Home Buying in Orlando>Question Details

C K, Home Buyer in Orlando, FL

Question about the compensation (commission) to buyer's agent

Asked by C K, Orlando, FL Mon Apr 23, 2012

We are Canadian looking for investment opportunity in Orlando. We found an Orlando agent who posted the ad one the Toronto newspaper.
After few emails communication, this agent requested us to sign a contract. One of the terms: the buyers agrees to compensate Broker the difference between 3% of the sales price (subject to the minimum $3,000) and whatever commission Broker receives from the Seller or Seller’s broker at closing. In addition to this commission amount (if applicable), a $350 buyer broker fee payable to the brokerage will be charged to the Buyer at closing

We had the full intention to work with this agent. Although we understand and appreciated her concern, this contract turned us away.
Question: Is this the Orlando buyer agents' practice when working with Canadian investor.

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Answers

21
Canadian Investor/Buyer,
From what you have described you have encountered an agent who understand the real estate business THOROUGHLY and has taken care to establish appropriate expectations and maintain the ability to provide you first class service.

Be aware, there is much that is unknown about discussions or communication that may have taken pleace between this agent and you. However, at first glance, it appears you are working with a very efficient professional. Let me explain further.

Here is all that we know.
1. You want to buy Florida real estate, perhaps and investment property.
2. You identify yourself as an investor. This usually means you are looking for a 'deal' and will very likely make aggressive offers on a number or properties.
3. The agent is willing and able to work with you.
4. This agents office, as does mine, will charge $200 to $500 administration (use any lable you wish) for ALL transactions. (Note: This cost is not reflected in the scenario below. So, the outcome will actually be dramatically WORSE!)

Now, it will take your agent anywhere from six to sixty hours to identify, negotiate and acquire the real estate you select. The agent may be driving throughout Orland and area to preview or visit with you the real estate you want to see.

Let's say you do the typical 'investor' thing and find a piece of real estate that will cash flow. This often means the lower the acquisition cost and least repair requirement, equals a better deal.
So you find a condo for $17,000. Now that's a deal to celebrate! Seriously, I have done a number of these deals. They certainly exist. Here's what happens if you engage an agent who is asleep at the wheel. The agent you describe is not that agent. Let's use an ordinary compensation scenerio for the purpose of convenience...6%
$17,000 x 6% = $1020
$1020 / 2 = $510 (total compensation split between listing broker and buyer broker.
$510 x .07 = $35.70 (This amount may do directly to the agents Franchise
$474 / 2 = $237. This is the split between your agent and that agents broker. This is the amount that may be paid to your agent.
$237 - $250 = (-$13) Many listing agents in the central Florida area charge an invisible fee called and MLS fee to the buyer agent. (Remember that administration fee?)

Now, as the numbers indicate, it has cost your agent $17 for a Canadian investor to find this investment property. It has cost, in reality a great deal more. There is no compensation for the agents time or expenses. It is important for the buyer and seller understand, this is a business not a hobby. The agent you describe is providing and exceptional service to you. Those failing to take such preventive steps are likely to bounce you from one crisis to the next because the failed to prepare.

To avoid this situation AND to enable the agent to show you EVERY property available, the agent has advised you regarding minimal compensation. Now, if you are still with me you can recognize the element that has not been revealed is the price point of the real estate you are looking to purchase. Keep the price around $100,000 or higher, and this whole situation vanishes.

You are dealing with a pro. You should rejoice rather than conjure up conspiracy.
Best of success in acquiring your Florida real estate.
2 votes Thank Flag Link Tue Apr 24, 2012
Hello C K!

I'm a Canadian living and working as a REALTOR here in Orlando. The investor opportunities down here are just amazing.

I can understand why this contract might appear a bit concerning to you, at the outset, but your agent is only protecting herself and her ability to continue in her business and service all her clients well.

Real Estate Agents are paid by commission ONLY, and only if a transaction closes; there is no hourly compensation for the time we spend researching properties nor reimbursement for the vehicle expenses of driving clients to showings. Remember, too, that the commission is paid to the agent's brokerage, with the agent themselves receiving only a percentage of it. While, historically, there has been an "accepted" or "standard" of 3% commission offered to buyer's agents, some sellers are unwilling, or unable, to offer that much, and the offer of compensation is totally negotiable. Fact is, with some of the lower "co-brokes" being offered, combined with our near-rock-bottom selling prices, by the time we do all the math (license fees, mandatory education fees, MLS fees, car expenses, insurance...) some of these transactions actually cost us money.

