Cracking the Code: Who Covers Realtor Fees in Ohio Home Transactions?

Buying a home is a significant life decision that involves multiple steps, from searching for the perfect property to negotiating the price and navigating the paperwork. In this journey, a buyer's agent plays a crucial role as a trusted guide, advocate, and resource. But how a buyer's agent gets paid for their services is one of the most asked questions for new buyers. In this blog post, we'll dive into the intricacies of buyer's agent compensation in real estate transactions.

The Role of a Buyer's Agent

A buyer's agent is a licensed real estate professional who represents the interests of the homebuyer throughout the purchasing process. They help buyers identify suitable properties, provide market insights, negotiate offers, and facilitate the closing process. The goal of a buyer's agent is to ensure their clients find the right property at the best possible price and terms. Having an agent when you are buying a home is not necessary, but is incredibly helpful in navigating all of the aspects of buying a home.

Compensation Structure

Buyer's agents, like most real estate agents, work on a commission-based compensation structure. This means that they are paid a percentage of the final sale price of the property once the transaction is successfully completed. However, unlike the seller's agent, the buyer's compensation doesn't typically come from the party they represent. That doesn't necessarily mean you are free and clear of ALL broker fees as a buyer, but it does help mitigate your out of pocket expense to purchase a home.

So Who Pays The Buyer's Agent?

The commission paid to both the buyer's agent and the seller's agent typically comes from the proceeds of the sale, which are generated when the property is sold. Here's how it works:

Seller's Agreement: When a homeowner decides to sell their property, they enter into a listing agreement with a seller's agent. This agreement outlines the terms, including the commission rate, which is typically a percentage of the final sale price. The total commission is usually split between the seller's agent and the buyer's agent.

Co-Brokerage Agreement: The listing agreement also includes a provision for the co-brokerage agreement. This agreement dicitates the commission split between the seller's agent and the buyer's agent. The buyer's agent's share of the commission is agreed upon in advance and is part of the overall compensation structure.

Closing Process: When the sale is successfully completed, and the buyer takes ownership of the property, the seller pays the agreed-upon commission to their agent. This commission is then divided between the seller's agent and the buyer's agent according to the terms outlined in the co-brokerage agreement.

Buyer's Agreement: Some buyer's agents also have buyer broker agreement with their client. Unlike a seller's agreement, this is not something you HAVE to have. Sometimes this agreement outlines a minimum commission the buyer's agent will receive. If the seller is not offering that much, then it could be on the buyer to pay the difference. At the Kaizen Group we DO NOT have a buyer agreement with our buyers as we don't believe it is necessary to charge our clients any additional commissions to what is offered by the seller. 

Document Fees: Many brokers have a document fee that they charge to the buyer that may be written as an additional commission. This will be noted on the purchase agreement, and may be a couple hundred dollars. This fee is to pay the back office workers that handle the paperwork involved in a transaction. Make sure to ask your agent if they charge a document fee or additional commission so you know before you put an offer on a home. 

Benefits of the Commission System

The commission-based compensation system aligns the interests of both the buyer's agent and the buyer. Buyer's agents are motivated to find the best property for their clients and negotiate the best possible deal since their compensation is directly tied to the sale price. This doesn't mean your agent is motivated to sell you the highest priced home either. There is no set commission offered to a buyer's agent, and a cheaper home may offer a higher percentage commission than a more expensive home. Your agent is your fiduciary, and should be acting on your behalf in the same regard they would act on their own. 

Conclusion

A buyer's agent is a valuable ally in the complex world of real estate, providing guidance, expertise, and negotiation skills to ensure a smooth home-buying process. Their compensation, while based on a commission system, is not directly borne by the buyer, but rather by the seller as part of the proceeds from the sale. Understanding how a buyer's agent gets paid can help buyers appreciate the level of dedication and commitment these professionals bring to the table as they guide buyers toward finding their dream home.