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There's already a perfectly simple solution to defining and communicating with buyers about your commission, writes broker-owner Teresa Boardman.
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Buyer representation contracts are nothing new, and they should not be feared. I can not imagine why anyone would want to work with a buyer who isn’t under contract.
I have been using buyer representation contracts for more than 20 years. They are similar to listing contracts in that they outline the services the agent will provide and the buyer’s obligations. They also specify how the agent will be paid.
The contract I use has a box I can check that states that any commission paid by the seller will be used to reduce the buyer’s obligation. The buyer’s obligation can be X percent of the price of the house they are buying or a flat fee.
I get the buyer representation contract through our state association, and it spells out how the agent will be paid. Before an offer is made on behalf of the buyer, they are given a disclosure that also states how much the agent will be paid and who will be paying the agent. There should not be any surprises unless the buyer doesn’t read the contract, and the agent doesn’t explain it.
Simplify the commission conversation
Buyer representation contracts are an opportunity to talk with the buyer and find out what the buyer is looking for in an agent. The agent can vet the buyer, and the buyer can vet the agent. It is kind of like a first date. Both parties can decide whether to continue the relationship or not.
The buyer’s contract is a mutual commitment. The agent is committing to help the buyer find and buy a house, and the buyer is committing to being exclusive if it is an exclusive contract.
Buyers, like sellers may want to negotiate for a lower commission. Commissions are always negotiable. Agents have a choice. They can negotiate or not negotiate. Homebuyers have many qualified and experienced agents to choose from.
Protect yourself from unethical clients
Sometimes buyers violate the contract and go out and buy new construction from the agent representing the seller. Occasionally they buy a house through one agent while they are under contract with another. A buyer’s agent can file an ethics complaint or take legal action.
When there is no contract, it’s even easier for buyers to take advantage of using an agent’s services for free. Buyers who do not buy real estate while under contract also get to use the buyer’s agent’s services for free.
Some of our clients are unethical, insane or criminals. It happens, which is why it’s always a good idea to interview buyer clients and get to know them before committing.
Some buyers are very reluctant to sign the contract, and I completely understand. A huge part of the homebuying process is about signing contracts and other important documents. If the buyer cannot sign a buyer representation contract, they may also have trouble signing a purchase agreement.
Protect yourself when working with FSBOs or off-market listings
Sometimes buyers want to purchase houses that are not in the MLS. I can not imagine how an agent would get paid without a contract.
I have always told the buyers I have represented that I am happy to help them buy a for-sale-by-owner property, or if there is a particular house they are interested in that isn’t for sale, I don’t have a problem with contacting the owners to see if they are interested in selling.
Often the seller will pay a buyer’s agent a commission even if the house isn’t on the MLS. Sometimes they even seem relieved to have someone do the paperwork.
Generally, working with buyers is a lot more work than working with sellers. Listing agents can and do pay out more than 50 percent of their commission to a buyer’s agent.
Real estate contracts and laws are regulated at the state level. Brokers, lawyers and insurance companies also have a say in how contracts are structured. In most cases, real estate agents will not be responsible for creating their own contracts.
On our seller contracts, we state that we are sharing the commission with a buyer’s agent. We spell out exactly how much we will be paying out to agents who represent the buyer.
I have never used any kind of high-pressure sales, and do not use scripts. I do not have to negotiate, but I can and sometimes do because I enjoy it. There are always agents who will work for less and many to choose from.
When I discuss commissions with prospective clients I talk about what I bring to the table. I have never discussed my expenses, profits or commission splits. It’s all about them and how I can help them achieve their goal of buying or selling real estate. I don’t share how much money I make or what my profit margins are with anyone.
As a business owner, I have the right to set my prices. I don’t have a problem charging 10 percent or $1,000, depending upon the situation. I have never even commented on what any agent under my license charges.
Buyer’s contracts are nothing to fear. They are a wonderful way to set the ground rules and expectations with buyer clients. They may be a great topic for your next sales meeting.
Teresa Boardman is a Realtor and broker-owner of Boardman Realty in St. Paul, Minnesota. She is also the founder of StPaulRealEstateBlog.com.
October 31, 2023
Randy Byrd, Team Leader & Coach
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