When the time comes for you to retain a REALTOR® to help buy your first house, you may be hesitant about how much extra you will spend on their services in addition to the house. It is already a stretch for some homebuyers to afford the house, much less any additional fees and closing costs. Let’s look at how the process works for a typical buyer-broker relationship.
Most buyer-broker relationships start by simply meeting and determining if the REALTOR® is a good fit for the buyer. If both parties feel compatible and the buyer elects to retain the REALTOR®, an agency contract will be drafted. Typically that will be an Exclusive Right to Represent Buyer contract. The agreement formalizes the agency and generally sets forth terms such as representation, confidentiality, compensation, and the broker’s responsibilities to the buyer.
Representation means that the broker is your agent and any agent of the broker listed on the contract is your advocate for lack of better terms. This is your real estate expert who will represent you in the search for a home. They will be coordinating with other cooperating brokers to get you showing appointments, managing contracts, and helping to guide you through finding a lender, various inspections, title, and escrow services. It should be noted that when I say guide, I don’t mean that they will be doing that work for you. They will provide you guidance to seek out experts in home loans, home inspections, title, and escrow.
Confidentiality is a serious matter when it comes to buyer representation. Your broker is signing their name to keep your buying position confidential between you and them. In today’s market, buyers are already behind the curve. For example, the last thing you want is for your REALTOR® to divulge to the seller that you can afford more than you are offering. That would weaken your negotiating position.
The broker’s responsibilities to the buyer include representation and confidentiality. They also mean that the broker will act in a timely fashion, provide relevant information that is available to them, and NOT misrepresent information to the buyer. The broker will be your guide in determining a fair offer price and doing their due diligence in examining the property with the buyer. In a sense, they are responsible for helping the buyer get the best information about the home and market trends to enable the buyer to make the most informed decisions.
Compensation is broken into two categories on the Exclusive Right to Represent Buyer contract. In one mechanism, the buyer and broker can agree on a fee that the buyer will pay the broker to help them find a home and negotiate a deal. This is not a practice that I use or recommend. And here’s why. When a home is listed for sale through a brokerage, the seller often agrees to pay a portion of the purchase price as a commission to the listing agent (representing the seller.) The listing agent and seller agree that the commission will be split if the listing agent can get an offer from a cooperating buyer’s broker.
In that scenario, the buyer’s broker and the seller’s broker have a separate agreement determining how much the brokers will be paid in commission to facilitate the deal. That money comes from the proceeds due to the seller after the transaction. This means that the seller is ultimately responsible for paying the buyer’s broker. So while your REALTOR® broker is working hard for you, typically, you are not paying them. The seller will.
Some circumstances vary from this general theme, but for most first-time homebuyers and residential buyers, you should not expect to be on the line to pay your broker. With the Exclusive Right to Represent Buyer contract, you should know whether you are on the line for a commission to your REALTOR® or not. If you have any questions or doubts, certainly ask your REALTOR® for clarification.
Named one of The Tribunes “Top 20 Under 40” in 2009, Dom Tartaglia has provided superior client services to San Luis Obispo home buyers for 16 years. As the broker owner of Tartaglia Homes, Dom provides each of his clients a personal experience of exceptional representation. Dom knows real estate is a deeply personal and emotional experience and no two clients are the same. He is proud to be an independent broker with the flexibility to accommodate your real estate needs, unlike larger corporate brokerages. Dom grew up on a cattle ranch in the heart of San Luis Obispo County where he and his family continue to raise Red Angus and make homemade wine. His love for working with his hands and caring for the family ranch is a beloved pastime. Dom also enjoys spending time in the outdoors fishing and exploring new places across the west coast with his family.
