DFWCityhomes / What is the Buyers Broker Commission? How is that rate set?

What is the Buyers Broker Commission? How is that rate set?

I often get asked about commissions and specifically the buyers agent commission. In this screwy industry, the seller often pays a buyer agent to represent the opposing party in the transaction. The buyer’s broker commission, or most often called buyers agent commission, is the amount of money a seller agrees to pay an agent representing a buyer as an inducement for other agents to show and sell your property. Typically it is defined as a percentage of the selling price and it is advertised in the agents information section of the listing in MLS. It is paid at closing and any restrictions or additional incentives are listed in the private remarks section of the listing agreement.

Understand, it is not a regulated amount and in most MLS’s it can be as little as $1.00 and expressed in dollar amounts or a percentage of the sales price. Keep in mind it’s an inducement for the agent to find a buyer and show the property. The amount is negotiated when the seller executes a listing agreement and it is not displayed publicly, solely advertised within the agent portion of the MLS. Agents after seeing the amount offered, can determine if they are willing to show the property to buyers. For that reason, a seller should make a competitive offer of agent compensation because 9 out 10 buyers are relying on their agent to show them properties and make offers.

According to NAR code of ethics, an agent should put the needs of their client in front of their own and not discriminate based on the agent fee offered. But lets be real! Should they not ask the buyer to pay the difference, they might refuse to show it, encourage the buyer to look at something else, show it last, say all bad things about it, or lie about the availability.  In some transactions with a low agent fee, I have seen agents become unresponsive and not fight to keep the deal progressing forward. 

In my analysis of hundreds of listings in Northeast Texas the fee is almost uniformly 3%.  Sometimes you see bank owned foreclosure listings set at 2.5% and in a buyers market incentives offered in addition to 3%. In the prior sellers market, agents fees were more often lower than 3% and that has reversed course. 

What is the origin of the 3% rate? Why not something else? Nobody seems to know other than it was set when the system of sharing was instituted in the 1970’s.