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How Do Buyer's Agents Get Paid?

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Buyer's agents don't work for free.

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Question: How Do Buyer's Agents Get Paid?
A reader asks: "My wife and I have been looking at homes in Folsom, California, for almost a month with our real estate agent. He was referred to us by a coworker. Last week he told us we had to sign a buyer broker agreement but my family told me not to sign it. Now this agent won't show us any more properties. We don't understand. Doesn't an agent's company pay them? How do buyer's agents get paid?"
Answer: Many buyers are confused about how buyer's agents get paid. Like you, some buyers believe that the buyer's company pays them and, while this is true to an extent, that money doesn't come from the agent's company.

Agents Work For Brokers

Real estate agents are prohibited from being paid a commission directly by the consumer. All real estate commissions are first paid to the agent's broker, and then the agent's broker pays the buyer's agent. That's because a real estate license must be placed under a real estate broker's license. Real estate agents are independent contractors, for the most part, who operate under a broker's license.

A few real estate agents are paid a salary by their broker, and work as employees of that broker, but that type of business arrangement is uncommon.

Buyer's Agents Usually Do Not Work for Free

When you ask a buyer's agent to show you property, you are implying that you will eventually write an offer through that buyer's agent. If you have no intention of ever writing an offer with that buyer's agent, you are taking advantage of that agent.

Procuring cause is a complex process that determines which buyer's agent is entitled to a real estate commission when a buyer works with more than one agent. Generally, the agent who writes the offer gets paid.

Therefore, if you ask an agent to spend weekends driving you around, sharing knowledge and helping you to select a home, it is only fair to be loyal to that agent.

Why Buyer's Agents Ask for a Buyer Broker Contract

A buyer broker contract is an agreement between the buyer and the buyer's agent. There are 3 basic types of buyer broker agreements. One is exclusive. An exclusive buyer broker agreement binds that buyer's agent to you and you to that buyer's agent. You cannot buy a property without owing a commission to that agent.

Agents who want to ensure that they have a legal and binding agreement that allows them to represent a buyer exclusively, and be paid for their efforts, will ask a buyer to sign an exclusive buyer broker agreement.

Buyers who hesitate to sign an exclusive buyer broker agreement with me, for example, are saying they don't care if I get paid, so I don't work with them. I work with buyers who agree that I will get paid. I'm no different than any other agent in that regard. Which is why I don't blame your buyer's agent for refusing to show you any more properties without a guarantee of compensation.

Do Buyers or Sellers Pay the Buyer's Agent?

This has caused a great deal of confusion in the real estate industry and with consumers. Generally, a listing agreement between the seller and the seller's listing agent specifies how much the listing brokerage will pay the selling brokerage for bringing a buyer.

Yes, you read that correctly. The seller, in effect, pays your buyer's agent to negotiate on behalf of the buyer, not the seller. C. A.R. buyer broker representation agreements state that if anybody other than the buyer pays the commission, then the buyer is relieved of the obligation to pay it.

There are instances where a buyer may pay a brokerage directly such as when there is no commission offered because the property is a for sale by owner. But typically the commission is paid by the seller to the listing brokerage. The listing brokerage divides the commission with the broker of the agent who brings an offer.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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