Q: Who pays agent commission?
– Rafal K.
A: Hi Rafal,
In almost every case the seller is responsible for paying agent commission to both the listing and buying brokerages. The commission is agreed upon before the home is listed between the seller and listing agent. As a general rule in the GTA, agents representing buyers commonly receive 2.5% of sale commission. On the other side of the transaction, the listing agent/brokerage commission can often vary. However, let’s focus today’s discussion on the buyer. So, to answer your question Rafal, you as the buyer don’t have to pay agent commission in the vast majority of circumstances. However, there are exceptions to this rule which should be clearly explained to you when you sign the Buyer’s Representation Agreement with your chosen real estate sales representative. For those unfamiliar with the document, I’ll take you through a couple of examples where the buyer may be responsible to pay their agent a commission:
Example #1 – The sellers/listing agent are offering less than a 2.5% agent commission.
In today’s market, the standard compensation for a buyer’s agent is 2.5% of purchase price. If, for whatever reason, the seller and seller’s agent are only offering 2.25% or 2% of purchase price, your agent may require you to cover the remaining .25% or .5%. This should be explained thoroughly by your chosen real estate representative before signing the Buyer’s Representation Agreement and before submitting an offer on a property.
Another common scenario is in For Sale By Owner. Very often the private seller isn’t willing to offer the full agent commission. They may be offering 1% or in some extreme cases 0%. In both cases, it would be up to the buyer to pay for the agent commission. This amount can be negotiated into the price of the home or the buying agent could choose to negotiate a commission with the seller directly. Either way, it’s a scenario a buyer should keep in mind and can affect the transaction.
Example # 2- After signing a Buyer’s Representation Agreement, you purchase a home through another real estate agent.
Let’s say it’s Saturday and you walk into an Open House. You instantly fall in love with the home and want to put an offer in on it. You speak to the listing agent who is hosting the Open House and he claims that he can help you purchase the home (and at a discount wink wink). You’re excited and you let him make the offer and end up purchasing the home. Now, there’s a couple of other things wrong with this situation, but let’s deal with the agent commission aspect of it.
When you sign the Buyer’s Representation Agreement with your agent, they will take you through a section called “Referral of Properties” that obligates both parties to refer all properties of interest to the other. For the buyer, this means all properties they view online or in person. So, as soon you decided you wanted to put in an offer on the home, you should be contacting your agent. Because the buyer didn’t, they would be responsible for compensating the agent for whatever amount was agreed upon (if the agent decided to pursue compensation).
Example # 3 – You purchase a home previously viewed within the “holdover” period.
What’s a holdover period? Good question. Let’s say you sign a Buyer’s Representation Agreement for a period of two months with a holdover period of 30 days. After two months, the agreement expires and you decide you don’t like your agent and choose a new one. After a week with your new agent, you decide to revisit a property you viewed with the old agent. There’s been a price reduction and you feel it’s worth the new price. You submit an offer and purchase the home. All good, right? Well, not exactly. The 30-day holdover clause relates to all homes that were introduced by the old agent. This means that if you purchase any of those homes within the 30-day period, you may be liable to pay the old agent a commission.
These are the three most common examples but remember that in practically 95% of cases, the buyer will not have to pay their agent a commission. As always please leave a comment or contact us if you have any questions!
Image courtesy of Pall Spera, Pall Spera