Deciphering Buyer's/Broker's Agency Contracts

[Carlos O.]

Hello all,

I just have a quick question. I recently received a non-exclusive contract from my real estate agent so he can represent me. There's one sentence in there that I don't completely understand. It basically says that the broker's fee will either the the "selling commission" listed on the MLS or 3% of the purchase price, whichever is greater. I get the 3%, but I don't understand the first part. I don't want to go into a deal with some unknown broker fee that won't be disclosed until closing. Can someone explain what a "selling commission"? Is that something I pay? Can I as a buyer even see this "selling commission" if it's listed in MLS?

In case location is relevant, I'm looking at KS and MO.

Carlos O.

[J Scott]

I assume this is an agent who will be representing you as part of a purchase?  Assuming so, while you might know this person as your "buyer's agent," in agency parlance, they are typically referred to as the "selling agent."  The agent who represents the seller is typically referred to as a "listing agent."

When a seller sells a house, they agree to pay a commission to the listing agent.  Depending on the location, this is typically between 5-6% of the sale price.  The listing agent will typically agree to split this fee with the selling agent (the buyer's agent), so that each agent will get between 2.5-3.0% of the sale price in commission.

Basically, the agreement your agent wants you to sign says:

-  Assuming the property you purchase is offering a commission from the seller of at least 3%, you won't owe anything additional (remember, the commission is paid by the seller).

-  But, if the property you purchase offers less than 3% of the sale price in commission to your agent, you are agreeing to pay the difference.

So, if you buy a property for $100K, your agent wants $3K in commission.  If that property is offering less to your agent, it's up to you to make up the difference.

I'm assuming 6% is standard commission in your area, in which case, there's a good chance your agent will get their 3% on any typical MLS transaction, but there's always a risk that you're going to want to buy a house that offer less in commission (or if you buy a For Sale by Owner house, they may offer nothing in commission to your agent); if that happens, you're legally on the hook to make up the difference.