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Real Esate Buyer’s Broker Commission

There is a major difference in the source of the brokerage fee for a buyer’s brokerage fee for a buyer’s broker under a buyer agency contract as compared to the situation where the agent working with a buyer is a seller’s agent of subagent. When there is no buyer’s agency agreement (all agents are seller’s agents), the fee for the selling agent/firm always comes, directly or indirectly from the seller.  On the other hand, with a buyer agency agreement, the fee for the buyer’s agent may either come directly from the buyer-principal or be paid by the seller (through the listing firm for a listed property) or be paid by both the seller and buyer.  One must look to the specific terms of the buyer agency contract and cooperation agreement between the firms involved in the sale to ascertain exactly how a buyer’s broker will be compensated.

The Real Estate Commission’s Working with Real Estate Agents brochure addresses to prospective buyers the issue of a buyer agent’s compensation as follows:

…A buyer’s agent can be compensated in different ways.  For example, you can pay the agent out of your own pocket.  Or the agent may seek compensation from the seller or listing agent first, but require you to pay if the listing agent refuses.  Whatever the case, be sure your compensation agreement with your buyer’s agent is spelled out in the buyer agency agreement before you make an offer to purchase property and that you carefully read and understand the compensation provision.

The prevailing approach to compensation of buyer’s brokers is the one employed by the North Carolina Association of REALTORS Form #201 “Exclusive Buyer Agency Agreement”.  This is a two-pronged approach that might be referred to as the “Retainer Fee” plus “Success Fee” Approach. Under this approach, the agency contract allows the buyer and broker to agree to a nonrefundable “retainer fee” of a specified amount that is paid by the buyer upon entering into the oral or written buyer agency contract and to agree whether the retainer fee will or will not be credited toward any additional compensation that the broker will receive upon satisfying the terms of the agreement (i.e., finding a suitable property for the buyer).  Some brokers/firms have a policy of requiring such a retainer fee, especially in connection with an oral buyer agency contract that is for an indefinite period and may be terminated by the buyer at any time.  In situations where a retainer fee is requested by the broker/firm, the contract typically calls for the retainer fee to be credited toward the “success fee”.

The second prong of this approach is the “success fee”. The standard form referenced above provides that the buyer’s broker/firm will seek a success fee for finding a property suitable to the buyer from the cooperating listing firm (through the listing firm’s offer to share the brokerage fee with cooperating firms) or from the seller if there is no listing firm.  The dollar amount, percentage of purchase price or other method of determining the compensation for the buyer’s broker/firm must be stated in the contract.  This form further provides that if the buyer purchases property where the compensation offered to the selling broker/firm by the listing firm and/or seller is less than the amount stated in the buyer agency contract, or where no compensation is offered by either the listing firm or the seller, then the buyer must pay the difference between the fee amount stated in the contract and the compensation offered.

Erik Lincoln is a founding member of Lincoln. In addition to being an attorney he is also a CPA. Erik has consistently been recognized as one of the top attorneys in North Carolina, by Business North Carolina.