There have been some changes in the way the public sees buyer agents compensated, and it has become confusing for many, so I wanted to try to offer some clarification.
In the past, while the amount was always negotiable, the seller would often agree in the signed listing agreement, to pay a certain percentage of the purchase price to the listing brokerage, who then in turn divided that amount and paid part to the listing agent for marketing and listing the home. The remainder was paid to the buyer agent in order to compensate them for bringing a qualified buyer, and for all the work they would then complete in seeing the deal through to the settlement table. This compensation was displayed in the Multiple Listing System.
What has changed is that the percentage that the seller is willing to pay towards the buyer agents’ compensation is no longer listed in the MLS and is negotiated at the time of the contract. When an offer is written, it now includes an addendum stipulating what the buyer is requesting be paid towards their agent’s compensation.
Most sellers still agree to allow their listing agent to share with potential buyers that they are willing to pay some percentage of this compensation and here’s why.
Buyer agents are required to enter into a written agreement, prior to showing homes, in which the compensation that they will earn is laid out. This means that the buyer is responsible for paying it themselves if it is not offered by the seller. Many buyers have to scrape together their down payment and closing costs and therefore have nothing additional to pay towards this compensation. In many cases they instruct their agents not to show them any homes that are not offering to cover their agent’s compensation, or at least part thereof. And if the seller is not willing to pay compensation, they may need to ask for seller help towards their closing costs which assists them with the funds to pay their agent themselves. Ultimately this ends up costing the seller the same amount.
The compensation amount has always been negotiable, it just depends on what incentives the seller wishes to present to prospective buyers to encourage them to choose their home.
