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How does an Exclusive Buyer's Agent
get paid?
Since everything in life boils down to
dollars and cents, or so it seems, let me address one of the
first questions that comes to mind when a buyer is considering
using an Exclusive Buyer's Agent --- who pays the fee?
Note: From a legal standpoint, the
source of an agent's fee does not determine whom the agent
represents. For example, bank attorneys, who are considered
agents, represent the bank not the borrower, but the borrower
pays their fees. It is important for the buyer to understand
even though technically you are hiring a representative, the
compensation nearly always comes from the transaction itself.
The buyer pays no more for the client level services of an
Exclusive Buyer's Agent than he/she would if using a traditional
seller's agent in the purchase of Martha's Vineyard real estate.
THE MECHANICS OF EXCLUSIVE BUYER'S AGENT COMPENSATION.
The first thing to understand is the mechanics of exclusive
buyer's agent compensation. The most common method of compensation
is through a "co-fee" from the listing broker. Listing brokers
routinely offer co-fees to all agents regardless of whether
those agents are cooperating seller's subagents or cooperating
buyer's agents. When a Martha's Vineyard property is officially
listed for sale with a listing broker, it is pre-arranged
between the broker and the seller to allow for a portion of
that commission to be shared and an offer to compensate is
published in our Multiple Lising Service (MLS).
Note: There are those rare occasions
where a listing broker will not offer a cooperative fee to
an exclusive buyer's agent. Those brokers usually attempt
to charge their sellers double on cooperative sales with an
exclusive buyer's agent. This creates an inflated fee structure
and often results in a seller losing a qualified buyer and
therefore the sale. Fortunately, this practice is disappearing
from the marketplace because it is illegal without the seller's
informed consent and certainly not in the seller's best interest.
A seller can protect himself from this practice by making
sure there is a clause in the listing agreement requiring
the listing broker to offer equal fee cooperation to exclusive
buyer's agents as well as facilitators and transaction agents.
Most listing brokers know that professional exclusive buyer's
agents have serious, pre-approved buyers under contract who
have made a commitment to purchase Martha's Vineyard real
estate. Reputable listing brokers know it is in their sellers'
best interest to cooperate with exclusive buyer's agents.
HOW DOES AN EXCLUSIVE BUYER'S AGENT GET PAID?
Now we can get back to the original question, how does an exclusive buyer's agent get paid?
In my opinion, this is the classic chicken-and-egg debate. The fee is a disbursement from the settlement funds with the expense being assigned to the seller. BUT, who brings the bag of money to the closing table? The Buyer. If the buyer is the primary source of funds at the closing table, then there is no need for the buyer to incur any additional costs. Furthermore, it stands to reason that one of the agents being paid should represent the buyer exclusively.
THE REPRESENTATION AGREEMENT.
Most Exclusive Buyer's Agents define their fee and method
of payment by a written representation agreement with their
buyer clients. This is similar to the representation agreement
(listing agreement) a listing agent has with his/her seller.
Most buyer's agents charge a retainer fee, which may or may
not be refunded to the buyer should a purchase be made during
the contract period. The retainer serves to cement the relationship
and commit both the buyer and the agent to the task at hand
--- finding the right property at the right price with the
right terms. The contract can be for one property, one week
or one year. SplitRock Real Estate rarely charges a cash retainer
if our clients are commited to purchasing real estate on Martha's
Vineyard.
A buyer should make sure that his/her representation agreement
clearly defines the amount of the exclusive buyer's agent's
fee and method of payment. In most cases, it is in the buyer's
best interest to require that the exclusive buyer's agent's
fee be paid by disbursement from the settlement funds. The
buyer representation agreement should also state that if the
exclusive buyer's agent accepts a fee from a listing broker
or seller, such fee would be a credit against the buyer's
fee obligation.
Sometimes the exclusive buyer's agent will set forth a commission agreement with the seller that stipulates that the seller agree to pay the exclusive buyer's agent fee on behalf of the buyer. Payment of this fee is made solely as an adjustment in the transaction and does not create or imply that an agency relationship exists between the buyer's agent and any person other than the buyer.
Here are some other methods by which an exclusive buyer's agent can receive compensation:
- A percentage of the purchase price (most common).
- A percentage of the listing price.
- A percentage of the purchase price along with a percentage of the difference
between the purchase price and the listing price.
- An hourly fee or hourly fee plus promotional expenses.
- An hourly fee plus a non-refundable retainer. (Massachusetts law allows
agents to collect either refundable or non-refundable retainers).
- Either of the above hourly fee scenarios with a minimum commission.
- In the case of an unlisted property, such as a "for sale by owner" (FSBO), or new
construction. Compensation then becomes part of the offer to purchase,
usually to be paid from the seller's proceeds.
ONE MORE QUESTION?
Possibly, in the back of your mind there is still one nagging question: if it all comes down to money, why does an exclusive buyer's agent, who works on commission, advocate on behalf of the buyer to negotiate a lower price and / or best terms on a property? If, for example, an exclusive buyer's agent saves their buyer client $10,000.00 on the purchase of their new home, they would earn approximately a $150.00 to $300.00 less in commission. The answer: the word of mouth advertising and goodwill that comes from a job well done is worth much more --- it is priceless.
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