Weather you are buying or selling your home, both pay for your local real estate agent commissions. The reason it is considered to be having both parties pay is simple. The buyer is the one that brings the money to the table, with out the buyer there would be no money to take commission from. The seller is the one that (usually) sets the commission pay out structure in the listing agreement. The commissions technically come out of seller proceeds. At the closing table you will get a closing statement that has all the numbers and who pays what. It shows on the form that the seller pays the listing brokerage the commission out of the buyers money.
The Agent and the Real Estate Brokerage
The buyer and seller (in most cases) have their own broker. Each real estate broker is usually paid from the from listing brokerage company. There are situations in some real estate transactions that the structure is a little different but as a general rule this is how most real estate brokerages do things. This is one of the reasons why buyers should ALWAYS use a a real estate agent when buying a home. Some buyers think if they go through the listing agent they will get the home for cheaper. This is really almost never the case. The listing broker has their fee set with the seller before you even look at the house. Let’s say the total commission is 6%. 2.8% is guying to the buyer agent and 3.2% to the listing broker. Most listing contracts state that the entire commission (6%) is to be paid to the listing brokerage firm. The listing broker then agrees to give the 2.8% to the buyer agent as an agreement though the MLS. This means if you buy the home using the listing agent as your buyer agent the seller still pays the entire 6% to the listing agent. Another fact that most people do not know in many states like Colorado you are entering an agreement with the brokerage and not the individual agent. The agent is a subcontractor but the main firm owns the contracts the agent writes and you sign.
The Down Falls of Using the Listing Agent as the Buyer Agent
In many states including Colorado the real estate commission has done away with dual agency. That is one of the best things to happen to the real estate industry in a very long time. Reason is it is almost impossible for a real estate professional to be completely neutral during a transaction. This puts the brokers real estate license in jeopardy. The best option they came up with was a transaction broker. This is basically someone that just holds the hand of the prospective buyer and seller through the process. They are not allowed to offer advice other than contract related issues. They have a fiduciary responsibility to both parties and neither party at the same time. It is very confusing for the public to understand how transaction brokerages work. The way a buyer should look at it is, if you go to court chances are it isn’t in your best interest to the same lawyer as the guy that is suing you. It is just bad business.
Can’t Talk Who Pays Commissions Without Mentioning For Sale By Owner
For sale by owner is maybe one of the biggest mistakes a seller can make. A licensed real estate agent has had so much real estate education and continuing ed that their knowledge of the market and a specific property listing pays for itself. There are so many things that can go wrong during a transaction and your states require your broker knows how to handle them. A home sold with a member of the National Association of Realtors has proven that they sell for more and sell faster than FSBO homes. So not even discussion the legal ramifications of not know what you are doing, the huge mistake of using a Zillow Zestimate to price your home, Set back, Septic, well, easement, all the issues that may come up, let’s just mention security. How are you vetting the buyers that come through your home? I once visited a FSBO that had his home listed for $4.5 million. I was amazed that he had no vetting protocol for potential buyers. He had artwork, nice furniture all high end things as you would imagine and he is just letting people roam around his home. One more tidbit about listing your own home, as an agent I usually spend between 2 and 3 thousand dollars marketing a listing. I spend hours writing ads and getting marketing material in front of prospects. This is how much money and time I spend on it and I have a system, imagine if you are doing it for the first time. All the trial and error.
Realtor Danny Skelly