Last updated on April 18th, 2024 at 06:15 am
Realtor commission refers to the fee paid to the real estate agent involved in the sale, and it is crucial to know who is responsible for covering this cost.
What is Realtor Commission
Realtor commission is typically a percentage of the sale price of a property that is divided between the buyer’s agent (also known as the buyer’s real estate agent) and the seller’s agent (also known as the listing agent).
This commission serves as compensation for the services provided by the real estate agents throughout the real estate transaction.
Who Pays it for New Construction
In the case of new construction properties, the responsibility for paying the realtor commission often falls on the builder or seller rather than the buyer.
Builders and developers commonly set aside a budget for commissions to be paid to the buyer’s agent.
This means that buyers can benefit from the services of a buyer’s agent without incurring any additional cost.
Avoiding Conflicts of Interest: It’s essential for buyers to understand that the builder’s agent represents the builder’s interests.
While the builder’s agent can provide valuable information, it’s always in the buyer’s best interest to have their own agent who is solely focused on representing and protecting their needs.
We’ll also discuss whether a home buyer needs a realtor when buying a new build, and what factors they should consider when deciding on one.
Traditional Home Sales and Commission
In the world of real estate, traditional home sales refer to the buying and selling of pre-existing homes, as opposed to newly constructed properties.
The Role of the Buyer’s Agent: In a traditional home sale, the buyer typically works with a buyer’s agent who represents their best interests throughout the transaction.
The buyer’s agent helps navigate the home buying process, from searching for properties to negotiating offers and handling paperwork.
Commission Structure: The commission in a traditional home sale is typically paid for by the seller.
It is customary for the seller’s agent, also known as the listing agent, to collect a percentage of the sale price as their commission.
This commission is then shared with the buyer’s agent. The specific commission rate can vary, but it is often around 5-6% of the final sales price.
Importance of an Experienced Realtor: With their in-depth market knowledge and negotiation skills, they can ensure a smooth transaction that benefits their clients.
The Value of a Buyer’s Agent: The buyer’s agent can provide valuable insights into market conditions, property values, and negotiation strategies.
They can also assist with home inspections, contingencies, and ensuring that all contractual obligations are met.
Commission Payment: This means that the buyer’s agent’s services usually come at no additional cost to the buyer.
However, it’s essential for buyers to discuss commission agreements and payment structures upfront with their agent to avoid any misunderstandings.
Making an Informed Decision: With their knowledge of market trends and comparable sales, they can help clients make informed decisions that align with their goals.
Builder-Paid Commission
In many cases, buyers might assume that they need to foot the bill for their agent’s commission.
However, when it comes to new construction properties, this is often not the case.
Builders typically allocate a certain percentage of the sales price to cover realtor commissions.
The builder’s agent who works directly for the builder, is responsible for selling the new construction homes in the development.
They are familiar with the intricacies of the project and have a wealth of knowledge about the specific properties available.
It’s important for buyers to note that the builder’s agent represents the seller’s interests and is focused on maximizing the builder’s profits.
It’s worth noting that builder-paid commission does not mean that hiring a buyer’s agent will increase the price of the property.
Remember commission is typically factored into the overall costs incurred by the builder, and it’s part of their marketing and sales strategy.
The presence of a buyer’s agent can actually benefit the buyer by providing expert advice, negotiating on their behalf, and conducting thorough home inspections
In some cases, the builder might have a specific commission rate that they offer to buyer’s agents.
It’s important to note that the commission rate can vary depending on the builder
Negotiating Responsibility
Whether you’re a potential home buyer or a real estate agent, understanding the responsibility for negotiating and paying the realtor commission in a new construction transaction is paramount
Commission in a New Construction Transaction: In the case of new construction, the responsibility for paying the commission may vary.
Commission Responsibility with Builders: When dealing with a large-scale builder, often referred to as a “tract builder” or a “local builder,” they typically have their own sales office with designated agents.
These agents work directly for the builder and represent the builder’s interests.
In such cases, the builder’s agent is responsible for paying the commission of the buyer’s agent.
Negotiating Commission with Custom Builders: In the case of custom builders, who work on individualized projects, the responsibility for commission payment may differ.
Some custom builders may include the buyer’s agent’s commission in the overall sales price, while others may require the buyer to pay a portion of the commission directly.
Clarifying Commission Responsibilities: Clarify the arrangement upfront to avoid any surprises or misunderstandings later in the process.
Negotiation of the commission is made to ensure that the real estate agents get fairly compensated.
Realtors must also confirm that their commission is added to the purchase agreement upfront.
Realtors may also receive referral fees from builders if they refer a buyer to a particular builder or development.
Factors Influencing Responsibility
Builder’s Policy: The commission responsibility may be determined by the builder’s policy.
Some builders include the commission in the base price of the new construction home, which means the buyer indirectly pays it.
In other cases, the builder may offer to pay the commission directly.
Buyer’s Agent Agreement: The agreement between the buyer and their agent plays a crucial role in commission responsibility.
If the buyer’s agent has a signed agreement that outlines the commission payment, it typically means the builder or seller is responsible for paying the commission.
No Agent: The responsibility for paying the commission can also depend on the presence of a seller’s agent or listing agent.
If there is no outside agent involved, and the buyer directly interacts with the builder’s sales office, there may be no commission owed.
Negotiation: In some cases, the buyer may negotiate for the builder or seller to cover a portion or the entire commission.
It’s important for buyers to be aware of how the commission works in the purchase of the hoem.
Sales Price: The final sales price of the new construction property can impact commission responsibility.
Type of Agent: The type of agent involved can also influence commission responsibility.
Regional Practices: Real estate practices can vary by region, and this can extend to commission responsibility.
Transparency and Disclosure
When it comes to realtor commissions in new construction properties, it is crucial for all parties involved to have a clear understanding of how the commission structure works.
Disclosing the Commission: Transparency and disclosure are crucial in ensuring buyers have all the necessary information to make an informed decision.
Buyers should always ask their buyer’s agent about the commission arrangement with the builder.
Is the builder providing a commission to the buyer’s agent?
What is the commission rate or split ratio?
Builder’s Sales Team and Buyer Representation:
When dealing with a new construction property, buyers should be aware that the builder’s sales team represents the builder’s interests.
While they are knowledgeable about the project, it is important for buyers to have their own agent who can advocate for their best interests.
Final Thoughts
When a realtor represents a buyer in a new construction sale, they typically earn their commission from the seller or builder rather than the buyer.
Working with a realtor can lead to several benefits, including access to insider information and assistance with financing and closing.
While buyers may be hesitant to ever pay commission fees, it’s important to understand that the builder typically covers these costs.
When deciding on a realtor, consider their experience in all facets of real estate and their knowledge of quality construction and materials.
It’s also important to watch out for confusing paperwork and contracts.
Negotiating Commission and Incentives: While the commission structure may seem fixed, there’s often room for negotiation in new construction transactions.
In some cases, builders may offer incentives to the buyer’s agent in the form of bonuses or additional perks, which can further benefit you as the buyer.
With over 15 years of unwavering dedication to the Texas real estate market, Andrew Reichek is your trusted partner in achieving your real estate dreams. As a licensed Texas Real Estate Broker, Andrew’s unparalleled experience and expertise make him the go-to choice for both buyers and sellers. His extensive knowledge of the local real estate landscape and commitment to delivering exceptional service have made him a recognized authority in the industry.