Can a buyer’s agent set their own fee, or are they bound by the fee amount offered by the seller’s agent?
Yes, buyer’s agents have the ability to dictate the fee split they receive on a sale in their client’s negotiations. A buyer’s agent has two options for setting their fee amount:
- including the fee amount in the buyer’s listing agreement; and
- through a fee provision in the purchase agreement.
Setting the fee in the listing agreement
The first approach requires the buyer’s agent to discuss their fee expectations with the buyer at the time they enter into an arrangement to represent the buyer, preferably a written buyer’s listing agreement.
This early discussion confirms everyone’s expectations in the search for property and the nature of the buyer’s agent’s representation. The buyer’s agent and the buyer agree on the fee amount the buyer assures they or the seller will pay if the buyer purchases or leases a property sought under the listing. [See RPI Forms 103 and 111]
Here, the buyer’s listing agreement acts as the initial safety net for the buyer’s agent, ensuring the agent will receive a fee for their efforts from the outset. In the event the seller does not agree to the fee amount in later negotiations, the buyer’s agent may collect the fee (or remaining amount) from their buyer who agreed to the amount in the listing agreement.
Using the purchase agreement
The second approach and most critical defensive position for setting the fee is in the preparation of a purchase agreement offer. The buyer’s agent simply includes or uses a form that includes a fee provision, worded to set the exact fee amount the buyer’s agent will be paid (by the seller). [See RPI Form 150 §5]
To protect the agent’s broker fee, the Purchase Agreement (One-to-Four Residential Units – Conventional and Carryback Financing) published by RPI (Realty Publications, Inc.) contains a broker fee provision, allowing the parties to agree to a set fee amount and how it will be split between the brokers as part of the purchase offer. The broker provides an upfront and full disclosure of the fee arrangement to the client as required. [See RPI Form 150 §15]
Here, both agents agree to either a dollar amount or a percentage of the purchase price, to be paid by the seller. Placing the provision in the purchase agreement ensures the broker fee is an intrinsic component of the agreement.
Here, it is woven into the closing and cannot be avoided by the transaction participants. The fee amount may be negotiated until resolved in offer/counteroffer submissions or by negotiations for payment directly from the client. [See RPI Form 180]
Alternatively, when the purchase agreement form is deficient and lacks a fully disclosed broker fee provision, the buyer’s agent may attach a separate broker fee sharing agreement to the purchase agreement offer. The fee sharing agreement indicates the amount of the fee and the split the seller’s broker and buyer’s broker will receive, if unaltered by negotiations, on closing of the sale. [See RPI Form 105]
The offered fee split
Importantly, the fee split offered by a seller’s agent in the multiple listing service (MLS) is not fixed by law. It is merely the seller’s agent’s first offer to be ignored, accepted or countered. In fact, the practice of seller’s agents offering to “pay” the buyer’s agent a standard 3% is merely a vestigial remnant of earlier and less sophisticated MLS price fixing arrangements. Price fixing permitted the large brokers (through association of realtors (AOR) arbitration) to control broker income with a 50:50 fee split at no less than 6% of the purchase amount. [People v. National Association of Realtors (1981) 120 CA3d 459]
In reality, offered fee splits vary and are always subject to negotiation. [National Association of Realtors, supra (1981)]
Editor’s note — While a buyer’s agent may initiate fee negotiations in response to a low fee split offer via MLS publications, agents need to be prepared for some difficulties and even rejection from a seller’s agent. Negotiating in a seller’s market, in particular, may present challenges as the seller is likely to receive multiple offers. This auction environment increases the chances the buyer’s purchase agreement offer containing the higher fee split will be rejected in favor of another offer — and for improper reasons related to fee sharing and not the merits of the buyer’s offer.
In this case, buyer’s agents may have no choice but to accept the lower fee split paid by the seller — or risk their buyer losing the opportunity to secure the property they seek and abandoning the listing. Here, the balance of the fee expected by the buyer’s agent is negotiated to be paid by the buyer to the extent the seller will not pay.