Do Buyers Pay Realtor Fees?
How Real Estate Commissions Work
Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group
If you’re looking for a realtor to help you purchase a property, call me today!
The majority of buyers use a real estate agent when purchasing a home. Realtors are there to guide you through the transaction, and can be a wealth of knowledge that is valuable when looking for the right home at the right price.
In this blog, we go through how commission works, arguments for if buyer’s pay realtor fees, how agents are paid, and information on buying a home without a realtor.
Oftentimes, buyers and sellers don’t understand who or how real estate commissions are dealt with, so this blog is here to answer the question ” do buyers pay realtor fees” from a technical and critical standpoint.
Keep reading for information on how real estate commissions works and who pays the realtor fees!
How Real Estate Commission Splits Work
At the time of listing a home, the seller and their designated real estate agent agree to a gross commission; which in turn will be split between the listing agent and a buyer’s agent.
The seller then pays the buyer’s agent commission, also known as the cooperating brokerage commission, to the buyer’s agent. Offering a full cooperating commission is done to encourage Buyer’s Agents to bring their Buyers to see the property, and the agent whose Buyer actually purchases the property receives their split of the commission upon completion.
Just to reiterate – Buyers do not pay their Buyer’s Agent!
The Seller pays a commission to the Sellers Agent who then splits that commission with the Buyers Agent when the property sells!
Isn’t There a Conflict of Interest if the Seller Pays the Buyers Agent?
No. With regards to agency relationships and representation, the Buyers Agent has a fiduciary duty solely to the Buyer and the Seller has a fiduciary duty solely to the Seller as per the Disclosure of Representation in Trading Services (DORTS). This means that each party that is involved in the transaction has their own representation that is solely looking out for their best interests and has NO conflict of interest.
In plain language the Buyers Agent is loyal to the Buyer and only the Buyer. The Sellers Agent is loyal to the Seller and only the seller.
The Sellers Agent offers the Buyers Agent a commission to bring their Buyers, but this does not cause the Buyers Agent to have any agency relationship to the Seller. In fact, in most cases the Buyer’s Agent will never even talk to the Seller and, rather, only deal with communication through the Seller’s Agent.
Do Buyers Pay Realtor Fees?
If we’re discussing things technically… On closing day, the buyer will receive a statement of adjustments that shows all of the debits and credits that result in an amount of funds required to close. The reality is that the commission is never a part of the buyer’s statement of adjustments, and therefore is NOT paid by the buyer. The gross commission split between the seller and buyer’s agents is always on the seller’s statement of adjustments at closing, and deducted from their proceeds of the sale price.
While some other “thrifty” sites may tell you that the buyer pays the commission as a part of the sale price, the fact of the matter is that at the completion day on the buyer’s statement of adjustments there is no mention of a commission. Ultimately, if you’re buying a home then you’re probably off the hook for paying any commission directly to your realtor.
It can be argued that the buyer INDIRECTLY pays the commission as a part of the purchase price, and that the seller factors in the commission to the final selling price that they are willing to accept. In which case you’re probably wondering, can I negotiate the commission?
Technically you can’t, as the commission is pre-determined by the seller, seller’s agent and their brokerage. You do not directly pay the commission so a discount would not affect you as a buyer.
However, some buyers are curious about the following options when it comes to skimping on commission that they believe they “indirectly” pay:
- Buying Through the Listing Agent
- Buying with a Realtor
- Choosing a Realtor that Kickbacks or Cuts Commissions
Buying Through the Listing Agent: Limited Dual Agency
In the past, buyer’s had considered to purchase through the listing agent (aka dual agency) or as an unrepresented buyer on their own.
The Real Estate Council in recent years has introduced the Disclosure of Representation in Trading Services and also an Unrepresented Buyer Form to make sure that Buyer’s knew exactly what it meant to be purchasing either with a listing agent/without a realtor representing their sole interests. They found that many buyer’s did not actually know what it meant to purchase without a realtor, or how the conflict of interests and duties to them would be compromised if so.
For this reason, dual agency is no longer allowed unless all of the following requirements are met at the discretion & approval of the council:
- The property is in a remote location.
- That location is under-served by real estate professionals.
- It would be impracticable (i.e. not possible) for the parties to have different real estate professionals.
Ultimately, the council has made it clear that dual agency is banned – and that there is no way of getting around dual agency in a market like Vancouver where we clearly do not meet any of the 3 exceptions.
Related Article: Dual Agency Banned in Most Cases in BC
In the case of dual agency, the agent representing both parties gets to keep the entire commission because they are doing more work by representing both sides. One of the reasons for banning dual agency is that, on top of the fact that each party involved has different goals that collecting a double commission is a conflict of interest that skews some agent’s judgement in terms of what is truly best for their client.
While buyer’s can still choose to purchase as an unrepresented client, purchasing through the listing agent in a dual agency relationship for the most part, been banned.
