Expert: Todd C. Menard - 5/1/2009

Question
QUESTION: I am looking to purchase my first home and have a few questions concerning my relationship with my agent.

Who is usually responsible to compensate the buyer's broker? The seller? The buyer? And is that an additional cost outside the purchase price of the property?

If there is no "Buyer Exclusive Agreement" signed between a Buyer and his/her broker, can the buyer discharge the broker anytime even during escrow?

If there is no "Buyer Exclusive Agreement" signed, how much should the buyer's broker be compensated since nothing was written/signed in a contract?


ANSWER: Hello Davy - Brokerage services are to be paid by the person using the service. In this case, buyer broker services should be paid by the buyer. When two brokerages that both participate in the same MLS there is a compensation agreement created usually by membership that states that the "co-operating" brokers compensation shall be offset by whatever the listing broker has offered in the MLS. If there is an off-set, meaning that the amount offered in the MLS is not enough to 'off-set' the amount the buyer broker and buyer have agreed to pay for the buyer broker services then the buyer is responsible to pay the difference at the closing, which would show up on the HUD-1 Settlement Sheet. If there is no exclusive representation agreement (in AZ we call it an Excl Buyer Broker Agreement) then the only offer of compensation for the Buyer broker services is the amount offered by the listing broker in the MLS. If there is no exclusive agreement between the buyer and the buyer brokerage the buyer is not obligated to be represented by the buyer agent and may elect to terminate the buyer brokers services at any time. Although, you should note, that there may be a 'procurring cause' issue. This means "The proximate cause; the cause originating a series of events which, without break in their continuity, result in the accomplishment of the prime object. The inducing cause; the direct or proximate cause. Substantially synonymous with "efficient cause." The buyer agent may be entitled to compensation from the listing agent should the buyers agent be found to have been the procurring cause in an arbitration hearing of the Professional Standards Committee of the local REALTOR association. If there is a representation concern of your with your current buyer broker I recommend you contact the real estate firm that employs your agent and speak with the 'designated broker' who is in charge of supervising all licensee under their employ. Explain your concerns and issues with satisfaction and allow the designated broker to resolve or attempt to resolve the matter. If this does not work then as previously stated you can fire the firm. Also, remember that the firm represents you not just the individual agent. Therefore, you may be able to have another agent with more experience represent you throught hte remainder of the transaction. Of course, you might as well receive full service through to the closing since you are receiving the service paid for by the seller. I hope this helps. Please remember I am not an attorney and this is not to be considered legal advice. Rather is should be considered rela estate information any professional REALTOR should be able to provide. - Todd Menard

---------- FOLLOW-UP ----------

QUESTION: Thanks Todd.

So ultimately the seller pays for both broker's compensations? The buyer has no authority to set the rate for their own broker/agent?

So in this case, no one is 'obligated' to compensate the buyer's agent since the agreement was not signed and the listing broker is not obliged as well.

Answer
Answering this from another perspective... you could say that the listing agent charges a fee for complete services (from listing, marketing, tracking, reporting, staging, negotiating, overseeing the inspection period, reviewing the title report, reviewing the pre-audit HUD-1 Settlement Statement, overseeing compliance by the buyer or buyer broker with the terms and conditions of the contract, and finally for the fee payable to the co-operating agent... if any. Some listing agents list a property as an exclusive listing, in other words offering no co-operating broker fee. This means there is no off-set for the buyer's representation. The buyer in this case is responsible for the entire representation fee... as if the buyer selected a For-sale-by-owner (FSBO). You could say in the situation where the buyer's agent is offered a compensation through the MLS the seller pays the listing agent... and the listing agent pays the buyers agent. In either situation the seller is not paying the buyers agent, but the listing broker only. What I understand from your last question is that there is no exclusive buyer broker agreement between you and your buyer's agent, and the property was not an FSBO and was not listed in the MLS. IF this is the case then there was no offer of compensation to be paid the buyers agent form any contracted or condition of membership source. If the property is listed in the mls... AND both the listing agent and the buyers agent are members of the same MLS, then there is a compensation arrangement between he listing broker and the buyers broker by method of the listing and buyers brokers subscription in the same MLS. It depends on these circumstances. There could be other circumstances, but based on your questions these answers are typical to Arizona Regional MLS, and the National Association of REALTORS Multiple Listing criteria. - Does this provide a better understanding? If not, please reply - Todd