How Do Buyer Agents Get Paid?

When working with a Realtor as a buyer, it is important to understand the financial aspect of the relationship. While some commercials may imply that it won't cost anything to work with a Realtor, this is not entirely true.

The compensation for a Buyer Agent is determined through the Buyer Agency Agreement, which is discussed during a meeting between the Realtor and the buyer. To understand how a Buyer Agent gets paid, we must first look at the commission structure in real estate transactions.

When a Realtor lists a property for sale, they negotiate a commission with the seller, which will be paid from the seller's proceeds at closing. The amount of this commission is flexible and can vary. When the listing agent enters the property into the Multiple Listing Service (MLS), they specify how much of their commission they are willing to pay to the brokerage that brings the buyer. This is commonly known as the Buyer Broker commission.

The listing brokerage and agent decide this amount, and it can range from a percentage of the listing agent's commission to a fixed amount or even zero.

From the Buyer Agent's perspective, they have a minimum amount of compensation they are willing to accept in order to assist their buyer clients. This minimum amount is their "salary" or the number of "chickens" they are willing to receive at closing. While it would be highly unlikely for a Buyer Agent to work for zero compensation, they may have a set minimum that they are willing to accept.

During the discussion of the Buyer Agency Agreement, the Realtor will inform the buyer of the minimum compensation they require. If the MLS indicates that the number of "chickens" the Buyer Agent will receive at closing is equal to or higher than their minimum, then this is favorable.

But, if the number of chickens your Buyer Agent is going to be paid at closing (per the Multiple Listing Service) is lower than the minimum number of chickens they are willing to take, then you may have to make up that difference to your Buyer Agent if they find you a house that is what you are looking for and your contract is accepted! It may mean that you will end up having to bring more money to closing than you planned on!  This is definitely a discussion you and your Buyer Agent need to have before you even start looking at houses!

So when you meet with your Buyer Agent, ask them a series of questions.  Find out specifically how they are going they are going to help you not only find a house, but also write up an acceptable offer, go through all your due diligence, close the transaction and even be there for you after the closing!  Ask your Buyer Agent to give you their elevator pitch!  All Realtors should have one and you should be able to get that from them!

In summary, while some commercials may suggest that it won't cost anything to work with a Realtor as a buyer, this is not entirely accurate. The compensation for the Buyer Agent is determined through the Buyer Agency Agreement, and they have a minimum amount of compensation they are willing to accept. Understanding this financial aspect is crucial when working with a Realtor to buy a house.