This comes up quite often…
Is my agent incentivized to do things, in which THEY make more money, but is NOT good for me? Is my REALTOR obligated to look out for my best interests above and beyond their own?
The Sides of a Real Estate Transaction
On the buying side. I have heard people say that their real estate agent would rather see them purchase a more expensive home, because they make more commission. Lets refer to this agent as the Buying Agent.
On the seller side: I have heard a similar statement – that your REALTOR would like to sell your home for a higher price, so they make more commission. Let’s refer to this agent as the Listing Agent.
In the majority of home sales transactions, there are two agents involved. One who represents the buyer and another who represents the seller. The commission is split between the two brokers that the agents work underneath, then both the buyers agent and listing agent is paid in accordance with whatever payment schedule they have with their broker.
Let’s take a look at the question from the seller perspective first.
When You List Your Home
If you are selling your home with an agent, you have already signed a listing agreement. In that listing agreement, you agreed to pay a certain amount of the final sales price to the real estate agent that brings the buyer and a certain percentage of the final sales price to the agent that has listed the home for sale. When the home is sold, the commission is divided up by the way you agreed to in the listing agreement.
With that being understood…the agent listing the home has every financial advantage to sell your home for more money.
When You Are Buying A Home
This is really where the issue comes up more often; since as a buyer, you want to pay the least amount of money, where the agent may seem to have an incentive to have you pay more for your new home. When an agent sets up an MLS search for you – they generally run it to the very top of your price range. Is this because they make more money? These are things you need to know before buying a home!
The truth is, most REALTORS are more interested in finding you the right property. The difference they would make in commissions, if you were to pay (let’s say $5,000) more, is negligible. Remember, they are only getting a portion of the total commission, by the time you look at the portion the agent actually gets, a slightly higher sales price makes very little difference.
Truth is, if the agent representing the buyer gets their clients a “great deal” on their home, they may get a referral from that client. Many REALTORS live on referrals and having a new buyer to represent makes them MUCH more than the potential couple hundred dollars they could make with a higher sales price.
Fiduciary Duties of a Real Estate Agent
Real Estate Agents Have a Fiduciary Responsibility
Real Estate Agents have a Fiduciary Responsibility to their clients. What Does That Mean?
A fiduciary responsibility means that they MUST put your interests before their own. Fiduciary, pronounced “fah-doo-she-air-ee”, is a Latin word which literally means “to trust”. This means they don’t only have a moral obligation to “get you the best deal” but a legal one. We could have simply answered our leading question with the real estate one-line definition of Fiduciary, but we wanted to give further explanation also.
At the end of the day, your REALTOR always owes you a fiduciary, which means they must have your personal and professional best interests BEFORE their own.