By Gary Isom, Executive Director of the Arkansas Real Estate Commission
So, the day before closing, the seller’s broker discovered that his seller would be paying a fee to the buyer’s broker for professional services rendered. The buyer had agreed to pay this fee to his buyer broker through an agency agreement. This fee was in addition to the compensation the buyer broker would receive from the seller through the co-op split offered by the listing broker through the Multiple Listing Service. The buyer’s broker claimed that the seller agreed to pay the additional fee through the Real Estate Contract as part of the buyer’s “closing costs, prepaids and settlement fees…”. These are often referred to as “seller’s concessions”.
In this situation, the seller and her broker did not consider the additional buyer’s broker’s fee to be included under the language for the seller’s concessions. Consequently, the seller claims she did not agree to pay the fee.
While this practice is not entirely new, it has become more common in recent years and somewhat more controversial among real estate professionals.
“Back in the day” as they say, broker fees were limited to the sales commission that the seller agreed to pay pursuant to their listing contract. This was usually a percentage of the sales price. Through cooperating agreements between brokers, seller’s brokers would share a portion of that commission with the broker who brought the buyer to the table. This is sometimes referred to as a co-op split.
As brokers began to enter into agency relationships with buyers, those buyers agreed to pay their broker a fee. However, the practice of sharing the commission payable through the seller’s listing contract continued. In the early stages of this transition, the buyer’s brokers were usually content with the commission split and did not seek additional compensation from their buyer.
In recent years, the practice has evolved to where the buyer’s brokers sometimes seek additional compensation over and above that which is obtained through the traditional co-op split. Seller concessions are a mechanism through which that is achieved.
These fees are certainly legal and it’s also legal for the buyer to negotiate for the seller to pay the fees. However, when the contractual language is vague or general, sellers may close on their transaction without ever knowing that they are paying additional fees to the buyer’s broker through their seller concessions.
Some sellers object to paying any brokerage fees that exceed the amount they agreed to pay when they listed their property. These sellers should inform their broker if they do not want to pay additional buyer broker fees through their seller concessions for buyer’s closing costs, settlement fees, etc. For further information, contact the Arkansas Real Estate Commission at 501 683-8010.
House to House is distributed weekly by the Arkansas REALTORS® Association. For more information on homeownership in Arkansas, readers may visit www.ArkansasRealtors.com.