by Denise M. Thomas, REALTOR®
You may be hearing a lot about agent compensation these days, but how do you separate fact from fiction? Let’s break down what you need to know about how – and how much – your agent makes for representing you.
The Brokerage Agreement
Luckily, there is a document that lists what compensation your agent will receive. It is called the brokerage agreement. Maryland law has required the use of written brokerage agreements for both buyers and sellers since 2016.
Within the brokerage agreement, there will be a clear statement of what is owed to the brokerage your agent works for. This can be listed as a percentage of the home’s purchase price, a dollar amount, or some combination of these. There are a lot of real estate business models out there, from commissions, hourly fees, retainers, flat fee for service, and many others. Be sure to review this section of your agreement carefully and talk to your agent about what they will charge and what services they will conduct on your behalf. Remember that commissions are always negotiable.
For Sellers
When selling your home with an agent, your brokerage form is known as an Exclusive Right to Sell Residential Brokerage Agreement. There is a specific section within this agreement titled “Broker Compensation,” which includes the amount that you will be charged and the services provided, which you will have discussed and agreed on with your agent before they begin doing any work for you to sell your home. Often, this amount will be paid to the brokerage at settlement out of your sale proceeds; however, if your home has not appreciated in value or if you have not paid a significant amount toward your mortgage loan, it is possible that you will need to bring funds to the closing table to compensate your agent. Depending upon the terms of your agreement, some brokerages may require you to reimburse certain costs in the event that your home does not sell.
The second part of this agreement that sellers need to consider is whether to offer what is known as “cooperating compensation,” which is paid to the agent who represents the home buyer. Home buyers cannot separately finance compensation for their agents, which means some portion of buyers will not be able to purchase properties where cooperation is not offered. For this reason, sellers may choose to offer cooperating compensation to attract the largest pool of possible buyers for their property.
For Buyers
When buying a home, how your agent is compensated is not quite as straightforward as when selling one. You will still have a written brokerage agreement, called the Exclusive Buyer Brokerage agreement. This will clearly explain the amount of compensation that your agent will receive for the services they provide to you, which you will have discussed and agreed on with your agent before they begin any work for you in finding a home.
Where that compensation comes from depends upon the details of the home sale. The seller of the property you are purchasing may proactively offer cooperative compensation to your brokerage that covers all or some of your agent’s fee. But even if they don’t, you can instruct your REALTOR® to include agent compensation as part of your contract offer to purchase that home.
However, let’s say that the seller does not offer compensation to your brokerage from either of those methods. Then you have a choice to make. If you proceed with the purchase of that home, you may need to find a way to pay for the fee agreed to in your brokerage agreement out of pocket. Or, you may instruct your agent that you don’t want to move forward with an offer on that home. Your broker can walk you through your options and determine the best course of action based upon your personal circumstances.
