HOW REAL ESTATE AGENTS ARE PAID
The amount and rate of real estate agents’ compensation is fully negotiable and not set by law. Both buyers and sellers need to be proactive and understand the costs associated with the services provided by a real estate agent in order to factor these costs into their decision-making process. In the past, at the time the listing agreement was signed, the seller and their agent typically set the amount of compensation for both, the seller’s agent and the buyer’s agent without involving the buyer or the buyer’s agent. The seller and their agent determined what percentage of the sales price would be set aside to compensate the agents for the buyer and seller, and how much of the total compensation would be allocated to the buyer’s agent. Both agents were paid from the seller’s proceeds at close of escrow. Today, the seller’s agent’s compensation is still agreed upon in the listing agreement, and the seller’s agent is paid from the seller’s proceeds at close of escrow. However, the compensation for the buyer’s agent is no longer determined by the seller and the seller’s agent. What has changed is that the buyer’s agent’s compensation is now negotiated directly between the buyer and the buyer’s agent and is stated in the buyer representation agreement. Although, ultimately, the buyer is responsible for compensating their agent, the method by which a buyer’s agent is paid can vary. A buyer may choose either to pay their agent directly, or alternatively, a buyer may request, as part of their offer to purchase, that the seller pay some or all of the compensation owed to the buyer’s agent. In the latter case, the buyer nevertheless remains responsible for any financial obligation to the buyer’s agent not covered by the seller.
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