Buying a Home Without a Realtor: What to Keep in Mind
It is a new law by the Real Estate Council of BC that every buyer that wants to remain unrepresented be fully aware of exactly what it means to be unrepresented. As a buyer looking to purchase a home without a realtor, you will need to sign a document acknowledging that you understand that any agent you come in to contact with as an unrepresented buyer has no duty to you as a client, therefore they have:
- No Loyalty to You
- No Duty to Avoid Conflict of Interest
- No Requirement to Fully Disclose Information
- No Duty to Protect Your Confidentiality
You should also keep in mind the risks of buying a home without a realtor:
There’s a lot of legal information that you may not know. Buying a home isn’t as easy as you may think. If you’re buying a home without an agent you’ll need to know contract law, how to properly fill out a contract of purchase and sale, subject removal rules, terms and warrants to include, and much more. For what is probably going to be the biggest asset of your life, it’s likely you want to have an experienced realtor working on your side.
You won’t have full access to the comparable sales data. Market value is mostly determined by sales, as listing prices aren’t much help since the seller can list at, above, or below market value. In order to avoid overpaying for the home, you’ll want to have access to a realtor’s database on the MLS to pull comparable properties and sales that are great reference points for the home you’re purchasing. Right now, realtors are the only ones who have easy & complete access to this information online as many of the public sites are only able to display limited information.
Not everyone is a good negotiator. Negotiating effectively is a skill – it takes communication, knowledge, and resources. Even if you are a good negotiator, you probably haven’t negotiated many home sale – and it’s way different than price matching at the grocery store. An experienced realtor, on the other hand, has negotiated hundreds of times before and has a sense of what works and what doesn’t.
You don’t know what you don’t know. A realtor should have the experience of hundreds of homes, and as a result of that will know the red flags and potential problems to be aware of. If you don’t buy a home as often as your realtor (ask your realtor how many deals they do a year, not all of us are the same), then you may not know what to ask or what you are legally entitled to. Knowledge is power, and when you’re buying a home it’s good to know what to look for.
Related Article: If you’re wondering about what a realtor does to help when purchasing a home then check out our blog on “What Does the Buyer’s Agent Do & Why Should I Hire One?”
Discount Brokers: Thoughts for Buyers & Sellers
Choosing a Realtor that Offers a Kickback on Commission
There are a few agencies who offer to pay buyers to lure their business, but that type of business practice is considered an odd concept among many agents.
The reality is that experience translates over in to the ability to negotiate more aggressively, as top agents will have more knowledge of the market and experience in working with different transactions/people/negotiations. Top agents often charge more than newer agents, and it is because of experience. Most experienced agents will have a better track record on saving you money on the purchase price.
At the end of the day, one of the main reasons you are hiring a realtor is to have them negotiate effectively on your behalf, which will save you money. An agent’s ability to hold firm on their commission and fight for their livelihood is a pretty good representation of how they will act when negotiating on your behalf. If agents can’t even negotiate effectively for themselves, how can you expect them to do that for you?
How the Buyer’s Agent Commission Can Impact a Listing’s Sale
While this blog is mostly going to be information for Buyers, I also wanted to include this last section for all the Seller’s that are reading the blog as a tid-bit of information for how the buyer’s agent commission impacts the marketing and sale of a home.
When marketing properties in Vancouver and the Lower Mainland, we target both Buyers and Buyers Agents.
Buyers Agents get paid when the Buyers they represent purchase and complete on a property, and if that doesn’t happen then all the work they’ve done is just for free. If a Buyer likes 2 properties and one is offering a full commission and the other is offering a discounted commission, in play it’s Buyer’s Agents tend to be motivated by money.
The reality is that the average agent does about 5 deals a year, and while a great buyer’s agent that does more than the “average” won’t be swayed, in actuality real estate is a 90-10 rule. 90% of the agents do 10% of the business, and 10% do 90% of the business… so make sure you use an agent in the top 10%. (like us!)
The greater the proper exposure of a property is to both Buyer and Buyer’s agents, the better off a Seller in selling a property quickly and for the most amount of money the market will yield. To spur interest among Buyers Agents and get a property sold sooner, Sellers sometimes offer a commission bonus or some other extra.
When I work with sellers to sell properties, I offer Buyers Agents 3.255% on the first $100,000 and 1.1625% on the balance of the sale price. This amount comes out of the gross commission (often 7/3) on the balance. We find that the Buyers Agent commission above is a sufficient and expected amount in the Vancouver real estate market.
While some Sellers choose to work with discount brokerages in the hopes of saving money and offer a smaller commission to Buyers Agents, this often has an impact on how quickly a property will sell and how much it will ultimately sell for.
As the topic of the true impact of Discount Brokerages on Sellers and Buyers is quite sensitive, I’ll let readers come to their own conclusions on which strategy for commissions is best based on their views.
If you’re looking to purchase a property and want a realtor that has strong negotiation skills to get you the best property for you at the best price possible, then give us a call. Start a conversation by calling 604-765-0376. Prefer text? 604-319-0200 or email [email protected]. We’re here to help.
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