How does the buyer Realtor® get paid? Why am I paying their commission?
They are paid at closing out of the proceeds of the sale. When the money changes hands it all happens at closing. You will clearly see this on the settlement statement you will receive for your approval prior to closing.
Your listing agreement contract contractually defines what the buyer’s Realtor® receives. Basically, you don’t have a contract with the buyer’s Realtor® because you don’t know who it is yet. We use the standard TAR forms as required by Texas Association of Realtors® and that is how the contract is written in our cooperating selling environment.
In our industry, the listing agreement contract works like this; 1) you agree to pay your listing broker the percentage commission. 2) By way of your broker’s agreement with the Realtors® association (ours is MetroTex), The listing broker agrees to pay the buyer’s Realtor® the advertised percentage 3) all fees are paid at the same time at closing. The purpose is to set in writing the expectation of what will be paid to the buyer’s Realtor® to entice them to bring a buyer and to avoid negotiating the buyer’s agent commission at the time when a contract for sale is received.
In our listing agreement, the fee paid defined in 5. A. (1) goes to the buyer’s broker (called “another broker”) as described in paragraph 8.A. and 8.B. The fee is what is advertised for the buyer’s Realtor® to earn. Paragraph 5.A. (1) defines your obligation to your listing broker. Paragraph 8.A and 8.B define your brokers obligation to “another cooperating broker”. That is why it shows the way it does. It is a pass through.
3% is considered a standard market rate as you can see advertised for the other active properties in any CMA. If you look to the middle left on an Agent Report the Buyer Agent Commission is shown as BAC: 3% (Buyer’s Agent Commission). That is the advertised amount. When listing your home, it does not matter financially to the listing broker what the percentage is because it is a pass through. Even though it is clearly unethical, some buyer agents pass over properties that offer a lower commission or show them reluctantly. In a typical full service listing, 5.A.(1) might be 6% and 8.A. is 3% leaving the spread of 3% for the Listing agent.
The Real Estate industry is unique and the only industry I am aware of that the Seller sets and pays the representation fee for the Buyer. Our industry compensation system was developed to encourage cooperation between Brokers and promote fairness. With this system cooperating Realtor® can know what earnings to expect without becoming a party to a transaction and negotiating a fee each time they represent a buyer.
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