Note: The Texas Association of Realtors and TREC update promulgated forms regularly. For the most recent updates, check with TAR, TREC, or contact me at firstname.lastname@example.org.
Note: I am a real estate professional, not a lawyer. Nothing herein should be construed as legal advice or instructions.
Back from last paragraph, Paragraph 7: Property Condition. Now we are on Paragraph 8: Broker’s Fees (Eureka!), which is a good one!
Where in the contract does it show what the agents are getting paid?
Well … it doesn’t.
What the – ?
The purchase contract has NOTHING about agent commissions, other than to say that it has nothing about agent commissions.
So then what are those separate written agreements that the paragraph mentions?
Well, it depends on if you are the buyer or seller.
For sellers, the agreement is their listing agreement that they sign before the house even goes on the market. In the listing agreement, the seller agrees to what amount their own agent receives, and also on what amount they will compensate the agent for the buyer that ultimately purchases their home. 99.9% of the time, the seller pays all of the buyer agent’s commission.
For buyers, the amount their agent is compensated is usually in their buyer representation agreement.
“But wait? You just said the seller pays the commission.”
The buyer representation agreement also says that the buyer’s agent will try to collect their commission from the seller if possible (and, 99.9% of the time, it is, and not a concern). BUT, if for some reason the seller is not offering a commission, or less than what you agree to with the buyer’s agent, then it may be the case that the buyer agent’s commission comes from you at closing.
I have never seen it happen, but here’s an example of how it might. The seller may agree to compensate the buyer’s agent 2.5% of the sales price, but the buyer’s representation agreement with the agent specifies the buyer’s agent will get 3%. There are three ways this could end. First, the buyer’s agent might negotiate with the seller to get the full 3% covered, irrespective of what the listing agreement says. Secondly, the buyer may end up paying the 0.5% of the purchase price at closing to make up the difference. Or thirdly, and probably by far the most likely scenario, the buyer’s agent simply grumbles to him or herself at their reduced commission but keeps quiet, trying not to rock the boat. None of these courses of action are wrong or right.
A rare third “separate agreement” might be the Registration Agreement Between Broker and Owner. This would be used if the seller did not have their property listed with an agent, for example, a For-Sale-By-Owner (FSBO), and therefore there is obviously no listing agreement. The buyer’s agent would get the seller to agree to a commission, however the seller is not obligated to pay any commissions. In that case, the buyer would be on the hook for their agent’s commission at closing.
Lastly, there is yet a fourth agreement called the Registration Agreement Between Brokers, which can be used to split a commission between multiple agents at different brokerages if the situation called for it. Again, in residential transactions this is very rarely used.
“Can I know what both agents are getting paid?”
Yes and no. You will know what your own agent’s brokerage is getting paid. But you won’t directly know what the other person’s brokerage is getting. Even if you are the seller and paying the buyer’s agent, it is conceivable that their buyer’s representation agreement includes more than the commission you are offering.
You will indirectly know at closing when you see the HUD, as you will see the commission disbursements to each brokerage involved, but that may not be the complete picture. Ultimately, only your own agent’s compensation is your concern, anyway.
Short and sweet! I hope you found it helpful. Next time is Paragraph 9: Closing, all about scheduling the closing, the transfer of the deed, and other closing instructions.
Questions about agent fees? Please post them in the comments below for everyone to see!