Understanding Buyers Agent Compensation

How much do I need to pay a buyer’s agent? This is probably the most common question we receive from people inquiring about our services. The best way to answer this question is to start out with a short explanation of what purpose a buyer’s agent commission serves. The answer is, in a word, cooperation. The Multiple Listing Service® (MLS®) is a cooperative for all REALTORS® from all real estate companies to share information about the properties they have for sale. And, within the MLS® System, the listing REALTORS® for each property enter an amount of money that the seller has instructed them to offer to any and all cooperating buyer’s agents. The amount can either be a flat dollar amount or a percentage of the sale price.

In Alberta, especially in the larger markets such as Calgary, the most common buyer’s agent commission that is offered on the MLS® System is 3.5% on the first $100,000 plus 1.5% on the balance of sale price (3.5/1.5). This is half the amount of the commonly quoted total commission of 7% on the first $100,000 plus 3% on the balance of sale price (7/3) that many traditional agents will charge to sell your home. So, for example, if your home sold for $430,000, then the total commission of 7/3 would be $16,900 and, with an equal split, each REALTOR® would get $8450.

So, do you have to pay 3.5/1.5 to a buyer’s agent? The short and accurate answer is no. The amount of cooperation from buyer’s agents, will, in part, depend upon the amount of money you decide to pay them. But, it’s definitely not an absolute. In other words, it is not the case that if you offer 3.5/1.5 you will receive cooperation from all buyers’ agents (100% cooperation) and if you offer anything less you will receive no cooperation from buyers’ agents (0% cooperation).

Most REALTOR’S® expectation of 3.5/1.5 is definitely breaking down as “other” amounts have started appearing in the MLS® System on a more frequent basis over the last few years. The vast majority of buyer’s agents have learned to be pragmatic with respect to compensation and, so long as you are offering a reasonable amount, they will show your home and write an offer if their client wishes to do so.

Think of buyer’s agent cooperation as more of a continuum existing somewhere from 0% to 100%, not one or the other. For illustration purposes, let’s forget about percentages and just use whole numbers. Let’s say that a house sells for $430,000. At 3.5/1.5 that buyer’s agent would receive $8450, but what if you only offered $8000? Would buyer’s agents avoid your property? Absolutely not, in fact, at that amount, you would probably receive over 95% cooperation from buyers’ agents. On the other hand, what would happen if you offered only $1000? At that amount, you would likely lose most cooperation and only receive perhaps 10% cooperation from buyer’s agents. How about if you offered a reasonable amount like $6000, what would happen then? In this case, you would likely garner about 80-85% of buyer’s agent cooperation, probably more than enough to sell your home. Remember, very few properties actually need 100% cooperation from buyer’s agents to sell. You only need to sell your house to one buyer, not all of them.

So then, how much cooperation, or compensation, is needed in order to receive an offer from a motivated buyer? The answer to this question depends on a number of factors. Is it a seller’s market or a buyer’s market? You’ll likely get away with paying less in a seller’s market, than you would in a buyer’s market. Are there lots of competing properties to you own? Less competition means you can likely offer less commission. The community you live in will also impact this decision. Also, if you live in a big city, as opposed to a small town, you may get away with paying less.

You also need to objectively consider your own property. Is it going to be difficult to sell due to a particular feature such as a preserved wood foundation, or perhaps an undesirable location? If this is the case, you should probably consider paying 3.5/1.5 to ensure that you get as much cooperation as possible. On the other hand, if you have an awesome property in a seller’s market, you could very well get away with paying half that amount.

Don’t want to guess how much to pay or what to do, no problem. Just ask your rhinoagent for guidance in this area, he or she will be able to make a recommendation for your specific property.

Be wary of alternative model brokerages brokerages that do not acknowledge or discuss buyer’s agent commission with you when you are looking to hire, or purchase, their services. Or, those brokerages that just tell you that you must offer what is “normal”, they do so because it makes their job easier, but is it really in your financial best interests? We believe such business practices are both irresponsible and/or unrealistic. Here at rhinorealty, we explain the whole selling process in as much detail as you will find on any real estate website. Our purpose is to educate you about the MLS® System, so in turn, you can make informed decisions regarding the sale of your home.

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