Real Estate Commission Protection

Keeping an eye on your commission is good but it’s better to protect it – by representing your clients properly.

Think about the first thing you do when you get some money. When someone hands you a few hundred dollars, do you just lay it on the table and walk away? No, you probably don’t. I sure wouldn’t! But, this happens all the time in big money negotiations – like selling. Fortunately, as a licensed real estate seller, there is some protection. There is something to keep you from leaving a future commission, maybe a few thousand dollars, laying on the table – for anyone who wants it.

We Expect To Get Paid

When a real estate professional is showing houses to a possible buyer, they do it expecting to sell them one of the homes that they see. When the sale is made, that means the agent or broker will earn a commission. Some real estate commissions can go into the tens of thousands of dollars (or more) on bigger properties. So what is to keep the buyer and seller from cutting you, and your paycheck, out of the deal? Without a buyer representation agreement, not much. Years ago, before there was a National Association of REALTORS® (NAR) or other professional organizations, home sales were a lot different. In fact, many people got ripped off including any person who was helping the buyer and seller get together. For many years, there was just a contract called an “Agency Agreement”, or something similar. That agreement was there to make sure if the real estate was “listed”, meaning an agency was selling it, the sale could not not happen without the listing agency getting paid.

But What About Protecting a Non-Listing Agent

Buyers' Agent Meeting with Family

Real estate agent talking to a family

Skip forward to the early 1990’s. By that time, a new type of agent, someone who didn’t just try and get home sellers to let the agent sell their property (list it), emerged. These real estate professionals were more interested in working strictly with people who were looking to buy a home, not sell one. We call these people “buyer’s agents” or “buyer’s representatives”. Since the agreements were mostly there to protect the selling agent, it almost meant the buyer’s agent was potentially leaving thousands of dollars in commissions unprotected.

The Buyer Representation Agreement

Because the real estate business was growing so fast, these new types of agents needed some type of protection. Because nothing really existed before that time, something had to be created. That creation was a new type of agreement specifically intended to protect an agent who was showing houses to buyers. They called it the Buyer Representation Agreement. These new agreements are good for all types of transactions:

  • Primary home buyers
  • Investment property buyers
  • People who just want to rent
  • Deals that are lease/purchases
  • Commercial property deals
  • Any transaction involving real property

Hey, That’s My Money!

When the buyer representation agreement finally showed up, it meant the people looking to buy a home could be represented by an agent who has access to all the tools the other agents have. It meant the buyer’s representative could stop worrying about showing homes and the the seller’s agent taking all the commission for their self, or the buyer somehow finalizing the deal without the agent who showed them the home. So what did this result in? Buyer’s agents who felt more secure about showing a lot of properties. Without this insurance policy, so to speak, buyer’s agents had to be very careful about which properties they showed and that limited the service they may give to the buyers.

Here Are The Basics

Let’s say you are a licensed real estate agent. You don’t have any listings (homes for sale) of your own, but you know people who want to buy a home. Instead of referring those to a “full service agent” you can now have the buyers sign an agreement with you. Here’s what that agreement does:

  • It means the buyers cannot buy a home you showed them without you being paid
  • It means another agent can’t steal the buyers away from you and take your pay check
  • It means you feel a lot more secure about showing any property the buyers want to see
  • It means you get paid even if the home they buy is not “listed” so long as you showed it to them
  • Because you feel secure you don’t mind telling the buyers about every available property

What Happens Without A Buyer Representation Agreement?

Just having a real estate license is not enough protection, under the law, as having an agreement. So, in the case where you would simply start showing someone properties without having a signed (we call it executed in the legal business) agreement to protect your commission, the buyer could simply call the listing agent and buy the home. Or, if there is no other agent and the property is for sale by owner (called FSBO) they could just contact the home owner directly and completely cut you out. The buyer representation agreement is a legal contract that tells the buyer you are committed to them and you are not afraid to show them any property they are interested in . It’s a win-win-win combination for the buyer, the seller, and for your money.

To formally learn more about the importance of buyer representation and dig deeper on how to protect yourself as an agent, please check out our continuing education course entitled  ‘Effective Buyer Representation’  here. Alternatively, if you would like to speak to a REEDC Career Adviser to learn about your options for getting the most out of your CE, please call us at 800-547-6020