You are. But, but … I don’t have any money, you say. Sure you do. You have lots of money – you have down payment money and you have the ability to get a 30-year mortgage. But, but … that’s for the house I want to buy, not for my Realtor. Actually, some of it is for your Realtor.
How do Realtors get paid?
When a Seller lists his home for sale with a Listing Broker, the Seller and Broker negotiate a listing fee (commission). The total listing fee is used to compensate both the Listing Broker and the broker who works for the Buyer (the Buyer’s Broker). After the transaction closes, the Listing Broker sends a portion of the total listing commission to the Buyer’s Broker as compensation for their work in the transaction.
There is no law that governs the amount of compensation paid to a Buyer’s Broker. It is determined by each Listing Broker and their client, the Seller. The compensation for the Buyer’s Broker (also a commission) is called the “Cooperating Broker Compensation” and it is advertised in the home’s listing information in the RMLS database.
So let’s summarize:
Point #1 – The Buyer’s Broker gets compensated by the Listing Broker, who gets paid by the Seller. Minnesota Law is perfectly comfortable with this compensation arrangement. It does not create any conflict of interest on the part of a Buyer’s Broker.
Point #2 – The amount of compensation that the Buyer’s Broker gets is determined by the Listing Broker and the Seller. The Buyer’s Broker does not have any say in how much compensation they will get.
Point #3 – Follow the money: the Buyer’s Broker gets compensated by the Listing Broker, who gets paid by the Seller. Where does the seller get their money? From the Buyer! So the Buyer’s money is used to compensate the Buyer’s Broker.
Okay, what about your Agent who helped you buy your home – how does he get paid? The Agent who helped you buy your home is a Buyer’s Agent and he works for a Broker – specifically, he works for the Buyer’s Broker who was compensated by the Listing Broker. The Buyer’s Broker and your Agent divide that compensation. Your Agent gets some and the Buyer’s Broker keeps some. So in the end, your Buyer’s Agent gets paid by the Buyer’s Broker, who gets compensated by the Listing Broker, who gets paid by the Seller, who gets their money from YOU.
In a rather indirect way, you compensate your agent. But no matter how indirect this process may be, the Law recognizes that it’s your money that pays your Agent, and because of that your Buyer’s Agent is required – by Law – to disclose to you how much compensation his Broker will get when you buy a home. And he is required to disclose this to you before you write a purchase agreement for a home.
Your Agent’s compensation is in the price of the home you buy. So every month for the next 30 years, every time you pay your mortgage payment, a little bit of that payment goes toward paying your Agent. So you should expect to get 360 “Thank You” cards from your Agent!
