When you are considering buying a home in San Diego, one very important topic that you shouldn't be too shy to ask about is: How does a San Diego buyer's agent get paid? I talk to all sorts of people who have all sorts of ideas on how a buyer's agent gets paid or should get paid (and many of them differ greatly), so I am going to explain this topic as best as I can here in this blog post.
First of all, when a homeowner decides to sell his/her house, he/she typically hires a real estate agent to help with the sale of the home. The seller's agent signs an agreement with the seller, and part of that agreement is how the seller's agent is to be paid. What many buyers don't realize is that the seller often agrees with the seller's agent how he/she would like the buyer's agent to be compensated. This is important to understand. The seller's agent will often leave the seller's house with a signed contract that says (more or less), "Please market this home to all the other agents in the county, and please be sure to tell them that we are going to pay them $X or Y% of the purchase price if they bring us a buyer." The agent then goes back to his/her office with the signed listing agreement and proceeds to enter into Sandicor (the San Diego Multiple Listing Service or MLS) all the details of the home for sale (address, pictures, beds, baths, remarks, showing instructions, etc., etc.). One of the fields that the seller's agent enters is the Compensation to Buyer's Broker field. When the seller's agent clicks submit, this field is visible to the thousands of real estate agents who are members of the Sandicor MLS (but not to buyers or the general public unless an agent shares that information with them - it's kept secret). Below, see the actual text from the California of REALTORS® Residential Listing Agreement that shows where the sellers and seller's agent determine how much to offer to the buyer's agent.
Here's where it gets tricky. Some sellers offer thousands of dollars more to the buyer's agent than their neighbors do in hopes of getting more attention and more offers on their home. Some offer bonuses to the buyer's agent if it sells within a certain time frame. I find that many offer about 2.5% or 3% of the purchase price, but it's not guaranteed.There is no set fee, so they can vary widely in the amount of compensation that is being offered to the buyer's broker.
From a buyer's point of view, there is one apparent advantage to having their agent paid by someone else. The main advantage is that the buyer doesn't have to pay his/her agent out of his/her own pocket, which leaves the buyer more money for the down payment and for closing costs.
There are also some disadvantages for a buyer to have his/her agent paid by the seller. The obvious one is that the money has to come from somewhere, so they are paying a higher purchase price in order for the seller to pay the buyer's agent (if the sellers didn't have to pay the buyer's agent, they could sell the house for a lower price and still have the same bottom line). However, this disadvantage pales compared to the disadvantage for the buyer to have a real estate agent representing him/her who is getting paid by the party he/she is trying to negotiate against.
This brings me to the most interesting part of this post. If you are a San Diego home buyer, one of the most important things you should understand before you hire an agent to represent you is that buyer's agents can be offered dramatically different amounts of compensation from sellers for properties that are very similar. In other words, you could potentially narrow down your home search to two properties that are very similar in price and features and not realize that your agent (the buyer's agent) is being offered twice as much compensation from one than he/she is being offered from the other one. In my book, this is a blatant conflict of interest for the buyer's agent. Real estate agents are normal people with the same faults as everyone else. The whole reason the one seller is offering twice as much compensation is because he/she is trying to lure buyer's agents to bring a buyer! Of course, a typical agent would love to sell you the house that he/she will make more money on, especially if you like them about the same! Is that fair to you, the buyer? Of course not.
In my mind, the fairest and safest way for you to hire a buyer's agent who has the least amount of conflicts of interest in regards to compensation is for you to agree with your agent how much you would like him/her to get paid (ahead of time). Your agreement could simply be: "I'm going to make sure you get paid $X or Y% of the purchase price when I buy, and if the seller is compensating you, then that applies towards my obligation. If the seller pays you more than we agreed, then you will give me the difference, and if the seller pays less, then I will give you the difference. You will keep me informed about what the seller is offering to pay you on every property I'm interested in, so that I can consider that before I write an offer."
There are many ways you could accomplish this sort of agreement (with a set dollar amount, a set % of the purchase price, or even a sliding scale commission with different factors that determine the final amount). The most important thing is to have an agreement and have the peace of mind that your agent is looking out for your interests because you're the one who's compensating him/her, not the seller. I can tell you that there are hundreds and possibly thousands of people who bought homes in San Diego County this year who have no idea how much their buyer's agent got paid! Is that how you want your purchase process to go? Now that you're educated about the process, of course you don't.
As you can tell, this is something that I am passionate about. Globella Buyers Realty exists for one purpose, to represent the best interests of San Diego home buyers on their home purchases. In order to truly be working for my clients (and not for the sellers) I made some slight adjustments in the way I interact with and go to work for home buyers like you. When we meet for our first interview, we'll have a chance to discuss in more detail exactly how I go to work for you, and compensation will be an important part of our conversation.
Also Read: Hiring a Salesperson vs. Hiring a Consultant
Also Read: What is an Exclusive Buyer Agent (EBA)?
Also Read: What is a Buyer Strategy Session?
Also Read: 5 Reasons You'll Be Thrilled at Closing
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Justin Gramm is the founder and principal broker of Globella Buyers Realty, your San Diego Exclusive Buyer Brokerage. He also writes this blog, "For San Diego Home Buyers."
Exclusive Buyer Agents do not list homes for sale and never represent sellers. They have no "inventory" to try to sell you. They can represent you in purchasing any home. They are specialists at representing buyers only on the buyers' side of the transaction. Exclusive Buyer Agents work to get buyers the best price and terms when they buy a home.
If you have excellent credit and plan to buy a home or condo in San Diego County within 90 days, contact Justin Gramm to hire an agent on your side of the transaction. Call Justin at (858) 437-2662 or E-mail.