Home Buying in New Jersey>Question Details

Lmc, Other/Just Looking in New Jersey

I purchased a home in NJ last year. When I reviewed my HUD1 statement a few months ago I noticed that my?

Asked by Lmc, New Jersey Thu Aug 7, 2008

agent was not paid the 3% commission that I agreed with them on as a fee. The seller was also an agent working for the agency that was listing the house I bought. I found out that the seller negotiated with my broker to take a lesser commission to sell me the house leaving himself with more money out of my mortgage taken (and fees). Is this legal in the State of NJ, or anywhere?

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In New Jersey, the NORMAL way a buyer’s agent receives a commission is from the Seller! It works this way: The seller’s broker agrees to split his commission from the buyer in some way. (It doesn’t have to be equal.) That amount is published in the MLS and becomes an offer of fair co-operation. That is ALL the selling agent’s side (usually working for the buyer) is going to get from the seller. The listing agent gets from the seller what ever the total commission agreement was, less the amount shared out through the fair co-operation agreement.

Now, you have a couple of issues here. First, You say that you reviewed your HUD1 MONTHS later. How smart was that? Now you find that your agent was not compensated in the amount you thought you had agreed to give them. Well, if you have a signed agency agreement and it says that your agent gets more than the seller agreed to pay, guess who should pay it. (Clue: have a looking glass handy.) Your agent, following current practice, probably just took the compensation that he or she could get from the seller’s broker. Unless you reworked the standard NJAR sales contract, that’s all that the seller has to pay your agent. Actually, they are only paying their agent and allowing that agent to share with the co-operating brokerage. The listing brokerage has to tell the seller how they intend to split the commission and get their approval to do so. This is normally done in the listing agreement, long before your agent and you came along.

Bottom line: If your agent’s brokerage has a written agreement to get a commission from you and they did not get the full amount of the agreement, they have been very courteous to you. If you feel they deserve more, dig into your pocket. If the agreement was verbal, who knows what it was a year ago? Most verbal agreements “aren’t worth the paper they should have been written on.”

My advice? Forget it and send some new business your agent’s way.
1 vote Thank Flag Link Thu Aug 7, 2008
Both commission were actually paid to the broker of the agency. The listing agent and your Realtor may have negotiated a different commission split to allow you to buy the home at a reduced price. We have done exactly the same thing for some of our buyers when the commission negotiation put the buyer and seller together on price. The seller's agent may have returned some commission to the seller. Yes, this is legal. You could ask your Realtor about this if you are interested.
1 vote Thank Flag Link Thu Aug 7, 2008
Interesting question, lovely answers. The answers are all correct, but aren't we missing something here? Lmc, please identify what the relationship with your agent was. This is crucial and must have been disclosed to you right at the beginning. Now let's assume that your agent was working for you and was signed on with you as the buyer's agent. Smart move as that agent now has a fiduciary duty to you and must put your interest as a buyer above his own. Following this scenario to a listing that's represented by the same broker that your agent is affiliated with puts up a big red flag. In NJ he can no longer represent you as a buyer's agent as that would put the same broker on both sides. This can be resolved by (1) you signing a new agreement naming your agent as a dual agent allowing him/her to represent both buyer and seller. (2) dissolve the buyer agency and have your agent refer you to a realtor from a different company to work on your behalf.
I don't know what you eventually agreed upon, but these are the only legal options and must have been explained to you in great detail and then signed off on by you. If that's not the case......well, that's up to the NJ Real Estate Commission and more can be found here http://www.state.nj.us/dobi/division_rec/index.htm
Either way, find out in greater detail what you agreed upon. All this must have been in writing and is probably part of the paperwork. But under no circumstance do you as the buyer determine what your representing agent's commission percentage is. That is up to the seller and the seller alone.
0 votes Thank Flag Link Thu Aug 7, 2008
You've stumbled upon a holdover from the old way of doing real estate, called subagency, where all agents worked for the sellers. Buyer agency has been a accepted form of conducting real estate in NJ since around 1994, but a buyer agency contract is still not looked upon with as much value as the seller agency contract the seller signs. You were purchasing under a disclosed dual agency situation but the amount of commission going to the buyer's agent was dictated by the listing contract. All commission payments are to the broker at closing, and the broker can't get paid by both parties in the transaction. As bizarre as it sounds, if you had purchased a house listed by another company, your agent would have gotten paid based on your contract with the broker your agent worked for (and you would have actually paid the difference, either as a closing cost or in your mortgage.) In my opinion, in NJ, buyers' agents get screwed in this situtation by doing what is best for their buyer client, which is what they are required to do. (An agent put's the CLIENT's interest above his own.)

Real estate fees are negotiable, which is great, but sellers generally still offer at least some compensation to buyers' agents. The REALTOR Code of Ethics, which requires that REALTORS cooperate with other REALTORS had to be amended a few years ago to say that "cooperation" does not mean "compensation", and both the Code of Ethics and NJ law recommends that all agency contracts (which indicate who the broker is working for, for how long, and what the broker will be paid) be in writing. The negotiations between the seller and the listing agent about how much compensation to offer buyers' agents should not, in my opinion, be the governing factor in what a buyer's agent should be paid.

As William posted, you didn't take a hit, your agent did, and it would be very nice if you sent your former agent more business. Agents work for a living, and I don't think there are many people who work at other jobs who can take a hit of 15-30% on their earnings because of what other parties to the transaction negotiated. (Which is what accepting a 2% or 2.5% fee, when you negotiated that you'd be paid 3% amounts to to the agent.)

I'll get off my soapbox now. ;-)

Joan Prout, MBA
Broker Associate
Jersey City, NJ
Web Reference: http://www.JoanProut.com
0 votes Thank Flag Link Thu Aug 7, 2008
As the buyer, you have no input on what the commission is on a transaction. The commission is declared when the listing is taken with the seller. In this case the seller is also the agent, which is fine and the seller's agent is also due a commission on this which of course will be paid to the seller in commission.. so yes, the seller did probably get more for the house, but that is becasue they earned a commission on the transaction. and yes.. this is legal.
0 votes Thank Flag Link Thu Aug 7, 2008
It could possibly be legal in NJ, but in Tennessee it has to be disclosed to you ! In Tennessee the paperwork just keeps coming, but in the end it is for your protection!
Web Reference: http://www.PattyEveritt.com
0 votes Thank Flag Link Thu Aug 7, 2008
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