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Are you seeking a new home and deliberating over which real estate agent to use?  Beware of the five most common lies real estate agents, representing buyers, tell about their compensation:

1- My services are free to you; the seller pays me.

This one is the most common and it is entirely untrue.  The current compensation model provides for the buyers’ representative to be paid a co-brokerage fee from the listing agent.  The listing agent is paid by the seller who receives the proceeds from the sale by…

…YOU.  The buyer.  The trick is that the 2.5% to 3.0% co-brokerage fee your agent earns, is most likely “financed” by you over the life of the loan.  That makes the buyers’ brokerage fee “feel” like 6-7%.

2- My compensation does not conflict with my ability to represent your interests aggressively.

This one is simple math.  If the buyers’ agent is paid a percentage of the purchase price, her financial interests are aligned with a higher sales price.  Most agents I know operate ethically but make no mistake about it, until real estate commissions are divorced, the compensation is never mathematically aligned with aggressive buyer representation.

3- We’re not allowed to “rebate” the commission to you.

That’s only a lie in 35 states.  In most states, you can negotiate a buyer brokerage fee and have the “excess” compensation from the co-brokerage fee either

  • (a): credited towards your closing costs (if allowable) or
  • (b) sent to you post-closing by check.

4- Only discount real estate agents, like Redfin, can negotiate the buyer’s brokerage fee.

See #3; all commissions are negotiable.

5- The Buyers Brokerage Agreement is not something we really enforce.

It’s a contract, folks and it’s often slipped in the pile of documents you sign when you make an offer.  Sometimes, it isn’t even explained until your offer is refused by the seller. Then, the agent reminds you that you’re “joined at the hip” for twelve months.  Read these documents before you sign them.  If you only want this agent’s representation for the duration of the negotiation for a particular property, make her specify that in the agency agreement.

Most real estate agents are good and honest professionals.  Even the honest ones though, won’t necessarily offer you an opportunity to discuss their compensation unless you bring it up.  Feel free to print this article and review each “lie” with them before you look for a home.  It could save you thousands of dollars.

PS:  Food for thought-

Why would a buyer pay an agent twice as much money for an “easier” transaction?

Ask your agent about a recent difficult transaction she negotiated.  She’ll most likely brag about a first-time home buyer who bought a bank-owned property.  She’ll dazzle you with war stories and perhaps even tear up a bit about the pride she felt when the new homeowners moved into their home. Ask her how much the price was, then…

…explain that you’re buying a home from a seller with equity (no bank involved), are impeccably qualified, and intend to close quickly.  Compliment her on her dedication to the first-time home buyer and have her acknowledge that your case should be much easier for her to handle…

…then offer to pay her the same amount as the first-time home buyer did.

About the Author

I'm Brian Brady, a 19 year veteran of the industry. I started my career with Merrill Lynch, as a financial adviser, right after I graduated Villanova University. I worked in the downtown Philadelphia office. I moved out west in 1992 and have worked in residential real estate lending since 1994. I have originated loans, managed branches, was the National Sales Manager for a regional mortgage bank, and successfully turned around an ailing mortgage banking firm to profitability. I'm back to my first love; working with clients in a financial advisory capacity. I consider myself a Mortgage Planner, which is a new title for mortgage originators who have expertise in financial planning. This means that you'll get a whole lot more than rate and points from me. I'll show you how to properly structure your debt so as to increase your liquidity, safety and return on your investments. I'll even show you a tax trick or two to run by your CPA. Call me at my office at (858)- 777-9751

  • http://www.yourstopforrealestate.com Tim Bosworth

    Boy, you got that right, particularly #1. Even many realtors believe this one. The money can come from one of two places, the buyer side or the seller side. The seller has the house. Unless it’s a short sale, the buyer has the money. So, guess who pays? Ta-da. We had a discussion about this in a sales meeting. I said exactly this, and boy did I get dumped on.

  • Lucy

    WOW!!! If this article is not a pat in the face and a stab in the back then I do not know what is. Is funny how a Mortgage Broker has the audacity to point out the Realtor’s fees but yet makes no mention of how most Lender’s haev their own “hidden fees” even though they have to provide a Good Faith Estimate. I have attended closings where mortgage fees have appeared that were never disclosed to the buyer’s. Amazing how the Realtor Commission are the brunt of everyone including Lender’s.

  • http://www.Mortgageratesreport.com Brian Brady

    Howdy Lucy,

    How right you are! Aren’t fees that appear, which weren’t pre-negotiated, horrible? Many mortgage companies engage in this nefarious behavior (especially banks; they absolutely refuse to disclose their profits altogether).

    I have written DOZENS of articles about why mortgage brokerage fees should be pre-negotiated. I am an equal opportunity, consumer-friendly critic when it comes to non-disclosure.

    “If this article is not a pat in the face and a stab in the back then I do not know what is.”

    I’m ore direct than that, Lucy. This is a stab in the heart to those who would choose to intentionally deceive customers. I think transparency in compensation is a best practice. Don’t you?

