Who pays for real estate buyer’s agents?
Some people looking to buy a home ask me what my realtor’s rate is as a buyer’s agent. It became a frequently asked question that I felt like I needed to write an article about it. The simple answer is that it’s free to the buyers to use an agent to represent them exclusively in a transaction. Some people don’t want to use a real estate buyer’s agent to buy their home thinking it will save them money by cutting out the middle man. If you directly go to the listing agent, the listing agent will not only represent both sides (loyalty issues?) but keep all the commission including the portion that is to be split with the buyer’s agent. In the most common scenario, sellers pay for buyer’s agent commission through offering the buyer’s agent commission split to whoever that brings a buyer to close the deal. Sellers normally pay 5-6% in total commission fees to listing agents and out of that total commission, 2.5% is normally offered to a buyer’s agent who bring a ready, willing and able buyer and consummate the transaction. There are thousands of real estate agents out there working with buyers and one will eventually bring the right buyer to the deal where the buyer’s agent gets the commission split. That’s why listing agents offer the split through the MLS. More than 90% of buyers use a buyer’s agent nowadays. Buyers don’t pay for real estate agents. Buyers pay for buyer’s share of closing costs and a down payment for the home. Sellers also pay for their share of closing costs in addition to the agent commission. Read this article for details about who pays for what closing costs in Oregon.
Most listing agreements do not allow for sellers and listing agents without a further consideration to modify their agreement to reduce the price of the house proportionate to the offered buyer’s agent commission fee. If the listing agent brings a buyer and ends up representing the buyer as well to close the deal, then the agent keeps all the commission. Most listing agreements provide an “exclusive right to sell” where the listing broker agrees to cooperate with other brokers to share commission and also the listing agent has the exclusive right to sell and earn the commission even if the seller refers a potential buyer to the agent. Most agreements also allow dual agency (i.e. disclosed limited agency) where the seller can represent both sides and potentially earn both sides of the commission. This type of agreement is the most common because listing agents put in lots of time and marketing costs upfront to put a home on the market and representing a buyer also takes a lot of work. Therefore, under this typical agreement, a listing agent is not likely to simply relinquish his or her contractual right to the full commission after putting in the extra work to represent the buyer as well by simply allowing an unrepresented buyer to claim the buyer’s agent commission. Additionally, Oregon prohibits buyer’s rebate. An agent cannot offer a part of the commission to a buyer to make the deal more attractive because it is prohibited in Oregon. Unrepresented buyers usually don’t know how transactions work and need some representation.
Some people argue whether buyers actually end up paying for the agent commission because the buyer brings in the money and without real estate brokers, homes would have been more affordable as sellers would price them lower. Without real estate brokers ever existing in the history, things would have been different, but this is the system where comparable home prices have been built. Sellers selling their home without agents (for sale by owner) have all the incentives to list it for the current market value, not the value minus the would-be commission. It’s just within everyone’s nature to maximize gain. Besides, why do all the work doing marketing, showing homes, holding open houses and carrying out the transaction with occasional attorney fees unless there is a benefit. Most sellers don’t have the time, resources or knowledge to sell their own home so they choose to hire an agent to do the work and keep a little less proceed at the end. A good listing agent will maximize the gain for sellers with expert marketing skills and investing in their own resources.
If you are looking to buy a home, hire a competent and loyal real estate agent to work on your side of the deal. Your agent will represent you exclusively and even if the deal falls through, the agent can work to help you find other homes and represent you on the next deal until you finally buy your home. I have worked with lots of buyers in the Portland metro area providing my undivided loyalty with quality services with my past attorney experience. See more details on my buyer’s agent services.