Why would a buyer agent ask a seller agent if they offered the buyer agent commission for the buyer? This was a question on Facebook. Verbatim it says, “I guess I don’t understand why agents call and ask how much commission the seller is offering. My understanding is the BAC is negotiated upfront between the buyer and the buyer’s agent prior to seeing any homes and executed in writing, so they both know what commissions are. I know the buyer can ask the seller to compensate their buyer’s agent instead of the buyer directly paying it.”
And that’s it. So, he’s asking, why would you call and ask if you already have your commission negotiated up front?
The Logic to Asking this Question
Well, there’s a lot of reasons, but I think the primary reason is that buyers don’t often have the cash up front to pay their agent straight out of pocket. And so, if they’re going to hire an agent to represent them, and every buyer and seller ideally would have affordable representation to represent their interests in purchase of or sale of real estate, because they don’t have that cash up front. They need to find out where that money is coming from to see what they can afford, because the other cash they need to pay is a down payment on the home itself.
And so that’s the main reason, I think, why they would call and ask. So that they know for the buyer, the buyer agent will call and say, “Do you offer buyer agent commission from the seller to the buyer?” And that lets them know if I have, say, $40,000 in cash. If the seller agent’s offering up to say, $10,000 in cash for the buyer agent, then the buyer agent, if they owe say, $20,000 to their agent, they know that $10,000 of that is covered.
And so now that leaves them with $20,000 left that they can do for a down payment. They’re factoring in all these costs to figure out their cash to close, how much down payment, how much their offer can be for the home that they’re putting an offer in on. And this is really an issue.
Why Ask when it’s in the Contract?
So, I think the response, the reason the questions being asked is, shouldn’t it be negotiated in the contract? In Utah at least, you put it in the real estate purchase contract asking for the seller to pay commission to the buyer as part of that. They’re asking for basically a seller concession. And so of course that makes sense to ask for that in the contract, but wouldn’t you want to know what’s available to ask for in the contract before you write the offer if you can?
It’s just more information. It allows you to make a more informed decision about what’s your best offer that you can put forward so you don’t put out an offer and have a counter and not be able to take it. Because the concessions aren’t there that you need, or it’s going to affect your cash out of pocket that you just can’t pay.
There’s a lot of great comments on this, people explaining how the buyer needs to know this information to help make their best offer. How they know what they need to pay their agent, but they need to come up with the cash to do it. And the agent told them that they’ll likely be able to get it through the purchase.
So that’s basically what they’re getting at, is why would they want to do that?
A Relevant Lawsuit
Now there is mention of a real estate lawsuit where quite a few agents, when they would go to put in an offer in the old system, the amount of buyer agent commission was shown right up front. And so some agents wouldn’t even show properties to their buyer that didn’t have enough buyer agent commission to cover their contract for how much they were owed. And so the buyer agents were steering their clients based on how much buyer agent commission was available for the buyer agent. And that was a problem in the market for sure.
But the underlying problem there is that buyers cannot afford to pay a lot out of pocket for a buyer agent. And so for buyers to get proper representation, we need to figure out a way for them to be able to afford to pay for a buyer agent, whether that’s reducing through competition the total commissions that are paid for agents, both buyer and seller, or whether it’s finding other creative ways to pay for that. Over the last 20 years that’s been from the seller side to the buyer agent.
But that system had its own issues where it encouraged seller agents to avoid buyer agents in order to double their own commissions and things like that. I’ve got other articles that talk about that, but why would a buyer agent call and ask for a buyer agent commission if they’re just going to go negotiate it in the contract anyway?
Simple answer: they want as much information as they can get to write up the best offer they can with all the concessions that they know they can ask for, so that their first offer is their best offer.