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Exclusive Representation FOR BUYERS ONLY with over three decades of Martha's Vineyard Real Estate knowledge and experience.

Who pays an Exclusive Buyer's Agent?

Since everything in life boils down to dollars and cents -- or so it seems, let me address one of the first questions that comes to mind when a buyer is considering using an Exclusive Buyer's Agent -- “If I hire you will it cost me anything extra? Who pays the fee?” First of all, let’s call this a ‘success fee’, because neither the seller agent nor the buyer agent gets paid unless there is a successful purchase and sale.

Note: From a legal standpoint, the source of an agent's fee does not determine whom the agent represents. For example, bank attorneys, who are considered agents, represent the bank not the borrower, but the borrower pays their fees.

It is important for a buyer to understand even though technically you are hiring a fiduciary representative; the compensation nearly always comes from the transaction itself. Both the seller agent and the buyer agent are conditions of the sale and are paid through a disbursement from the proceeds of the sale. The buyer pays no more for the client level services of an Exclusive Buyer's Agent than he/she would if using a traditional seller's agent in the purchase of Martha's Vineyard real estate.

The The most common method of compensation is through a "co-fee" from the listing broker. Listing brokers routinely offer co-fees to agents regardless of whether those agents are cooperating seller's subagents or cooperating buyer's agents. They can decide whether or not to offer compensation to sub-agents or facilitators as per the wishes of their seller client.

During the pre-listing discussion between a seller and a listing broker three important decisions are made: The price that the property will be listed at; the amount of the success fee the listing broker will earn, and whether the seller will allow the listing broker to invite the participation of cooperating brokers in the market with a co-fee. It is up to the listing broker how much of a co-fee they will offer; it is not always 50%. Neither the seller nor the cooperating broker has any say in that. If a buyer agent does not like the amount of fee offered they can either reject the offer of compensation and write in their own fee when submitting an Offer To Purchase, according to what is stated in their buyer agency contract, or ask their client to make up the short fall. It is customary for the co-fee to be published on the MLS/LINK listing data sheet.

Most listing brokers know that professional exclusive buyer's agents have serious, pre-approved buyers under contract who have made a commitment to purchase Martha's Vineyard real estate. Listing brokers know it is in their sellers' best interest to cooperate with exclusive buyer's agents and they welcome our participation. .

Now we can get back to the original question, how does an exclusive buyer's agent get paid? In my opinion, this is the classic chicken-and-egg debate. As I said before, the success fee is a disbursement from the settlement funds with the expense being assigned to the seller on the HUD-1. BUT, who brings the bag of money to the closing table? The Buyer! If the buyer is the primary source of funds at the closing table, then there is no need for the buyer to incur any additional costs. Furthermore, it stands to reason that one of the agents being paid should represent the buyer exclusively.

Most Exclusive Buyer's Agents define how they receive their success fee and method of payment by a written Exclusive Right To Represent Buyer Agreement with their buyer clients. This is similar to the Exclusive Listing Agreement a listing broker has with his/her seller. Most buyer agents charge a retainer fee, which may or may not be refunded to the buyer client should a successful purchase be made during the contract period. The retainer serves to cement the relationship and commit both the buyer and the buyer’s agent to the task at hand -- finding the right property at the right price with the right terms. The contract can be for one property, one week or one year.

A buyer should make sure that his/her representation agreement clearly defines the amount of the exclusive buyer's agent's fee and method of payment. In most cases, it is in the buyer's best interest to require that the exclusive buyer's agent's fee be paid by disbursement from the settlement funds. The buyer representation agreement should also state that if the exclusive buyer's agent accepts a fee from a listing broker or seller, such fee would be a credit against the buyer/client's fee obligation.

Sometimes the exclusive buyer's agent will set forth a commission agreement with the seller that stipulates that the seller agree to pay the exclusive buyer's agent fee on behalf of the buyer. Payment of this fee is made solely as an adjustment in the transaction and does not create or imply that an agency relationship exists between the buyer's agent and any person other than the buyer.

Here are some other methods by which an exclusive buyer's agent can receive compensation:

  •   A percentage of the purchase price (most common).
  •   A percentage of the listing price.
  •   A percentage of the purchase price along with a percentage of the difference
      between the purchase price and the listing price.
  •   An hourly fee or hourly fee plus promotional expenses.
  •   An hourly fee plus a non-refundable retainer. (Massachusetts law allows
      agents to collect either refundable or non-refundable retainers).
  •   Either of the above hourly fee scenarios with a minimum commission.
  •   In the case of an unlisted property, such as a "for sale by owner" (FSBO), or new
      construction. Compensation then becomes part of the offer to purchase,
      usually to be paid from the seller's proceeds.
Possibly, in the back of your mind there is still one nagging question: if it all comes down to money, why does an exclusive buyer's agent, who works on commission, advocate on behalf of the buyer to negotiate a lower price and / or best terms on a real estate purchase? If, for example, an exclusive buyer's agent saves their buyer client $10,000.00 on the purchase of their new home, they would earn approximately a $150.00 to $300.00 less in commission. My answer: the word of mouth advertising and goodwill that comes from a job well done is worth much more --- it is priceless.

w w w . S P L I T R O C K R E . c o m

SPLITROCK REAL ESTATE, LLC - Exclusively Representing Buyers Only for the purchase of Luxury, Vacation Resort and Second Home Real Estate for sale on Martha's Vineyard Island, Massachusetts, United States of America

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