By DAVID HOUCK
Qualifying Broker
Atomic Realty, LLC
Editor’s note: This is the second column in a three-part series on the contracts one may see in the process of buying or selling a home here in Los Alamos or White Rock.
Generally, there are three primary contracts used in a real estate transaction:
- Listing Agreement
- Buyer’s Brokerage Agreement – an agreement between the buyer and their broker that outlines how much the buyer agrees to pay the broker and how long the buyer is committed to working with that brokerage.
- Purchase Agreement
All terms in these contracts are negotiable, and both buyers and sellers should carefully review and negotiate them before signing.
The Buyer’s Brokerage Agreement
Under current rules, a buyer must sign a Buyer’s Brokerage Agreement before a broker can show them a property. This agreement establishes how long the buyer agrees to work exclusively with the broker and the commission the buyer agrees to pay. Both the duration and the commission are negotiable and should be discussed before signing.
Who Pays the Buyer Broker’s Commission?
Many brokers encourage buyers to “just sign the agreement” and assure them that the seller will be asked to pay the buyer broker’s commission in the purchase agreement. However, an increasing number of sellers are refusing to pay all—or even part—of the buyer broker’s commission. Sellers often take the position that buyers should pay their own broker.
If a buyer intends to ask the seller to pay the buyer broker’s commission, sellers are generally more willing to agree to lower commission amounts rather than higher ones. If the seller ultimately refuses to pay, the buyer remains legally responsible for paying their broker under the Buyer’s Brokerage Agreement.
To reduce both cost and risk, buyers should negotiate a lower buyer broker commission before signing the agreement and then request a smaller contribution from the seller toward that commission.
Being Locked Into One Broker: Shorter Agreements Matter
Some Buyer Brokerage Agreements bind buyers to a single broker for six months to a year. This can feel excessive, especially if the working relationship turns out to be a poor fit.
If a buyer later decides not to continue with that broker, the agreement may leave them with little flexibility other than waiting for the contract to expire. Prior to signing Buyers may want to negotiate alternatives, such as limiting the agreement to a specific property, shortening the contract term, or ensuring the agreement can be easily terminated.
Exceptions to the Buyer Brokerage Agreement Requirement
There are limited situations in which a buyer may not be required to sign a Buyer Brokerage Agreement, such as when attending an open house or when a broker is showing a property solely on behalf of the seller (for example, when the broker is also the listing agent).
In some cases, contacting the listing broker directly or attending open houses may help buyers avoid overly restrictive brokerage agreements.
Working With the Listing Broker
Buyers may also consider working directly with the listing broker. Because the broker is already earning a commission for listing the property, they may have more flexibility in negotiating the buyer broker commission.
On popular real estate websites, look for the small print that identifies the listing agent along with their phone number or email. Avoid using generic “Contact Agent” buttons, which often route inquiries to brokers who paid the website for your contact information rather than the actual listing broker.
Where All the Money Comes From
Ultimately, the buyer brings all of the money into the transaction. Even when a seller agrees to pay the buyer’s brokerage commission, those funds come from the purchase price paid by the buyer at closing.
Negotiating a lower buyer broker commission can reduce the total cash needed at closing and may even lower the overall cost of the home.
Working Toward More Affordable Real Estate Transactions
In today’s market of high interest rates and rising housing costs, thoughtful negotiation benefits everyone. Carefully negotiated contract terms can reduce transaction costs, increase sellers’ net proceeds, and improve buyers’ access to homeownership.
David Houck is the Qualifying Broker of Atomic Realty. With over 40 years of real estate experience and an education in mathematics, physics, and law, David serves on the New Mexico Association of Realtors Forms Committee, helping create clear, consumer-friendly real estate contracts.
If you have questions about timing or strategy, feel free to call or email Kate or David. More information and additional resources are available at www.AtomicRealty.net.