Of course they don’t work for free. What it means is that they share in the commissions that are offered by the seller and the listing agent. Multiple listed property generally has a “co-op fee” offered to a buyer agent. This is usually a percentage of the purchase price paid. If the so-called buyer’s agent says that they work for free or at no cost it simply means that they are willing to accept this fee as their total compensation.
A better way is to fix the amount to be paid as a percentage of purchase price or other method of calculation as well as how any difference between what is offered through the multiple listing service (the co-op fee) and the compensation agreed to between the buyer and the buyer’s agent is handled. The agreement I use calls for an agreed percentage of purchase price paid and any shortages between the offered co-op fee and the agreed to compensation to be made up by the buyer. This agreement also calls for any overages to be refunded to the buyer after closing.
It is not my intention to put a buyer client into a position to having to pay some of my professional compensation at closing out of their pocket. We know before putting in an offer what the offered co-op fee is and thus we figure out before writing the offer how to include any shortages in the offer and include it in the negotiation strategy.
It is very important that a buyer find out upfront how an agent’s compensation is going to be handled and whether or not any bonuses are to be refunded to the buyer and put that in writing in an agreement. It is also important that a buyer fix the amount of compensation that is to be paid prior to viewing homes so that the agent has no incentive to show the buyer properties where they are offered more or to skip letting the buyer know about properties where the co-op fee is lower than is typical for the area.
Real estate agents are generally paid on a contingency basis as a percentage of purchase price. However, there is a perceived conflict of interest in that the higher the price you pay the higher the commission to the buyer agent. But is it really a disincentive? Not really. Take a price difference of ten thousand dollars at three percent = three hundred dollars. Would I encourage a buyer client to pay ten thousand dollars more for a property so that I could make three hundred dollars more or would I benefit more by saving my buyer client ten thousand dollars so that they would be very happy with my service and refer me to others or use my services again in the future?
Don’t be afraid to ask prospective agents if they discount or rebate part of their fee back to you or use an alternative compensation model, such as a retainer and hourly fee, rather than a percent of purchase price. Keep in mind that the agents I’m recommending using are true fiduciary agents and thus should receive a higher compensation than that of a salesperson who isn’t your true fiduciary agent. If they are merely trying to sell you a home and in particular, trying to sell you a home that someone else in their company has listed, you should ask for a rebate. After all they are double-dipping the commission. I have rebated some of my compensation in particular circumstances and as I mentioned above, I rebate any bonuses or overages beyond whatever compensation my buyer client and I agree to.