Your agent is being transparent and up-front with you and is not requiring that you pay anything now, only if you close a transaction. These are her terms. You may be able to negotiate them with her. I think I'd feel better working with someone who lays it out for you now, rather than springing it on you later (say, after you've fallen in love with a property and want to make an offer)!

I know that some people call Hollywood Beach "Quebec Sur", but with all the Canadian investors buying here lately, we're going to have to re-name Orlando "South Toronto!" Dive on in... the water's great!

Alys Esmond
Century 21 Professional Group, Inc.
alys.esmond@century21.com
(321)695-5593
1 vote Thank Flag Link Tue Apr 24, 2012
I agree with Annette (below) as she has explained well potential costs involved related to a buyer agent scenario. With gas prices near or over $4.00 a gallon depending on location and the work involved in finding properties that fit a buyer's criteria and budget adds up quickly. In my neck of the woods, traveling from city to city is nothing new. On average buyers will look at 15-20 properties before putting in an offer.

What happens should a buyer decide not to purchase or their circumstances change, or they just pull out of a situation and work with another agent? The agent has invested time, money and a great deal of effort. I feel the buyer's agent deserves something in return.

It would make sense to charge a small fee initially, and if the buyer pulls out the fee would go to the agent. However, if a buyer closes then the small fee would be given back to the buyer at closing. A small fee is very fair and makes good business sense.
0 votes Thank Flag Link Thu May 3, 2012
Hello CK,

The agent, obviously, does not want to waste her time and wants to maximize her compensation.
This is one of those things that is up to you - if you want to agree with this contract, or not.

My problem with this is - you really don't know much about this agent, so this sort of commitment is maybe a little premature, don't you think? What if there is a diagreement - how will the termination work? Will you be obligated to pay the agent anyway?

I am all for loyalty - but it has to be fair to you as a buyer.

Hope this helps,

Irina Karan
Beachfront Realty, Inc.
IrinaKaran@gmail.com
0 votes Thank Flag Link Mon Apr 30, 2012
I am sure it is not specific to Canadian buyers, but to all buyers this agent works with. Frequently we work our tails off for very little compensation when the sales price is low or the seller/ listing agent isn't paying a fair cobroke
0 votes Thank Flag Link Sun Apr 29, 2012
No not normal at all. I am a buyers agent and work free of charge to the buyer. I will be paid by the sellers Broker. The exact amount will be decided by the sellers broker and me. The ' big ' boys in the industry like to charge a 'transaction ' fee for which they do NOTHING extra. So, please shop for an agent like me that will help you free of charge !!

alan@frontlinefloridarealty.com 407 832 4888

http://www.frontlinefloridarealty.com
http://www.shoporlandohomes.com
0 votes Thank Flag Link Fri Apr 27, 2012
CK,

As you see there was a variety of answers, go with what makes you feel comfortable. At the end of the day, the agent just wants to protect there investment of time with you.

Good Luck home hunting!

Highest and best regards,

Vincent Paige
REALTOR® | Century 21 Elite Home Finders
Certified BPO Specialist
5401 S. Kirkman Rd., Ste 725 | Orlando, FL
Direct: 407.256.8190 | Fax: 407.264.8073
0 votes Thank Flag Link Fri Apr 27, 2012
These are all very good answers! Make sure that the contract doesn't read that your payment will be credited by the seller's payment at closing before you stop working with your agent. The Buyer Broker Agreement has that clause included and it is often missed by the client because they are concentrating on the few lines before which states that you must pay the agent.
0 votes Thank Flag Link Tue Apr 24, 2012
It is about time that the buyers have to pay for an agents time and it not all fall to the seller!
0 votes Thank Flag Link Tue Apr 24, 2012
I hope you will reread Annette Lawrence and Don Tepper again. They have explained this very well. Most people do not understand how real estate agents work, many do not realize we are independant contractors and do not get paid unless we close. Your agent sounds like a pro and you should be grateful that you have found someone through the internet that will look after your interests and be a good business person. Consider contacting your agent and be honest with her and tell you your concerns, let her have an opportunity to calm your fears directly, don't just drop her withouth a chance. I tell my clients that if they are unhappy with my performance that we can part ways with no obligation and the contract will go away, I have never had anyone take me up on this. I explain it thoroughly because the agent has a lot to loose if their client does not understand we do not work for free. There are many hidden expenses, not to say the cost of gas today, all of this comes directly out of your agent's pocket. They need to know there will be loyalty, which usually does not exist with investors. You want her to put in a good days work for you and not be concerned that you will disappear and write an offer with someone else (that agent did not invest the time or money that your agent already has).

