Who pays the buyer’s agent?
December 14, 2008 by Deyanira Bautista
Filed under Buying Real Estate, Featured, First Time Buyer, Popular
If you are in the market to buy a home for the first time, and never have used the services of an agent who represents buyers, it’s important for you to know that this service is free.
One of the most common questions from first time buyers is:
How much does a buying agent (or agent representing the buyer) charge in commission?
The answer will be: Zero.
The buyer’s agent (representing the buyer) works in collaboration with the listing agent (who represents the seller). The Listing agent will share the commission with the buyer’s agent if a sale takes place between the two parties.
This is how it works:
Mr seller decides to list their property with agent X (Listing agent). They write up an agreement (brokerage contract) in which, the asking price, description of the immovable, length of the contract (etc, etc, etc) and the service fee (commission) is set.
If a successful sale was made from a buyer brought by a collaborating agent, the commission will be shared.
So, who pays the buyer’s agent? The seller does.
It’s the seller who signs the contract, agreeing to pay the commission to the listing broker/agent, and (when applicable) shares it with the collaborating agent when a sale is made.
The buyer himself, already has many expenses to cover: down-payment, welcome tax, notary fees, etc. One thing that you don’t have to worry about (as a buyer) is to pay for the extra expense of an agent representing you. It’s free
Posted by: Deya Bautista - Affiliated Real Estate Agent working as part of the McGill Immobilier team. Specializing in condos and revenue property in the metropolitan area of Montreal. For buying or selling contact Deya at: 514.917.7889 
It is not really the case since de facto the price you are paying for the house actually includes the commission that goes for the the buyer agent , yes you are not paying it as separate payment but you do pay it, since the seller adds this commissions to the general house price in order to cover for this expense
Exactly my point.
Most people think that getting an agent to represent them on the purchase will cost them extra money. While in fact, all the commission (shared or not) is already included in the price. The buyer doesn’t have to dish-out extra money to cover his own representative.
“Most people think that getting an agent to represent them on the purchase will cost them extra money. While in fact, all the commission (shared or not) is already included in the price.”
That’s true if you are buying especially first time it is recommended to have an agent. Just try to find a good agent since there are a lot non honest agents that are willing to sell you anything just to get the commission. Remeber you can always can change agent that you do not like to another one.
Before doing any purchase try to check honesty of your agent , for example try to find obviously bad house for you and tell him you want to buy it if he will support your choice run away.
Try to avoid deals when agent trays to sell you a house he is representing as seller. Be aware when agents speak about other offers that house is a great deal and that you have to act now and quick.Be aware when your agent shows you crappy houses in the beginning it is the oldest trick in the book.
Ali, it’s a good point to check the agent’s honesty. Asking for references also works. As for working directly with the listing agent, it’s always important to keep in mind that the listing agent has a legal agreement to represent the seller and his best interest. When a buyer comes in without an agent, the listing agent becomes a mediator. Sometimes is can be difficult to manage the two parties.
If that buyer were to buy a house that was listed privately would they not then save on the commission and be able to either afford a better house or lower their mortgage?
Hi Mike,
If it’s a private listing, sure the seller and buyer will save on the commission if priced accordingly.
Be able to afford a better house? Not sure about that. The quality of the homes are independent whether it’s listed with an agent or not. Better for the seller’s pocket, as he’ll be receiving 100% of the sales instead of 95%. Same thing with mortgages, as it’s tied directly with the asking price. At the same time, nothing stops a seller for asking Market Price for his home, and pocket the 5% commission. In this particular case there will be no savings for the buyer.
Karel,
I am assuming you are writing from a place outside Quebec. Because here, let me assure you: There is no such a thing called “Exclusive Buyer’s Agency Agreement.” It does NOT exists.
In Quebec you are free to buy from, and be represented by any agent of your liking with NO STRINGS ATTACHED. Perhaps you should check into your local Real Estate Board Website. But in the mean time, all I can advice you is: Do NOT sign with any buyer agency. There are plenty of good and reliable agents out there willing to help you find a home and not charge you for their time, just ask your friends for references.
I'm a buyer currently in the market for a house, and found this page in response to a search I did on buyer's agency agreements.
I went out with an agent yesterday to look at several houses. During our meeting, she handed me a packet of info and documents, one of which was an "Exclusive Buyer's Agency Agreement."
Upon looking it over after returning home, I can't envision myself signing it. There's no upside to me whatsoever, and tremendous potential downside.
There's nothing in the contract that stipulates the agent will devote X hours of work or provide me with X no. of homes to view, or will negotiate X% off any asking price or reimburse me for the difference. Nothing at all. The only things it does address are things couched in nebulous non-specific like "reasonable consideration."
However, it spells out in fine detail all the many ways I will pay the agent if I buy a house (regardless of how the deal comes to be), buy a house and sell it in a year, buy a house and do X in a year… Furthermore, it includes a binding arbitration clause which asks me to sign away my right to seek redress through the courts.
