This request intrigued me. I wanted to know how she came up with such an idea. She is a paralegal. I wondered if perhaps one of her clients asked her to kick back some of her salary to help pay her employer's bill. It's one thing if a lawyer wants to take a case pro bono. It's another if the client expects the paralegal or lawyer to subsidize the client's obligations.
Listing Agents Who Credit Commissions to Buyers
This is a controversial subject. Some listing agents will kickback all or part of a commission to a buyer or seller. Not very many agents are willing to part with hard-earned money, but it doesn't hurt to ask.
Say an agent has signed a listing agreement with a seller. The seller agrees to pay the agent 7% commission. The agent then agrees, say, to split that commission with a buyer's agent. So the listing broker gets 3.5% and the buyer's broker gets 3.5%. Each agent represents a single party.
However, when a listing agent works in dual agency by representing both the seller and the buyer, typically that agent receives all of the commission or, in this case, a full 7%. Some buyers believe that since the listing agent is making more money, that agent should give it to them. They reason that if they hired a buyer's agent, the agent would get half as much.
Now, some agents will negotiate real estate commissions with the seller in advance. A seller might agree to a variable commission rate, meaning if the agent ends up bringing the buyer, the commission would be reduced to, say, 5%. This way the agent earns 5% for representing the seller and the buyer, and the seller benefits by paying a lower commission.
Some of the problems associated with variable commission agreements are:
- Cooperating brokers are at a disadvantage when multiple offers are presented. Even if the purchase offers are identical to each other, the seller will take the offer presented by the listing agent because the seller will net more.
- Listing agents are accepting additional liability for buyer representation and doing twice the work without twice the compensation. So, the listing agent has an added incentive to sell the buyer a different property that pays a full buyer's agent commission.
- If a buyer wants a piece of the action, there's not enough leftover to go around.
Buying Agents Who Credit Commissions to Buyers
Sometimes buyers don't have enough money to buy a home, so they ask their agent to help them out by rebating part of the commission. While agents cannot pay an unlicensed person a commission, they can decide to rebate a portion of their commission to the buyer as a closing cost credit or to pay part of the down payment, providing the buyer's lender will allow it.
A handful of real estate companies advertise that they will always rebate commissions to a buyer because:
- Rebaters believe real estate agents make too much money.
- The discounters hope rebates will attract a volume of buyers to their company to compensate for their loss of income.
- Often, they do not provide full service to a buyer.
Many of these types of discount brokers expect the buyer to do much of the legwork and to interact solely through email and by FAX. They do not show property nor drive the buyer around. They generally do not attend home inspections nor explain paperwork. Typically, the first time they meet with a buyer is at closing, if they attend the home closing at all.
Do Commission Credits Benefit Buyers?
On the surface, you might think, "Well, that's a no-brainer!" If you are well versed in real estate and understand how to negotiate, you might not need an agent to represent you. However, understand that even under an arrangement where the seller is paying a 7% commission, the seller still gets 93% of the sales price.
The seller is making more money than the real estate agent. The seller has more money to distribute. Why try to pinch a few thousand from the agent when the seller has the deep pockets? It might make more sense to hire your own buyer's agent to fully represent you and aggressively negotiate on your behalf. An experienced agent often will get you:
- A lower sales price. You could save tens of thousands.
- A seller concession for closing costs. Most lenders will allow a minimum of a 3% seller credit toward your closing costs, which is more than many buyer's agents earn.
- Home improvements pursuant to your request for repairs. A new roof can easily cost $15,000.
Fortunately, my friend decided to hire her own agent and ask for seller concessions. Also, please realize that I'd list URLs of companies that credit commissions to buyers, but I'm afraid that by the time you read this, they might have gone out of business.
