Collecting the Buyer's Broker's Fees
With the market moving from a seller’s market to a buyer’s market, the use of
buyer’s agents continues to grow along with questions as to how a buyer’s broker
can collect his or her fees in the transaction.
There is no one legally suggested method for the payment of a buyer's
broker's fee. A buyer's broker's fee may be paid by: a) the buyer directly; b)
the seller (if authorized in the WB-36 Buyer/Tenant Representation Agreement);
c) the listing broker (again, if authorized in the WB-36); or by a combination
of these methods. The buyer is ultimately responsible to pay the buyer's
broker's fee, and therefore is the one entitled to choose the most effective
manner of assuring the fee is paid.
Buyer Pays Buyer’s Broker’s Fees
The buyer may choose to simply pay all or part of the buyer’s broker’s fee
directly. This may happen in some FSBO transactions when the seller declines to
pay the fee on behalf of the buyer. This choice requires the buyer to have
additional cash available to meet his or her transaction obligations.
Listing Broker Pays Co-Brokerage Fee
A commission split from the listing broker arises from the buyer’s broker’s
acceptance of the listing broker’s offer of compensation made through the MLS,
from a policy letter agreement between the listing and buyer’s brokers, or from
a specific compensation agreement between the two brokers for the particular
transaction. Payment in these situations is dependent upon the buyer’s broker
meeting a standard of performance before the buyer’s broker is entitled to
compensation. In the MLS, that standard is procuring cause.
Seller’s Payment of Buyer’s Broker’s Fees
The buyer may draft his or her offer to purchase to provide for the seller to
pay all or part of the buyer’s broker’s fee.
Pursuant to the Code of Ethics, specifically SOP 16-16 under Article 16,
REALTORS® may not use the terms of an offer to purchase to attempt to modify the
listing broker’s offer of compensation to other brokers. For example, a buyer’s
broker may not submit an offer that is both contingent upon the
listing broker reducing the commission received from the seller and
upon the seller paying the buyer’s broker’s fee.
A buyer may, however, ask the seller to pay the buyer’s broker’s fee as a
term of the buyer’s offer to purchase. The fee would be paid at closing from the
seller’s proceeds. This payment does not create an agency relationship between
the seller and the buyer’s broker. It is similar to the case where the buyer
asks the seller to pay the buyer’s closing costs. A buyer's broker may ethically
suggest that the buyer ask the seller to pay some or all the buyer's broker's
fee. In order to be in compliance with Wis. Admin. Code. § RL 24.05(1), the
buyer's broker must have authorization from the buyer in the WB-36 to accept
compensation from the owner or the owner's agent.
Because this request for payment is made between the parties to the offer –
by the buyer to the seller – there is no Article 16 violation. The brokers are
not parties to this agreement because they are not the parties to the offer to
purchase.
Seller Responses to Fee Payment Provisions
The seller must be permitted to make an informed decision regarding a
provision in the offer asking the seller to pay the buyer’s broker’s fees. The
listing broker should educate the seller about agency relationships and broker
compensation alternatives. Just like the buyer’s agent is obligated to serve the
best interests of the buyer in achieving the buyer’s goal, the same is true of
the listing agent in advising the seller in order to achieve the seller’s goal.
It is the interests of the seller that take precedence over any preference that
the listing broker may have as to compensating cooperating brokers.
The seller does not set or dictate the buyer’s broker’s fees. The seller may
certainly choose what provisions are acceptable in the offer to purchase. The
seller is entitled to negotiate whatever is in his or her best interests, and is
not bound by the listing broker’s or buyer’s broker’s compensation preferences
or policies.
Among the seller’s option is to: pay the fee requested by the buyer in the
offer to purchase and possibly ask the listing broker to reduce his/her
commission by a like amount or counter the offer to increase the purchase price
to obtain the net proceeds desired by the seller. The seller may risk losing the
buyer by countering the offer, but if the buyer does want the property the buyer
and the buyer’s broker may need to consider whether other payment arrangements
may be acceptable.
In the end, we must remember that the offer to purchase is an agreement
between the buyer and the seller – the brokers representing the buyer and seller
are not parties. The terms and conditions in the offer to purchase should be
negotiated in the respective best interests of the buyer and seller.
For more information see Legal Update 05.09, “Buyer Agency Practice.”
Kevin King is General Counsel for the WRA.
Published: 2/1/2008
