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 buyer's agent get paid?
Over the years I have talked to all sorts of people who have all sorts of ideas of how a buyer's agent gets paid (or should get paid), and I've come to realize that there is NOT one perfect way.
You and I will talk about it when we meet for our Buyer Strategy Session, and we will find an option that feels fair to you and to me.
If you'd like more information beforehand, I explain the topic of buyer agent compensation here in this blog post...
What Every Homebuyer Should Know About Buyer's Agent Compensation
First of all, when a homeowner decides to sell their house, they typically hire 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 (naturally).
What many buyers don't realize is that the seller usually ALSO agrees with the seller's agent how they would like the buyer's agent to be compensated.
That is important to understand... The seller's agent leaves the seller's house with a signed contract that says (more or less): "Please market this home to all the other (thousands of) agents in the county, and tell them we will pay them $X or Y% of the purchase price if they bring us the buyer."
The seller's agent then goes back to their office with the signed listing agreement and enters all the details of the home for sale (address, pictures, beds, baths, remarks, showing instructions, etc.) into the San Diego Multiple Listing Service (or MLS).
Another field the seller's agent enters at the same time 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 MLS... In years past, this field wasn't visible to homebuyers or the general public UNLESS their buyer's agent shared that information with them (which I always do - and have done - with my clients); it was essentially kept secret. In recent years, however, the Realtor community has begun to be more transparent about Buyer Agent Compensation, and you will find it listed on various different home search websites along with all the other details about the home.
Below, see the actual text from the California Association of REALTORS® Residential Listing Agreement that shows where the seller and seller's agent determine how much to offer to the buyer's agent.
Your Buyer Agent's Compensation Can Be a Conflict of Interest
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 even offer BONUSES to the buyer's agent if it sells within a certain time frame.
I find that most in the San Diego market offer around 2.5% of the purchase price, but it's not guaranteed. Some may offer more. Some may offer less.
There is no set fee, so the amount being offered to the buyer's broker can vary widely from one home to the next.
One Advantage of Your Buyer's Agent Getting Paid by the Seller
From a buyer's point of view, there is one clear advantage to having their agent paid by someone else...
The buyer doesn't have to pay their agent out of their own pocket, which leaves the buyer more money for their down payment and closing costs.
If the buyer is paying all-cash, this is not really an advantage at all. In that case there is no obvious advantage to having their buyer's agent paid by the seller.
Two Disadvantages of Your Buyer's Agent Getting Paid by the Seller
Disadvantage #1: The money has to come from somewhere, so the buyer is paying a higher purchase price in order for the seller to pay the buyer's agent.
If the seller 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 in comparison to the second disadvantage...
Disadvantage #2: The buyers have a real estate agent "representing" them who is getting paid by the party they are trying to negotiate against.
This brings me to the most interesting part of this blog post... Buyer's agents can be offered dramatically different amounts of compensation from one home to the next.
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 buyer's agent is being offered twice as much compensation on one home than they are being offered on the other one!
The way I see it, 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 seller is offering a higher compensation is because they are trying to lure buyer's agents to bring a buyer!
Of course, a typical agent would love to sell you the house that they will make more money on, especially if you like the two homes about the same! And on the flip side, there are some listings that are offering LESS than normal (which presents another conflict of interest for your buyer's agent).
To summarize, your buyer's agent may be excited to show you homes (or not excited) based on the compensation that's being offered through the MLS.
Is this fair to YOU, the buyer? I personally don't think so.
What is a Fair Way for a Buyer's Agent to Get Paid?
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 buyer's agent how much you would like them to get paid (ahead of time).
Your agreement could be something like this:
"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 compensation 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). After doing this job for so long, I tend to lean towards keeping things as simple as possible.
The most important thing is to have a written agreement and have the peace of mind that your agent is looking out for your interests because you're the one who's compensating them, not the seller.
I can tell you that there are thousands of people who bought homes in San Diego County in the past who had NO IDEA how much their buyer's agent got paid!
Is that how you want YOUR home-buying process to go? Now that you understand buyer agent compensation more clearly, no way!
Discuss Compensation During Your Buyer Agent Interview
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 homebuyers on their home purchases.
In order to TRULY be working for my clients - and not for sellers - I have made several adjustments to the way I interact with and go to work for homebuyers like you (and I think you'll find my approach to be different and refreshing).
When we meet for our first interview (I call it our Buyer Strategy Session), 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.
If you have any questions about buyer agent compensation, send me an email or call me to request a free Buyer Strategy Session.
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Also Read: What is an Exclusive Buyer Agent (EBA)?
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