  • Jeff

    Lie #1? Look at the HUD. Who pays the commission? Are you suggesting that the buyer is paying all of the taxes and other fees for the seller as well because it comes out of their net on the HUD? If the seller buys a car out of his proceeds the day after the closing, who paid for the car? He didn’t have the money for the car until the buyer bought the house! That’s criminal!
    Lie #2? On a fairly typical 3% commission for a drastic increase in the commission, you would need a buyer to look at an increase in home price of $50K ($1500 more in commission, before the split is figured in). Very seldom is a buyer looking at home prices that far apart unless you are looking at pretty expensive properties. When you jump that much in price, usually it’s because they haven’t found anything that they like in their price range, not because the broker pushed them into a higher price range. They don’t have the power to do that – unlike the mortgage broker.
    Lie #3? I have been asked one time since 2001 about rebating part of the commission. I explained that often I am willing to cover some costs out of the commission such as repairs or even a home warranty, etc. That wasn’t good enough for them and I dropped them. They probably saw some article similar to this – and in the end we were both better off. When a potential customer goes into looking at properties and one of the first things they inquire about is the buyer broker commission, their main priority is not finding the perfect home. It’s a vanity exercise. Similar to this article.
    Lie #4? Yes, technically everything is negotiable. That being said, a broker can say, “I don’t negotiate my brokerage fee” You are suggesting that some brokers suggest it is illegal to negotiate the fee? You are painting us all with a very broad brush here.
    Lie #5? The Buyers Brokerage Agreement. I personally don’t use them but the agents that I know that do, do so because they have been burned by a buyer. Procuring cause issues have always been a problem – and whether there is a buyers brokerage agreement or not, to cause any kind of resolution with or without one, is going to be a lawsuit. And in any calm conversation, usually the buyer and brokerage can come to some cure without going to court. I see very little attention paid to this topic in the news, blogs or anywhere else. I’m guessing you wanted a Top 5 and couldn’t come up with anything better than this topic for a 5th.
    And as for your postscript. This is actually comical because from your perspective, even as “America’s #1 Mortgage Broker”(whatever that means) you think that our work is basically done when you get the contract faxed or emailed to you and that we are just waiting for our check at the closing. You don’t do the babysitting that we have to do when they can’t get a return phone call from their lender. You don’t get the phone call from the mortgage broker 24 hours prior to the scheduled closing requiring some new document. You don’t get the phone call saying it’s still with the underwriter. The mortgage broker doesn’t have to explain anything to the client other than, “that’s the way it is”. From where I sit, the most difficult transactions I have had to deal with have been due to the lenders. Not the sellers, not the buyers, not the other agent. The lenders.
    With the current state of the real estate market, I think I will pass on taking too much advice from a mortgage broker. Especially about how real estate brokers are paid.
    In the midst of your “list” it was nice to see the one sentence, “Most real estate agents are good and honest professionals.” immediately followed by “However”. I would like to state that most mortgage brokers that I have worked with are good and honest professionals. But I can’t. However…………

  • http://www.gigharborundressed.com Matt Thomson

    If your intent was to ruffle feathers, well done. If your intent was to educate consumers, you failed pretty miserably. I’ve yet to meet an agent who isn’t willing to discuss their commission. I’ve never met an agent who “hides” the buyers agreement in the stack of paperwork. I’ve never met a buyers’ agent who will join a buyer at the hip for 12 months.
    A real estate agent’s value is determined by their clients. If clients didn’t feel we were worth our costs, they’d stop using us and we’d all go out of business. Value versus cost is a concept you should explore.
    What’s an average agent’s commission? In my market, about $5500. How many agents do you think are willing to risk their reputation over $5500? Once word gets out that you’re only concerned about a pay check, or you forced a buyer into a higher price than they wanted, or you are deceptive with your paperwork, your future business is gone.
    Nobody can make a living from a commission check. We make our livings from our reputations, and positive reputations can’t be built with the practices you’re describing.
    Trying to puff your own self up by tapping into the stereotypes and fears of buyers is a pretty poor way to do business.

  • Sharon

    If buyer’s brokers/agents weren’t out there helping buyers (and especially first time buyers find homes the mortgage broker wouldn’t be writing loans. Are you suggesting that buyers should just go out on their own, find a home, and buy it? Well most homes are listed with realtors, and in this case, they will still pay commission, the same amount, to the seller’s agent and will have no representation. As mentioned above if I negotiate $5000 to $10,000 off the list price for the buyer, the difference in my commission is not very much. And we buyer’s agents earn every penny – from attending inspections, ensuring that contracts are sent and signed in a timely manner, ensuring appraisals are done and received by the bank, negotiating for repairs, radon mitigation, etc, etc. and then we are the ones holding the buyer’s hand throughout the process and yes, ensuring that the lender is moving things along. When I commit to helping a buyer I truly help and most are thankful to have had the guidance and assistance in getting into a new home.

  • http://www.Mortgageratesreport.com Brian Brady

    @Tim Bosworth: I imagine your phone will be ringing off the hook.