Essentially, if I sign this thing, and that afternoon, the agent gets a call from someone shopping in a much higher price range than I am, and the agent smells a bigger potential commission… she can flat out ignore me, and I'm locked in. I can't do anything without paying her a commission regardless of how much or little she does for me.
I can't fathom why ANYONE would sign such an agreement. It would be like signing a contract with a lawn service that says you'll pay them $X dollars a month to maintain your lawn, but doesn't spell out how often they'll mow, doesn't guarantee that they'll keep the grass below X" length, doesn't address any standards they will have to uphold. It just says you will pay them, and they will work on your lawn at their discretion.
That's nuts.
Karel,
I am assuming you are writing from a place outside Quebec. Because here, that form is not commonly used.
In Quebec you are free to buy from, and be represented by any agent of your liking with NO STRINGS ATTACHED. In the mean time, all I can advice you is: Do NOT sign with any buyer agency unless you’ve read the fine print and agree to everything in it. If you have questions, ask your agent. There are plenty of good and reliable agents out there willing to help you find a home and not charge you for their time, just ask your friends for references.
Hi Deya. Well, what if you look for properties for a buyer, show him those properties, waste a month with him because he's undecided…and then he turns around and buys with another agent? What protection do you have then as an agent?
The Buyer's agreement is to protect mostly the agent. Maybe there should be a Non-exclusive buyer's agreement, but I haven't seen any in Montreal.
Hi Andrei,
Try to think about it. If I'm a buyer and my agent is good and I'm not paying him or another buyers agent, Why would I make him work and then turn around and buy with another??
The only reason people do this, is when your buyers agent is not honest and wants to make the deal as fast as he can to get his commission and taking advantage of your "First buyer" ignorance.
You have the right to shop with whoever agent you want and if you don't trust him, just change him.
Unfortunately, there is a lot of agents that can be unhonest or simply unexperienced. Buyers agent's role is to advise you not to push you to make the deal.
It's his role to make the best that works for you, not the best that works for him
I just sold my house. When I listed it, my listing agent and I had agreed to 5% commission if it was shared with another agent, and 3% commission if she conducted both ends of the transaction.
The house was on the market for a few short days: There was a bidding war: Buyer A has come in with an agent. Buyer B came without an agent. I assumed of course, during my calculations that the 3% commission applied to Buyer B's offer. During the negotiating process between the two offers, my agent tells me that there is a LAW (in Montreal) stating that if there are multiple offers where one bidder has an agent and the other does not, that she cannot honor the 3% discounted commission. I am told it is a LAW. Can anyone confirm or deny without a doubt this story? Remember, this is Quebec. Is anyone familiar with this supposed LAW?
Yes, indeed.
According to the ACAIQ’s website: “The listing agent cannot reduce his compensation in order to favour his own buyer in a transaction, as this situation could constitute an unfair practice against a collaborator.” That is why when multiple offer happens, the compensations goes back to the 5%. The following link explains it in detail.
Here is the link: http://www.acaiq.com/cgi-bin/WebObjects/AAVisuel.woa/wa/aller?langue=2&article=4866
JustSold. I would not agree with your agent. It seems like you should be paying 3% not 5% if the agent sold it without another agent. You can refuse offers and also renegotiate with your agent.
Let the listing agent know you do not want to sell if you're paying 5% or demand a higher selling price to cover the difference.
As far as agents go. When I buy I generally don't get an agent to represent me. When you go directly to the listing agent you can probably negotiate a better selling price. They often do renegotiate commissions with their client when they don't have to pay another agent . I have had agents drop their commission rate to make the sale. It really depends on how much demand there is and how desperate the agent and buyer are to make the sale. I always low ball offers. It really depends on your mindset. If you have an abundance mindset then you can move on to the next home easily. If that is the home you really want you may have less options.
Buyer 456,
It is not a matter of agreeing with the agent or not. It is the law that dictates it. Would the seller have received only ONE offer by his listing agent, then the drop of the brokerage fee comes into place. But because there were two offers – one with an agent and one without, it will be discriminatory to choose one over the other because of the discount, to avoid those types of scenarios, the law applies to it.
Andrei,
It is just a matter of being able to work with different personality types. Some buyers take longer than others. As agents we need to have the savoir faire to be able to finish a transaction with buyers or seller.It doesnt always happen the way we want, sellers may want to drop off market, and buyers decide to take a break only to go buy later with another agent. It happens. A contract will help you to sign it, but make sure you do TELL your buyers that the document is not compulsory…so you dont look like a liar when they find out.
It is important for agents to explain these things to the seller up front to avoid the confusion in the same manner as they are required to explain all the sellers and brokers rights and obligations.
Buyer 456 why do you lowball, and what do you mean ie:offer a really low under the market value price, just in case the seller or agent is desperate, and if so what do you base it on percentage off, round figures, etc. just curious