After I was asked at open houses again last weekend about what it costs to use a Realtor to help buy a property I realized it has been over a year since I talked about some common buyer questions. We in the business often forget that cost is one of those important questions new buyers have but often are afraid to ask because they don't want to appear ignorant…don't forget, there is no dumb question!
What does is cost to have a Realtor help you buy a home?
In our Twin Cities real estate market most of the compensation that a Realtor receives in a typical MLS transaction comes in the form of commission paid as part of the seller's costs at closing…meaning buyer's agents are usually paid by the seller rather than the buyer. The seller's MLS listing contract specifies what percentage of the sale price the buyer's agent will be paid and it is specified in the MLS listing.
Be sure to read and discuss your representation contract with your agent for clarity about the commission percentage you will owe at closing. If your buyer's contract has a higher percentage than that specified in the listing, will you be expected to make up the difference? What will happen if the listed commission is higher than the amount stated in your contract?
In addition, many real estate brokerages charge a flat fee of a few hundred dollars payable as part of your costs when you close on your home. Some agents may also charge an administration fee and/or an up front retainer fee before beginning to work with a new buyer, be sure to ask.
Keep in mind that except for any up front fees buyer's agents are not paid until closing. This means that all time and costs prior to that are provided at no charge by your Realtor in good faith that you as a buyer will eventually close on a home using their services…so they will eventually be compensated for their time and expenses.
Also be aware that if you have a signed representation contract with a Realtor you owe that real estate agent a commission if you purchase any property during the contract period…even if you do not use that agent's services. This means that you should work through your buyer's agent for all properties, even those for sale by owner or in new building developments. If you no longer wish to work with that agent, you should cancel your representation contract.
BTW…what is a buyer’s agent?
In a nutshell, it means that the buyer’s agent walks in the shoes of the buyer… and by law must put the client’s best interests first.
It used to be that only the seller was represented in the sale and purchase of a home. There are now five options for agency relationships in Minnesota real estate transactions, and I will discuss the other forms of representation next week.
They are all fiduciary relationships, much like the relationship between a lawyer and client, and the broker/agent owes the client the following duties:
- Loyalty – broker/salesperson will act only in client(s)’ best interest
- Obedience – broker/salesperson will carry out all client(s) lawful instructions
- Disclosure – broker/salesperson will disclose to client(s) all material facts of which broker/salesperson has knowledge which might reasonably affect the client’s use and enjoyment of the property
- Confidentiality – broker/salesperson will keep client(s)’ confidences unless required by law to disclose specific information (such as disclosure of material facts to Buyers)
- Reasonable Care – broker/salesperson will use reasonable care in performing duties as an agent
- Accounting – broker/salesperson will account to client(s) for all client(s)’ money and property received as agent