  • http://www.MortgageRatesReport.com Brian Brady

    “And we buyer’s agents earn every penny”

    No doubt, Sharon. How much do you charge for your buyer brokerage service?

  • http://www.MortgageRatesReport.com Brian Brady

    “I’ve yet to meet an agent who isn’t willing to discuss their commission.”

    Let’s see if Sharon answers the question I asked, Matt.

  • Bryan

    “Well most homes are listed with realtors, and in this case, they will still pay commission, the same amount, to the seller’s agent and will have no representation.”

    Great point Sharon! If a buyer comes without an agent and purchases a house, the Listing Agent gets both sides of the transaction, the buyer doesn’t “save” the 2.4-3% because they came unrepresented. The P.S. portion of the article was the only issue worth reading, adjusting commissions down as the price of the home goes up has always been something I’ve done, and it has served me well thus far. Deal with people fairly and your reputation will take care of itself.

  • http://www.MortgageRatesReport.com Brian Brady

    “Well most homes are listed with realtors, and in this case, they will still pay commission, the same amount, to the seller’s agent and will have no representation.”

    Click the link in point #2; divorcing compensation solves the conflict of interest the co-brokerage fee creates.

  • http://www.MortgageRatesReport.com Brian Brady

    Matt said: “I’ve yet to meet an agent who isn’t willing to discuss their commission.”

    I replied: “Let’s see if Sharon answers the question I asked, Matt.”

    which was: “No doubt, Sharon. How much do you charge for your buyer brokerage service?”

    It’s been ten days and still no answer. Do you think you just found the first agent who won’t discuss commission rates, Matt?

  • Jeff

    “And we buyer’s agents earn every penny”

    No doubt, Sharon. How much do you charge for your buyer brokerage service?

    Matt said: “I’ve yet to meet an agent who isn’t willing to discuss their commission.”

    I replied: “Let’s see if Sharon answers the question I asked, Matt.”

    It’s been ten days and still no answer. Do you think you just found the first agent who won’t discuss commission rates, Matt?

    I am not suggesting that Sharon needs someone to speak up for her or anything, maybe she is driving yet another buyer to yet another property with almost impossible expectations and demands – while probably earning way too much money for it. According to you, even though you don’t know what she charges yet.

    And since you obviously want to make a point, allow me to give you a target to kill us with, as if calling the way most of us do business “lies” wasn’t enough. I guess I don’t understand the question. If the property is listed, her “fee” is whatever the co-broke is on the listing. If a property is not listed, you ask the seller for a non-rep agreement that spells out your fee that they, the seller, are responsible to pay for at the closing if you bring a buyer that purchases the property.

    Your primary argument is just silly to me. I do understand where you are coming from, but it just isn’t correct. A seller chooses to sell a property for a price. The way he comes up with that price is to determine how much the market can bring. So he takes the price, figures out his expenses, including a commission, and from that, gets his net proceeds. If that number isn’t enough, he has to figure out a different way to go. But if he lists it, he knows his fees and that commission is part of what he has to account for. And he agrees to it up front.

    For those who don’t want representation, there are companies out there they can use. For both buyers and sellers. For those who determine the value of their home, do the math of 5,6 or 7% of it, and determine that it is out of line, they have the freedom to do whatever it is that they want to do.

    So, fire away. And please answer these 3 questions for us, the few of us that are still following this thread.

    1. At which point after the transaction, does the money that a buyer spends, stop being his? I commented in my original post that if a seller purchases a car from the proceeds from the sale of a home, who actually bought the car? He would have never been able to buy the car had the buyer not bought the house. It shouldn’t matter what he spends the money on, including commissions. So how much time passes before the money actually belongs to the seller?

    2. I’m curious if you have a flat rate in mind for any price home or what? Up to $500K should be a flat rate of $1000 or 2%, $500K to a million is another $250? Or should we be charging by the hour? Mileage? Expenses? What exactly should we be charging?

    3. How exactly does a mortgage broker become “America’s #1 Mortgage Broker”? Is that a marketing title or a #1 searched title or what? Google calls you America’s #1 Mortgage Broker. What exactly does that mean?

  • http://www.MortgageRatesReport.com Brian Brady

    Howdy Jeff,

    1- The money stops being the buyers when the transaction is closed. In CA that’s when the deed records and funds are disbursed.

    2- (a) I have no business setting the price of a real estate brokerage’s fee; all commissions are negotiable. I’ve used incentive-based compensation for my real estate transactions (one of which resulted in c a 4% fee to the buyer’s agent). The point of the article is that fees are negotiable but not presented that way by agents.

    (b) Would you stipulate that the buyer’s representation isn’t “free”?

    (c) You mentioned that Sharon’s fee for service was “whatever the co-brokerage fee was”. Doesn’t that seem broken to you? I agree that some agents are spinning their wheels (literally)with some buyers. Shouldn’t some buyers’ fees be higher than the offered co-brokerage fee?

    3- Off topic; we’re talking about buyer’s brokerage fees. Email me privately if you’re interested.

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