Monday, October 21, 2013

Who Pays Your Real Estate Broker?

If you sign a listing agreement with a broker, you'll know who pays--you. It says so in the listing contract. Use of the Multiple Listing Service (MLS) requires listing agents to split the commission with the buyer's agent.

If you use a real estate agent to help you buy a home, who pays your broker? It's not always clear to first-time buyers, but make no mistake--you do.

As a subdivision developer and a licensed broker, I've heard numerous real estate brokers tell their buyer-clients that the client didn't pay. Compensation came from the listing agent when the transaction closed, meaning, in effect, the seller paid the brokers. Could that be true? Are broker services free to buyer-clients?

Let's break it down.

The home sells when buyer and seller agree to a price and the buyer obtains a mortgage. If the appraisal pans out, the lender agrees and issues the loan. At closing, the seller gets the money for the house and disburses the proceeds where they're supposed to go--the seller's trust deed holder, the county tax authority and so on--including the buyer's and seller's real estate broker commissions.

If you're the buyer, who pays your real estate broker?

Is it the seller, who receives and disburses  the proceeds?

Is it the listing broker, whose sales commission arrangement with the seller and agreement with the MLS compels him or her to split the gross commission with the buyer's broker when the transaction closes?

Is it the buyer, who came up with the down payment and borrowed the money to fund the transaction whose proceeds pay everyone?

Is it the lender who funds the loan, part of whose proceeds pay brokers?

The answer is that it's you, the buyer. Your money pays your broker. Just because the funds filter through the seller and everyone else doesn't mean the money didn't come from you.

Thus, if a broker tells you his or her services don't cost you, the buyer, anything, smile politely, leave and find someone else.