Connecticut Real Estate - Buyer's Representative Buyer's Brokers
Who "Pays" the Broker's Fee?
The fee is included in the purchase price, as is customary throughout the country. It is technically possible for a buyer to pay a fee over and above the transaction but, so far, no one we have dealt with has requested that option.
People ask us...is it more? It is typically what people expect from other realtors. A simple example is this: Our fee is often 3%. The total fee for our company and the listing company in this example, is typically double this, or 6%. It does NOT become 9%.
The short answer is that we are paid in the manner most people are accustomed to as traditional agents are paid, at closing. With homes listed by real estate companies the fee is most often included in the sale by authority of the seller, in the case of unlisted properties it is included in the purchase price by authority of either the buyer or the seller, depending.
To answer the question "who pays" really accurately however takes more effort and more thought than that. The problem with this question is that it is the wrong question. It should probably be who "authorizes" the fee.
In typical transactions most of us are familiar with, the seller authorizes the fee to be deducted from the negotiated purchase price, and buyer agent and seller agent typically split it. In this situation, it is typically stated that it was the seller who paid the fee.
The irony of this has always been that the buyer has always brought ALL the money to the closing...so whose money is it? The seller pays, but he pays with the buyer's money.
It is a matter of perspective and economic point of view. It is exactly as accurate to say that the buyer has paid the fee as it is to say the seller has.
The concrete answer is that the broker's fee is the difference between the gross price paid by the buyer and the net retained by the seller. It really is that simple...the difference between the gross and the net. Whether the seller or the buyer has authorized it, does not have direct impact on the buyer or seller. The seller knows what his net is: the buyer knows what his gross purchase price is.
The better question is: "Who authorizes the fee?"
We are most accustomed to it being authorized by the seller, as is traditional with listings, but either buyer or seller can authorize it.
Remember that purchase prices are suggested by the seller, but finally set by purchase offers made by buyers in the market.
As long as both parties know what the gross and the net is, it makes no practical economic difference which side has authorized it.
If you purchase a house for 100K, and if for example the total fee is 6%, and the split between brokers is 50/50, then the listing broker will keep 3K, the buyer's agent will receive 3K, and the seller will retain 94K.
That works fine for any listed home with any real estate company.
If however, you were interested in an unlisted property, no listing contract authorizing a fee would exist. For example the total fee was 2.5%, the buyer would authorize the fee, and it would be similarly deducted from the offer price. The buyer would pay 100K, the seller would retain $97,500, and the agent would retain $2,500. No listing agreement would have ever existed, so the fee would be solely authorized.."paid"... by the buyer. The buyer's agreement sets out the fee to the buyer's agent, and in the purchase contract the buyer's deduction from the price for the fee, to be paid on behalf of the buyer, is outlined so that the seller clearly knows what his net is, just as in any typical transaction.
If a seller were to prefer to negotiate based upon the net price, the final price for the contract can be grossed up to include the fee subsequent to price agreement. In this last example, the buyers price agreement with the seller would be $97, 500, and then grossed up to 100K for the final contract signing. This allows the broker's fee to be included in the total purchase price (as part of financing), which is customary with real estate transactions.
Either way it is done, as with most transactions, the seller is making his decision based upon what he will net, and the buyer is making his decision based upon what we will pay.
What is not widely known to most people is that agents can be paid by authorization of either party. The important advantage of this knowledge to the buyer is that a buyer's agent can be empowered to seek out and present him with unlisted properties as well as listed ones, knowing that his fee is in place. This increases the buyer's potential opportunity in the market significantly.
A buyer's agent should search for property for the buyer based upon the sole criteria of what is or is not good for the buyer. The search is a disservice to the buyer if the buyer agent presents properties to the buyer based upon the seller fee. It is not a criteria the buyer wants to guide the search.
In summary, the fee is the difference between the gross paid and the net retained. It is normally authorized by the seller, but can be authorized by either party. So who pays it? It is authorized by the seller in most transactions, and by the buyer in relatively few. Whoever authorizes it is said to have "paid" it.
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