There is often much confusion over who pays the commission in any given real estate transaction. To help address this confusion, I thought we would take this weeks topic and cover the mechanics of how the commission structure works correctly to the Columbus Georgia market. Many markets will be similar, but others may be slightly different. You’ll want to check with your local real estate agent to get more specifics on who pays the commission in your transaction.
In Georgia, there is a requirement for every agent to advise their prospective clients about the method in which they will be paid. Without this document, which is part of the buyer broker agreement, then a client/agent arrangement has not been formed, and the agent is not working for the client. The Georgia Association of Realtors has provided excellent forms (email me for a copy) explaining everything.
Another form provided by the GA Associations of Realtors explains the commission structure most commonly used in the state and by the majority of Realtors. In this model, the Buyer is responsible for paying the commission of the agent. The amount they owe the agent is indicated on the first page of the form.
The form then goes on to explain that if the Seller elects to pay any portion of the commission, then it will reduce the amount owed by the Buyer.
For example: If the Buyer owes $2,000 in commission and the Seller offers to pay $500, then the Buyer would still owe $1,500.
In most situations, the Buyer will owe nothing after the Seller has paid their portion of the commission. The Seller paying the full commission would occur if the Buyer owed $2,000 and the Seller offered $3,000; then the Buyer would owe nothing, and the Seller would pay the agent $3,000.
One option is for the Buyer to pay the difference from what the Seller has paid and what the Buyer owes. If this option is not selected then and the Seller paid $500, but the Buyer owed $2,000 the Buyer would not owe the difference between the two and the agent would make $500 on the transaction.
All of these amounts are negotiable, and you can expect to see them in either dollar amounts or as percentages of the sales price of the property. It should be understood though that even while these amounts may be negotiable, they are often only able to be changed by the broker. If their broker sets the price, then the agent you’re talking to may have no ability to change the amount they are charging for their services.
At the same time, there is no set or standard rate charged by anyone in any given market. If two or more brokers came together to decide on a price they would charge, then it would violate anti-trust laws. The amounts charged are individual to the broker with whom you are negotiating. You can expect there to be a wide range of plus or minus one percent the sales price between competing brokers, anything much more than this should be approached with skepticism.
A final item to consider is when a Buyer is looking to purchase a For Sale by Owner property. In this instance, there is a chance that the Seller will not agree to pay any of the commission which is common when the Seller is represented by a member of local Multiple Listing Service. If this is the case then the Buyer will be responsible for all commission costs associated with the purchase of the property and should take this into account when comparing the costs of similar houses.