Commercial PropertyMissing The Point Of Who Pays For What In Real Estate Transactions
Recent Realty Times stories have revived the debate of who pays for what in the real estate transaction, and who is entitled to control things. Some Realtors are saying that the buyer pays the real estate commission(s) because he/she brings the money to the table, while others say the seller pays the real estate commissions because he/she receives the proceeds and then uses the proceeds to pay the commission(s).
Realty Times believes both sides miss the point. The real decider of who pays for what is what both principals have agreed to when they create a third entity called a sales contract. The sales contract outlines where the money is coming from, who receives it, and at what point in the disbursement proceedings other parties receive their funds.
The proof that this is true is that the seller is the last one to get paid, no matter if the money comes from a lender or cash investor. The sales contract dictates distribution of the proceeds because there are other costs to the transaction -- attorneys, agents, title companies, and so on.
When the lender and buyer provide the proceeds from the sale of the home to the seller, the timeline usually begins with the payment of liens, closing costs, and obligations required to be paid by the contract of sale, including the commission to the listing agent. Typically, the seller hires the listing agent to get the home sold. If the listing agent has agreed to disburse funds to a selling agent, and a selling agent brought the buyer, that is also accounted for in the contract of sale. Therefore, the seller doesn"t pay the selling agent, the listing agent does.
At least, in most cases. Rarely, a buyer"s agent will be paid by the buyer, which changes the order in which the funds are distributed. The buyer"s agent then typically refuses the compensation offered by the listing agent, and the listing agent is paid whatever was previously agreed upon by the seller.
As more openness is demanded of the real estate transaction, more confusion is impacting understanding of how things should work. For example, buyers, encouraged by rebates and gift certificates from online real estate services, now widely believe they are entitled to participate in real estate commissions, even though they typically don"t have a contract with their own agent stipulating how much commission their agent should be paid.
It"s one of the confusing conundrums exacerbated by the filmy transparency of todays" housing market.
But those buyers, like it or not, are not paid by the seller. They"re paid by the agents -- who agree via the sales contract and their representation agreements to a disbursement of funds that can include rebates to buyers.