The relationship between the seller and the buyer’s agent’s commission is not what a lot of people think it will be. There’s a common misimpression that the buyer’s agent will want the seller to pay their commission; however, this could not be further from the truth. The buyer’s agent will be required to have already signed an agreement with the buyer specifying their exact commission percentage or amount. In fact, the buyer’s agent may not be permitted to take any more commission than what the buyer has agreed to pay them, no matter who pays this commission. As a result, the buyer’s agent will have little reason to care about whether the seller pays commission; it is the buyer who will care about who pays their agent’s commission. This is why it can be important to clarify to your seller that offering to pay the buyer’s agent’s commission does not directly affect the buyer’s agent in any way. Offering to pay the buyer’s agent’s commission helps the buyer, and therefore may attract more buyers, which, again, helps your seller have their pick of better buyers and agents, and better prices and terms.
This article is an excerpt from OnlineEd’s course “Commission Confusion? What to Tell Sellers About Commission Lawsuits”
Explaining to your seller why they may want to pay the buyer’s agent’s commission is not about convincing them to pay it or not. This is simply about getting your seller to make an informed choice. Your seller should know that you will be getting a lot of buyers asking about whether your seller is offering to pay their agent’s commission, and you need to have clear instructions from your seller about what to tell these buyers. The ultimate goal is to get the best price and terms for your seller; in some cases, this may involve offering to pay the buyer’s commission that they owe. In other cases, this may involve refusing to do so. In any case, your seller should know that buyers will be asking you about this.
Remember that the underlying part of the commission conversation with your seller is that you are their fiduciary and have a legal duty to be as clear with them as possible. You might say “As your agent, I am required to discuss commission openly and honestly, and educate you on this topic because I am your fiduciary.” It may help to clarify that, as their fiduciary, it is your role to give your expert advice, but also your role to follow whatever legal orders they give you. Discussing why to offer buyer’s agent commission, as well as why not to offer this commission, is part of your duty to communicate and educate.
One thing that has been happening frequently is that sellers say something like “I’ve read about these commission lawsuits, and I don’t want to offer any buyer’s agent commission because I don’t want to spend money I don’t have to.” This is a completely reasonable perspective, and it’s important to acknowledge that you understand that they’re looking to save money and get the most for their house that they can. However, it’s important as their fiduciary to clarify the full implications of their desire not to pay the other agent’s commission, and to remind them that the ultimate goal is to get the best price and terms for the house. If the home isn’t selling, and you’re telling a lot of buyers that there’s no commission being offered, then you may need to re-examine the offer of no compensation. Buyers may be in a difficult position for a while regarding commission, because commission may not be able to be rolled into the mortgage loan and will often have to be paid up front in cash. Thus, not offering to pay buyer’s agent commission may be off-putting to buyers.
To read more of this course, click here.
