We will share with you important information that will help you to understand how things work in relation to representation and commissions.
Representation & Commissions
Three separate entities involved are Realtors®, real estate agencies and the Multiple Listing Service (MLS).
Agents may cross over to other agencies in transacting business, without any extra expense to the Buyer.
For our discussion here, we focus on two kinds of real estate agents: The Listing Agent (Sellers Agent) and the Buyers Agent (on the MLS, referred to as the Selling Agent).
The Sellers Agent or Listing Agent is the Realtor that lists the persons home- the Realtor® that has the sign in the yard.
The Buyers Agent is the agent that "brings" or shows the buyer that listing. Also, it doesn't matter which company is involved. Example: An ERA agent can show a RE/MAX listing to one of his/her buyers or a Century 21 agent can show an ERA listing and so forth.
The seller of a property desires his Listing Agent to not only use his/her own efforts, but the efforts of hundreds of other agents from all the real estate companies- to expose the property to as many agents, agencies and buyers as possible.
This exposure or meeting ground takes place on the Multiple Listing Service (MLS).
What the MLS does for the Listing Agent is to expose the listing to all the buyers agents from all the real estate companies. The Listing Agent offers an incentive to the Buyers Agent by splitting his/her commission as a shown written arrangement on the MLS (see MLS sheet below, center arrow). The standard going split is half and half or usually 3% (Buyers Agent) and 3% (Listing Agent). The Buyers Agent now has incentive to "bring" the buyer. (On a lot of occasions the buyer does not have a signed agency with that agent and this is called implied agency, which is a term in the industry that means "not real". This dilemma helps to explain some of the tension inside the industry to get signed agency in place. The local Utah Association of Realtors has changed the agency agreement to allow for both an occasion of agency to be signed for "just this property" OR for the entire County. For "just this property" could acknowledge cases where agency is "implied" until it is actually signed on the property of interest for that buyer.)
The asking price that the Seller sets includes all commissions, to be taken out of the asking price at closing from the Sellers pocket, and at no time from the Buyers pocket or side of the transaction.
Bottom-Line Statement: That means it does not matter which agent from which company you use to show the house or to represent you on the contract as far as money is concerned (#9 goes into more detail).
To give the Buyers Agent an incentive to "bring" his/her buyer to the listing [to show it], the Listing Agent (through the MLS) has posted a written arrangement on the MLS listing sheet for a commission split to take place. Thus...
The standard arrangement on homes is: The Listing Realtor® lists for 6% and agrees to split 3% of it with the Buyers agent if that agent "brings" the buyer, while retaining 3% for his/her work on the Listing portion (See Chart Below) or the listing agent keeps all for him/herself. Either way, buyer and seller pay the same.
MLS Data Profile (see below)
Center arrow on chart: Represents the Buying Office Commission (this arrangement is there on "day-one" of the listing).
Left arrow on chart: This is the agent and agency listing the home when it was first put on the MLS, the standard commission rate of which is 6%.
Right arrow on chart: Since this listing has been sold, the listing has been updated to reflect who the Buyers Agent and company was on this transaction. You'll notice here that Brian Hickman with Realty Executives was the Selling or Buyers Agent and that the Listing Agent or Sellers agent was Brian Habel with RE/MAX First.
This arrangement below represents a split commission between two agents, but shows only the Selling Agents (Buyers Agents) commission. Because the standard arrangement between the Listing Agent and the Seller is 6%, we can assume that the Listing Agent will be getting 3% on this transaction as well.
By the way, all companies can participate and "bring" the Buyer to obtain the center arrows 3% commission.
To use a different scenario from the above chart: If the Buyer had called the Listing Agent and used him/her instead of the their own Buyers Agent, then the Listing Agent would have received the credit for "bringing" the Buyer and therefore, the commission that was held out for that agent. So, instead of the Listing Agent making the standard 3% (on the Listing side), he/she now receives an additional 3% for a total of 6% on the deal. Don't believe it? It happens all the time. This is what society has done to guarantee you the right to your own agent, and YOU pay for it when you sell your home, not when you buy. So, why in the green acres of Canada would you not use it?! It is a little socialistic, but it is just the way it is.
Bottom-Line Statement: The Buyer will normally pay the same, whether or not he/she had called (and used) the realtor off the sign in the yard or if they had used his/her own Realtor®. There is no difference in bottom-line cost to the Buyer.
Which agent should the buyer use? - List of Disadvantages to using the Listing Agent.
More on Realtor Commissions.
Man, Land and Country - Brian's philosophy of doing business and regarding the property exchange process.