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Who Pays The Buyers Agent?

I saw an article recently about the results of a survey done of home sellers that found that nearly half of them didn’t realize they pay the buyers’ agent commission when they sell their home.

Sellers pay the buyers’ agent in almost all home sales in St Louis…

While I don’t know for sure, I would guess that the people surveyed were homeowners that planned to sell their homes, rather than sellers that already had their homes listed for sale.  I say this because the standard listing agreement used by St Louis REALTORS® spells out the total commission being charged the seller, as well as the portion of the commission that will be paid to the buyers’ agent which I would think, would cause the seller to realize they are paying commission to the buyers’ agent.

While the seller, when presented with the listing agreement, could opt to not offer to pay commission to the buyer’s agent, the MLS rules require that all listings in the MLS (which is most of the St Louis home sales) include an “offer of compensation” for the buyers’ agent, which will come from the seller.  Therefore, the sellers have to either offer to pay the buyer’s agent or forego having their listing in the MLS, hence why sellers pay the buyers agent in nearly all instances.  It’s probably worth noting at this juncture that this practice has come under attack in a recent class-action lawsuit filed by Christopher Moehrl against The National Association of REALTORS®, Realogy Holdings Corp, HomeServices of America, Inc, Re/Max Holdings, Inc and Keller Williams Realty, Inc.  The suit, which can be accessed using the link below, seeks to ban this type of commission arrangement.

Christopher Moehrl v The National Association of REALTORS®

So, Buyers Agents are “free” to buyers?

Ok, I’m going to kind of split hairs here.  Based upon the way listings are structured, with the seller paying the commission for both sides of the deal, one could argue that buyers don’t pay for their agent to represent them.  However, that is not entirely accurate.  While it would be accurate for a Buyers’ Agent to say to their client “you won’t have to pay me for my representation of you as my compensation will come from the seller”, to indicate it’s not “costing the buyer anything” is not accurate in my opinion.  I say this because, if the seller wasn’t paying, say 2.7% commission for a buyer’s agent, they could take a price that was 2.7% less and net the same amount of money from the sale.  Hence, the buyer is paying his or her agents commission indirectly.  Granted, in this scenario if the seller accepted 2.7% less in price, but then the buyer had to pay the commission of 2.7% for their buyers’ agent, the buyer would pay 2.7% less making it a wash in the end.

It’s like when the seller pays the buyers closing costs….

When it comes down to it the buyers’ agent commission is a lot like when sellers are asked to pay some of the buyer’s closing costs.  This is often requested by buyers in their offer to reduce the amount of cash they have to put into the purchase of their own.  Typically the way the deal would go is the buyer increases their offer by the amount they are asking the seller to pay of their closing costs.  The seller typically agrees since they are just concerned about the net amount.  As long as they are still getting their price they don’t care and, by adding the requested seller paid closing costs to the offer, it’s a wash. This is really the case with the buyer’s agent commission as well.

One could make a very strong argument that buyers should pay their agents and sellers pay theirs, however, from a practical standpoint this would make it harder for people to buy a home as they would need more cash.  Ultimately, the practice would probably become having the buyer increase their offer by the commission amount then asking the seller to pay the commission which leaves us back where we are basically.

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