Burt M. Polson | Napa Valley and Vallejo's Commercial Real Estate Broker

Guiding you through the real estate part of your life™

Commercial Sales, Leasing, and Consulting

Private Equity Real Estate Funds

Napa Valley and Vallejo, California

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

sale with another broker...ouch!

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.

An ACRES Real Estate Services, Inc. Company