Do buyers ever pay real estate commissions?
The short answer is: it depends. It can be a bit complicated, so bear with me.
Although it’s true that in much of North America the real estate commission paid by the seller often covers the seller’s and buyer’s brokerage commissions, that’s not always the case.
When selling their home, a seller does have the right to decide how much, if anything, they want to offer to cover the buyer’s brokerage commission as a means of making their property more attractive to buyers. I’ll explain that in a moment.
If a buyer is represented by a real estate brokerage, they would enter what is commonly referred to as a representation agreement. When you enter a buyer representation agreement, you are committing to pay your brokerage some amount of commission. Typically, the agreement will also include a provision explaining that if the seller offers to pay the buyer’s brokerage commission, it will have an impact on the amount you owe your brokerage.
This means that your buyer agreement should clearly outline how much you owe your brokerage upon purchasing a property, and how your financial obligations to your brokerage may change, depending on the amount being offered by the seller. The agreement should also specify the start and end dates of the contract, services and terms, and a description of the property you are looking for, including price range, property type and locations.
The agreement also confirms that you are a client of the brokerage, and that it is looking out for your best interests during the purchase. It’s important to read and understand the agreement so you know your rights and obligations. You can expect your agent to explain the agreement to you and to clarify anything you may not completely understand.
Having said that, before you start your home hunt, have a frank discussion with your agent about the impact of buying a property where the seller may be offering less than what you have committed to paying your brokerage. If, for example, you agreed to pay what works out to be $15,000 to your brokerage, but the seller is offering your brokerage $5,000, you would be contractually obligated to pay the difference of $10,000 when the deal closes. Ask yourself if you have the amount available, because it will not be included in the purchase price.
If you know you can’t come up with the cash at closing, you should discuss with your agent whether you want to start by focusing on properties where the seller is offering at least what you have committed to paying your brokerage.
Now, for those who have access to funds to cover the balance of the commission they might owe, there might be an additional inventory of lower-commission properties out there that meet your needs.
This column is for general information purposes only and is not meant as legal or professional advice on real estate transactions.
Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.