out a minimum amount, a minimum commission rate, or a combo of both to cover themselves if you choose a property that this happens to be the case. A for sale by owner could be a situation where this comes up, or a listing agent decides they only want to share 1% and take 5% for themselves, because they can. Listing agents can share whatever they want. It's a share not a guarantee to the buyers agents. IF a buyers agent values their time they will in many cases have a buyer sign an agreement (we do) to cover themselves so they're not out there working for nothing. This bothers a lot of buyers saying that they shouldn't have to pay anything however I'm sure that they don't work for free or let anyone else dictate how much they're making at their salaried job without knowing it first. If you value the buyer's agents knowledge and skillset, then value their position by giving them a sense of security knowing that they don't need to fear working for just being kind in helping others find a home.
@Nick Louie if you are the first time home buyer I would negotiate that agreement if you want to work specifically with this agent. Look at the cancelation clause to make sure it is easily canceled and I wouldn't make it 3 months. Also if you change areas you are often better off with someone local to that area who knows the local market. This is particularly true in densely populated areas.
You are hearing an ongoing debate here on the value of agents. The key message is the agent that helps you gets compensated.
@Account Closed typically the open house agent is the selling agent meaning they are reimbursed from the selling side of the commission for all that open house work. If they represent you too that would be dual agency which may not be to your advantage.
Goof information. You are correct and I forgot that the open house is the seller's agent. Thank you very much.
@William Hochstedler, @Scot Howat, would you say people looking for a primary residence vs investors are handled the same way?
Great question. It certainly depends on the type of investor. But I often form a non-exclusive relationship with my investor clients. This doesn't limit them to paying me a commission if they buy any property--just the ones I present and negotiate on their behalf. If they find a deal somewhere else, it's their choice whether or not to involve me.
Others here have mentioned that they sign agreements on a per property basis. I don't like this method because it's an administrative hassle every time a deal comes through. And there's no relationship when we don't have a specific property to talk about.
I use the agreement on both, most of the time.
Your question can't be answered properly (except by luck) unless we know where you're looking to buy. If it's in NYC then it depends where in NYC. In Manhattan and prime Brooklyn and Queens the seller customarily pays both the seller's and buyer's agents and there is customarily no buyer's broker's agreement. As you get further out into the boroughs that starts to change.
Hi Jason,
Thanks for your reply. I'm looking to buy in Brooklyn or Queens. I think what I learned is exclusivity arrangements are controversial to say the least. But I actually think if a buyer gets lucky enough to find an eager agent that is knowledge in how to achieve the buyer's goals, then an exclusivity agreement within a reasonable time frame (e.g., 3 months), is acceptable for me.
When it comes to guaranteeing the buyer agent's commission, I find this arrangement more controversial. The buyer agents say they don't want to work for free. This is totally understandable. But unfortunately, the market dictates what's "customary." If other buyer agents in the same market are working on a contingency basis, then it's difficult for a competing agent to say they don't want to work for free. Otherwise, they'll get pushed out by the market.
In my profession (law), personal injury lawyers tend to work on a pure contingency basis. It is not customary for a personal injury lawyer to request the client recover a certain threshold of fees if the lawyer loses the case. It's the lawyer's job to win the case and collect his fees from the defendant. With that said, of course, there are exceptions in the market where personal injury lawyers propose an alternative payment arrangement: it's a free market.
My question was whether a buyer guaranteeing the buyer agent a commission of 2% is customary in my market. My conclusion is in New York State it is not.
With that said, I do believe--and I have experienced--that when a buyer enters into exclusivity with a buyer's agent, the buyer's agent definitely is more inclined to invest more into the relationship.