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The Complete Guide to Negotiating Buyers Agent Commission

Posted by hauseit on May 28, 2019
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It can be tempting for sellers to try to re-negotiate the buyer agent’s fee after an offer has been submitted. However, negotiating buyers agent commission comes with many risks and is highly frowned upon by the real estate community. We’ll explain what you can and can’t do in this article.

Table of Contents:

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Can Sellers Negotiate the Buyer Agent Fee?

Sellers can negotiate the buyer agent’s fee if they are listing their home For Sale By Owner (FSBO). Keep in mind that this means no listing agreement has been signed with a listing broker, and the property is not listed on the MLS.

As a result, a FSBO seller will have no contractual obligations to do anything or pay anyone. He or she will typically have manually listed their own home for sale on a website or two, and perhaps put a for sale sign outside their home.

It can be tempting for sellers to try to re-negotiate the buyer agent’s fee after an offer has been submitted.

FSBO homes are effectively off market because the 90% of buyers who are represented by agents won’t see it because it’s not listed in the MLS. As a result, the only agents who will inquire on a FSBO listing are those who are trying to poach their next seller client. In some markets such as NYC, highly valuable FSBO leads are called hundreds of times over the course of a month by hungry agents looking to sign their next full commission listing agreement.

All of this means that in the unlikely event that a buyer’s agent does come knocking with an actual buyer, he or she will be very careful to negotiate a FSBO commission agreement with you before daring to show your home. This agreement is sometimes also known as a one time showing agreement, and it is at this point where you will negotiate the buyer agent fee with the buyer’s agent.

PRO TIP: Is it starting to make sense why buyers’ agents don’t both with FSBO listings? Why would they risk being disintermediated by showing a FSBO listing to their client, when all the buyer has to do is to Google the address to realize that they can go direct to the owner and cut the agent out. Plus, it’s extremely cumbersome to have to negotiate a custom commission agreement with the owner of each FSBO listing. Why bother when 96% or more of all listings are in the MLS, where commissions are contractually split by default?

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What If You Are Selling with an Agent?

It’s very difficult to re-negotiate the buyer agent’s commission if you are listing your home with a broker. That’s because your real estate listing agent has already contractually offered commission to buyers’ agents on your behalf in the MLS. This offer of commission is contractual as soon as it’s entered into the MLS, and your listing broker is liable for it on your behalf.

This means that if you don’t pay the buyer agent their commission, your listing broker will have to pay it on your behalf. Of course this never happens because your listing broker is protected by the Exclusive Right to Sell Listing Agreement that you signed.

It is theoretically possible that the buyer agent’s commission can be reduced after a property has already been listed on the MLS. However, most MLS co-brokerage agreements will require that both the listing broker and the co-broker (i.e. buyer’s broker) agree in writing to the reduction.

Here’s an excerpt from the REBNY RLS Universal Co-Brokerage Agreement:

Negotiations Involving Reductions in Commissions.  Any negotiation of the reduction of a brokerage commission must be done with both the Exclusive Broker and the Co-Broker’s written approval of the commission reduction.  If the Exclusive Broker negotiates a reduced commission with the Owner without the written approval of the Co-Broker, the Exclusive Broker must absorb the full amount of the commission reduction.

As you can see from the above language, the buyer’s broker must agree in writing to any commission reduction. If a reduction is agreed to without the buyer broker’s consent, then the listing broker must absorb the full amount of the hit.

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Is Asking a Realtor to Reduce Commission Ok?

No. It’s very poor etiquette to ask the buyer’s agent to unilaterally take less commission, or even worse, to ask the buyer’s agent to collect their own commission directly from the buyer.

Remember that buyers never have to pay commission or even sign any sort of exclusivity agreement, and that it is sellers who normally pay the entire broker commission. This commission is then split typically equally between the seller’s agent and the buyer’s agent, per MLS co-brokerage rules.

As a result, for you to ask the buyer’s agent to essentially collect their own fee obviously violates the spirit and the very idea of co-broking. Think about it. By doing so aren’t you effectively refusing to co-broke and thus egregiously violating MLS rules? Furthermore, if you refuse to co-broke, aren’t you effectively a For Sale By Owner listing?

Even worse, by asking a buyer’s Realtor to collect their own fee hurts the listing broker’s reputation. Will other buyers’ agents in the future shun the broker’s listings because it isn’t clear whether he or she will co-broke or follow MLS rules? Buyers’ agents might simply avoid the listing broker’s properties because they don’t want to be put in an awkward situation of having to ask the buyer to pay their fee.

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Buyer Asking Realtor to Reduce Commission

It’s an entirely different matter altogether when the buyer proactively asks their agent to reduce the commission. This obviously puts the buyer’s agent in a difficult situation. Do they oblige in order to get a deal done, or do they push back?

Fortunately for sellers, this isn’t an issue for them or their listing agent as long as the matter is initiated by the buyer and discussed directly between the buyer and the buyer’s agent.

Sometimes this will happen because the buyer is aware of the possibility of receiving a Hauseit Buyer Closing Credit, and wants their agent to take less commission in order to get a deal done, or to credit part of the commission to cover their NYC closing costs.

This is obviously a horrible situation to be in for your regular buyer’s agent who doesn’t normally discount and isn’t expecting this sort of request. If the buyer’s agent doesn’t agree, the buyer could simply fire the agent and find another agent who is willing to rebate or reduce part of their commission. Remember, buyers typically never have to sign an Exclusive Right to Represent Agreement, so there’s nothing preventing them from switching agents!

PRO TIP: As you can probably tell, negotiating buyers agent commission is a touchy and very sensitive topic. It’s always better as a seller to negotiate on the price, and leave the commission that’s already been contractually offered be!

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Disclosure: Hauseit and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. You should consult your own tax, legal, financial and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).

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