We have a lot of investors buying in Orlando, the market is complex and the agent has to be on their toes to compete with multiple offers and a very low inventory.

Good luck.
0 votes Thank Flag Link Tue Apr 24, 2012
CK,
You have alot of great answers here. If you would like some assistance please feel free to give me a call at 407-227-3886. I work with Canadians alot, I will explain how I do business and you can decide from there who you want to go with. You have to find a realtor who you trust and will get the job done for you. Someone who will act for you.

Devi
0 votes Thank Flag Link Tue Apr 24, 2012
All real estate brokerages have different fees and contracts, just like your dentists do. There is no "standard" fee as we are not allowed to "price fix." It's up to you which you choose to go with but these terms look fairly normal to me. You can always attempt to negotiate fees and commissions. You may or may not be successful. Feel free to call if you'd like further information.
Regards,
Marcus Burke,
Orlando Real Estate Broker
407-290-3408
0 votes Thank Flag Link Tue Apr 24, 2012
I'm not entirely clear what the total percentage might be from your description but if you're being asked to pay the entire amount on both sides, that doesn't sound fair - but I'd really need to read the contract to fully understand if this is fair.
Flag Tue Apr 24, 2012
Guess they want you to pay for those ads in your Toronto newspapers.

You would be nuts to sign such a contract.

Let me know if you'd like a copy of my guide to the buying process for Canadians.
0 votes Thank Flag Link Tue Apr 24, 2012
First, there are two separate issues here.

Regarding the $350 transaction fee. That's a fee imposed by the broker. It's got to be paid, one way or the other. Payment isn't negotiable. However, who pays it is negotiable. Often/usually it's the client. The agent can choose to pay it. But it's not unreasonable for you to be asked to pay.

Regarding the commission: All commissions are negotiable. If I'm reading your question correctly, it appears that the agent is aiming for a 3% commission--presumably 6% total, split 50/50 between the listing agent/broker and the buyer's agent/broker. That contract is saying (if I'm reading it properly) that if the entire commission is under 6% and if the buyer's agent's share of that is under 3%, you'd make up the difference. That's negotiable, but lots of agents do that. They especially do that on short sales and other situations in which the permissible commission may be reduced by the lender. They'll also do that on FSBOs (for sale by owner properties) if the seller refuses to pay the buyer agent's commission. What's happening is that the agent doesn't want to do a lot of work (often more than in a conventional transaction) and then end up with a miniscule commission.

Two other quick points: First, I don't think that what you encountered is because you're Canadian. It happens to U.S. buyers all the time. Second, there's an ongoing debate among agents about whether (or when) an agent should have clients sign a buyer's agreement. Many absolutely insist on it. Others don't. The trend probably is to have clients sign such an agreement.

I can't speak for Orlando practices, and perhaps they differ significantly from those I'm familiar with. I certainly defer to Orlando agents to address that point. But as for the transaction fee in general, and as for the buyer's agent seeking 3% (half of a 6%) commission--that's not out of line. In other words, what you encountered isn't evidence of a bad agent or poor ethics.

As already noted, you certainly can negotiate on either or both those points, or you can choose to look for another agent.

Hope that helps.
0 votes Thank Flag Link Tue Apr 24, 2012
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
Contact
Hi C K,
Thanks for turning to Trulia with your real estate questions!
You'll get alot of great answers from alot of great agents.

First of all, having a buyer sign a buyer's agreement for some agents is the golden ticket...they can put almost anything in one. Some actually put inflated fees like you mentioned.
Then there are those, for some agents, that act as piece of mind that this client will be working with them....exclusively.

Sorry that this has tarnished our reputation here in Orlando.

I work with numerous Canadian Investors. You may read their comments on my profile....I would be most happy to help you find and process investments here in Orlando, it's what I do!

Feel free to email me and we can get started.

