How Realtors Get Paid
100 Real Estate Tips in 100 Days (Day 35)
In most cases, the seller of a property pays the commission (professional services fee) for all of the Realtors involved in a successful and closing. Before we get into just how that happens, let's define a few terms, at least how they are defined in Colorado:
Licensee-a person over the age of 18 that has completed a 160 hour course in real estate and has passed a state administered qualification test. After completion of the course work and passing the test, applicants must undergo am F.B.I. criminal background check including fingerprinting.
Employing Broker and Broker Associate- in Colorado the Employing Broker is the head of a group of company of Broker Associate's. All licensees' hold a Broker's License. A Broker can operate independently of an employing Broker after 2 years of active license. There is no minimum experience requirement to be an Independent or Employing Broker other than 2 years holding an active license.
Realtor-a licensee that has elected to join the professional trade association known as the National Association of Realtors. Not all Licensees are Realtors.
Agent- a licensee that is contractually obligated to a consumer for the purposes of providing professional assistance in the buying or selling of real property.
Agency is defined by representation, not by a connection to the person paying the commission.
Sellers Agent - a broker that represents the seller in the sale of real property.
Buyers Agent - a broker that represents a buyer engaged in buying real property
C0-op Fee - an amount offered by the listing broker to any other broker that brings a buyer to the transaction.
OK, with some definitions established, let's see how it works. In most transactions, the owner of a property will employ a broker to assist in the sale of that property. The assistance can be defined as three main things: consultative services to determine price and condition preparation, the actual marketing of the property and negotiation of any offers presented, and oversight of the myriad of details required for a successful closing of the sale and transfer of property. The fee or commission for these combined services is negotiated between the property owner and the broker (associate). An additional amount to be paid by the property owner is usually added to the broker's fee to pay a cooperative fee to any broker that brings a buyer to the transaction. The combined total fee is noted on the listing contract between the seller and the seller's broker.
The information concerning the property is made available to the public and the real estate community by exposure in the MLS, the World Wide Web, various print media, flyers, open houses, and many other ways as part of the selling brokers marketing plan. A broker representing a buyer may note that a certain property provides an ideal solution for that buyer. If, after introducing the buyer to the property, and negotiating a successful contract that results in a close of sale and transfer of deed; then the buyer's agent is paid the agreed fee by the sellers agent from the total fee or commission paid to the seller's agent by the seller of the property. In most cases, the buyer does not pay a fee.
The buyer's agent (broker) may not take any fees other than the co-op fee unless such a fee is disclosed to the buyer. To do so would be a violation of law.
There are cases where a buyer wishes to pay the fee to her agent. In that case, the amount of any offered co-op fee is usually deducted from the buyers offer.
In most sales in Colorado today, the buyer's agent is paid by the seller's agent from the proceeds of the sale. In no way does that obligate the buyer's agent to benefit the seller position, except by conducting the transaction in a fair, honest, and ethical way.
Even though the seller usually pays the commission for the buyer's agent, a combination of real estate laws in Colorado, including well defined agency law that forbids "dual agency", and the concepts of dedicated and single agency, assure both buyers and sellers of an "arms length" transaction.