We support buyers’ agents’ contracts- however, our industry is only slowly adopting this practice, and many buyers still work under a verbal ‘handshake’, or a set of presumed expectations. As they do for sellers, contracts greatly protect the buyer’s best interests, and clarify exactly what a buyer should expect from their representative. They also clarify and control the fees, ensuring the agent’s compensation is set out clearly. This provides transparency between the buyer and the professionals being paid via the sale proceeds that are ultimately paid by them. The buyer can control and/or negotiate how, and how much, their agent is getting paid, instead of letting the seller and selling agent influence or control this. There is a commitment and engagement benefit that is mutual between client and agent as well. We recommend working under contract, but being very careful choosing your agent. Interview a few, and choose based on both professional qualifications and personal ‘fit’. Read on for further explanation…
Buying a home is a major undertaking, and some of your money will go into a realtor’s pocket. In just about any other professional services industry, you would directly pay the professional providing you with services, particularly if any sort of ‘representation’ is involved. You would expect to understand, be comfortable with, and perhaps even negotiate, the fees and how they are paid to the professional providing you with services and/or representation. The compensation model in our industry is NOT like this, at least for buyers. Some context is needed here: as in any professional services market, there's a pretty clear 'typical' range for fees. Currently, the seller's agent and the seller negotiate a fee in a listing contract, with a portion of that fee (approximately 47%) being designated, within the listing contract, to be offered to an agent that represents the buyer. This portion is then posted on the 'realtor only' side of MLS for all agents representing buyers to see when selecting properties for their clients to view. So, when a selling agent offers a reduced buyer's agent commission or a bonus on a buyer's agent commission, there is an opportunity for bias based on compensation that is not in a buyer’s best interest. The commission being paid to the buyer's agent is disclosed to the buyer at some point in the process... but it can easily be glossed over as just another initial in a myriad of contract-related documents. It is not uncommon for a buyer to be unaware of how, or how much, their representation got paid.
Why and how the industry developed this process of agents who are representing buyers having their fees defined or greatly influenced by the seller and agent of the seller is beside the point here. In any mediation or negotiation of any legal or financial importance, why on earth would one want the other side controlling or influencing how their own representation was compensated?
Buyers should directly negotiate and control how, and how much, their agent gets paid, and this should be discussed at the beginning of the relationship. Agents should be completely comfortable demonstrating their value. The home buying process should ideally begin with a fair and contractual expectation of fees for services and services for fees... just as with any other professional service... just as the seller of the eventual home purchased will have done!