Who pays the commission?
Commissions and who represents whom can be confusing to sellers, but it is especially confusing to buyers. I am going to give you a quick, simplified primer on the relationships of a broker and the parties to a transaction.
I am afraid to count how many clients I may have lost or had the potential not to help because of the confusion with representation. Most recently I toured a winery I have available for sale with a potential buyer. I later discovered the same buyer toured another winery that was available for
After counseling the buyer I discovered he did not understand the relationship brokers have in representing a property for sale. But first, a broker can act on his own representing a seller or buyer in a transaction. A broker has agents working for him. An agent cannot act alone, but must work for a broker. So, when an agent is representing a client in a transaction it is on behalf of the broker.
Back to relationships and an example. A broker has a property listed for sale and the commission he and the seller agree to is 6% of the sales price. The broker agrees to split the commission with another broker that brings in a buyer (called the selling broker), which is negotiable, but is usually half. However, if the listing broker happens to find a buyer and sells the property himself, then he receives all the commission. This is called a dual agency and occurs quite often.
What many buyers do not understand is that even though you could go directly to the listing broker to purchase a property you are not required to do so in most cases. If the listing broker agrees to “cooperate” with other brokers, which most do, then a buyer can have her own representation and it does not cost her anything to do so.
A buyer having her own representation can be a good thing. It is a delicate balancing act for a listing broker to best represent the seller and the buyer in a transaction. A broker must have clear boundaries of what can and cannot be disclosed. For example, all material defects in a property a broker learns about must be disclosed to a buyer. The fact that the seller is really anxious to sell and will take less cannot be disclosed. If the broker knew that a buyer was willing to pay more - cannot be disclosed to the seller. For complex transactions this could get complicated.
In commercial real estate, brokers often facilitate leases. The same structure exists in lease representation as well. A broker will list a property or a space in a property for lease. The owner and broker agree on a commission, which is usually a percentage of total rent paid over the term of the lease. Again, a broker can represent the property owner (landlord), tenant or both. If two brokers are involved, the commission is split.
Still confused about broker representation and commission? Give me a call, send me an email or enter a comment below.