Friday, June 6, 2008

Agent Compensation

The question of who compensates for the buyers agent is well understood, except under very rare and unusual circumstances that can easily be avoided. It is always advantageous for a buyer to enlist the services of an agent rather than buying on your own, because an agent is experienced in the process and knows how to protect you and give you advice about unforeseen circumstances.

There are generally no out of pocket expenses to a buyer for using the services of a real estate agent. Agents are compensated from a portion of the proceeds of a sale that is set aside as commission when a seller enters into an agreement to sell property.
  1. Selller enters into a Listing Agreement with a broker (Listing Broker) at which time a sales commission is agreed upon.
  2. Listing broker lists the property in Multiple Listing Service, and agrees to share the commission with any broker that brings in a buyer (Selling Broker).
  3. At the time of closing the sale, commission is split between the listing broker and the selling broker.
So, the commission for a buyers agent generally is always paid by the seller, though indirectly by the listing broker cooperating with the buyers agent. In case there is no selling broker, such as when buying a new home without buyer representation, the listing broker is entitled to the full compensation. In certain situations, a seller may offer additional incentives to brokers to ensure that their properties are actively shown to all buyers. However, there should be no conflict of interest and the broker/agent always has to work with the best interest of the client. Note that I mentioned broker, in the above explanation, because all clients belong to the broker, not the agent. The agent makes even less, after having to split the commission yet again with his or her brokerage company.

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