Carol Bauza
Charles Rutenberg Realty
carol@carolshome.com
0 votes Thank Flag Link Tue Apr 24, 2012
All real estate commissions are negotiable. If you like this agent you can talk with them about the commission structure they proposed and ask them to change the terms or you could find another agent.
0 votes Thank Flag Link Tue Apr 24, 2012
There is no standard commission structure for buyer side brokering and I've never heard of an agent charging one group of people (in your case Canadians) a different rate, though I'm sure it could happen.

Here's by take, anyone (be it buyer or seller) who agrees to pay a transaction fee (the $350 you mention) is a fool. These fees only started appearing a few years ago, They are absolute BS fees imposed by the large national franchise brokerages (think Prudential, Coldwell Banker, etc) that are completely unjustified, and serve only one purpose to further enrich the franchise holder. The public should routinely refuse to pay these fees, should tell the agents who propose them to either pay it themselves or find another someone else to work with. The public is simply being gouged. Absolutely nothing is being done for this fee and in fact most companies have seen their advertising budget drop as they've dropped significant parts of the print advertising budget and moved to the Internet which gives them greater exposure at considerably less cost.

The condition of paying the difference between whatever the seller is offering and 3% is fine. I don't do this myself, but have no issue with it. For myself my buyer broker agreement states that I won't accept a commission over 3% or under 2.5%. Any commission or bonus paid over 3% I refund to my buyers as a closing cost credit. Any commission offered by the seller between 2.5% and 3% is acceptable to me.

If you liked the agent you may still want to consider working with them, but I'd tell them that you will never pay the franchise transaction fee, and that they can either strike it from your agreement or you’ll find someone else to work with.
0 votes Thank Flag Link Tue Apr 24, 2012
There is no set commission. However though, 6% commission is spilt between listing broker and selling broker. ( that is normal % in Florida) . You are in the driver seat .
0 votes Thank Flag Link Tue Apr 24, 2012
Hola CK!

Normally the commission is pay by the seller, and the buyer pay for the transaction fee. In the company that work the fee is $230.

I will be happy to show property. Email me.

Thanks in advances
Humberto Cuevas
Realtor
La Rosa Realty
cuevadhumbert@gmail.com
0 votes Thank Flag Link Mon Apr 23, 2012
No, not normal. Buyers work with my brokerage at no cost. I have heard of some agents and brokers requesting buyers sign a contract before- saying the buyer agrees to work with that agency and only that agency. However, I have never heard of requiring the buyer to pay extra commission! The normal commission is 6% split by the listing broker and buyers agency, but many times, especially in this market commissions are reduced to 2.5, 2% sometime lower. That is just the nature of the business. Some brokerages charge a transaction fee, but it usually covers some additional costs incurred during distressed sales(REO/short sales) usually just $100-300.
It's good you found out now instead of finding out at the last minute after you put in a offer. That is an awkward and completely avoidable situation. If your agent is simply following the rules of the brokerage, I suggest she move her license elsewhere. This business is built on trust, yes there are a few bad apples, buyers that waste time only to buy with another agent or a friend. However, it can be avoided with the proper experience. It is a shame that this agent ended up pushing away a potential client, but you are right to walk away or reject the contract. I would not feel comfortable signing a contract like that either. If you can't work it out with your existing agent, send me an email and let me know if I can be of any help to you. Best of luck, Danny
0 votes Thank Flag Link Mon Apr 23, 2012
You will find that a majority of brokerages will charge a broker's fee or transaction fee, charged by the agent's office. This usually is not additional commission. It goes towards the processing of paperwork,etc. My particular office charges $299. I've seen some as low as $199 or as high as $499. But the verbiage is clear- charged to all buyers or sellers that my office works with to process the transaction and not counted towards additional commission- which is usually paid by the seller.

As for the Buyer Brokerage agreement, I see why the agent is asking you to sign that but doesn't mean it's right. Basically, she wants to make a minimum of $3000 and if she's doesn't receive that amount from the sale then she's passing on the deficiency to you. I don't agree with this practice. On the flip side though, agents are only asking buyers to sign this to protect themselves. I personally don't get buyers to sign this upfront unless I feel like there isn't a level of trust or rapport. And when there that important foundation of trust or loyalty is missing, then perhaps this isn't the right business relationship to begin with.

I've closed many deals with Canadian investors- both looking for income with short term rentals in the Disney vacation areas or long term rentals in the more residential areas. Please let me know if you'd like any assistance!
0 votes Thank Flag Link Mon Apr 23, 2012
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