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Who Pays Real Estate Commissions

Over the past couple weeks I have had 3 different clients ask me a question about paying Commissions and I thought I would address the question via blog to inform buyers of how Real Estate commissions are paid in Arizona.  Many first time home buyers, out of state buyers, and Canadian buyers are unfamiliar with how the commission structure works in Residential Real Estate.

Who Pays Real Estate Commissions:

In residential transactions, the seller pays the real estate commissions 99% of the time. However in very rare circumstances the buyers will pay their agent a commission on top of the commission offered by the seller or if the seller is not offering a commission. This can come in the form of a retainer fee, and or commission.

Where is this disclosed:

When a seller signs a listing agreement to sell their house, there is a set commission amount they agree to pay to the sellers agent who will in turn pay the buyers agent for bringing a buyer to the table. When the sellers agent list the property on the MLS (Multiple Listing Service) they disclose what amount is being offered to a Buyers agent.

All commissions paid to a buyer and or sellers agents must be disclosed to both buyer and seller on a HUD.

Covering your basis:

By law, if you are a buyer and do not have a written agreement for compensation with your real estate agent, then you do not have an obligation to pay a commission. The sellers are responsible for paying any and all commissions per the listing agreement and subsequent MLS listing where a commission is offered to the procuring broker (buyers agent).

So when would I have to pay a commission?

There are homes for sale that are not listed by a sellers agent and or put in the MLS. If you are working with a real estate broker, and find a property that is not publicly listed then you may be asked to pay a commission for representation from your agent.  In these situations, your agent may ask you to sign a buyer broker agreement with specific language that either the seller is to pay the commission, or if not, then you as the real estate buyer will be required to pay the broker.

Buyer Broker Agreement:

If you are working with a Realtor who asks you to sign a buyer broker agreement please look at the language carefully regarding compensation.  There is nothing wrong with a buyer broker agreement and this document actually solidifies a relationship financially and more importantly designates specific duties that your broker will do for you. However, be careful that the compensation section is in amount and in the time frame that is agreeable to you.

In this day and age in the greater Scottsdale and Phoenix Arizona real estate market of short-sales, lender owned homes, bank owned listings, pre-foreclosure listings and foreclosure or auction sales, and FSBO (fore sale be owner homes)  it is not uncommon, to use buyer broker agreements when looking at for sale by owner properties that may pay limited commissions. As a result your realtor may want additional compensation for their time than the amount being offered.

Conclusion

It is critical to understand that unless you have a written agreement between your self and your realtor in Arizona, the buyer will pay no compensation. So if you are concerned please have a discussion with your realtor, ask them to outline section 8 of of the Arizona real estate contract and if necessary, ask realtor to give you a copy of the buyer broker agreement to look at the specific language regarding compensation..

If you would like a copy of the Arizona real estate contract or the Arizona buyer broker agreement please e-mail me directly at or call me anytime to discuss the Arizona Real Estate Purchase contract or buyer broker agreement.

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