Does the buyer’s agent work for the seller? Episode #285
Todd: Hello. Welcome to Todd Miller TV. Joined here today with Oana and the question I get a lot is, “How can a buyer agent represent me in a transaction knowing that the money that they’re getting paid in commission is actually coming from the seller?”
So the seller pays the six percent commission. We will just throw that number out there, for example, and three percent of that we will say goes to the buyer agent. So how is it that that agent is going to represent the buyer when they’re getting paid by the seller?
Oana: That’s a great question. So the sellers actually only pay his broker. OK?
Oana: So when you’re a seller and you sign an agreement and list the agreement with a broker, you are agreeing to pay that broker X number of percent or dollars or however that agreement is written up.
Oana: OK? Then that broker then has a cooperative agreement with other brokers in the marketplace to pay a specific amount for procuring a buyer. OK?
Oana: So if broker A lists the property, he has a cooperative agreement with the brokers in his marketplace to pay them if they bring a buyer.
Oana: Broker B brings a buyer and broker B is paid by broker A so it’s a broker to broker compensation. Broker B is never paid by the seller. Broker B is paid by broker A. It is broker A that is paid by the seller. So the buyer receives representation from broker B and broker B has only duties owed to that buyer, not to the seller or to anyone else. The only duties outside of the buyer that broker B has are duties of fairness and honesty and things like that. But as far as fiduciary responsibilities, broker B has the responsibility toward his buyer only.
Todd: What about the people that are from states where they have what’s called subagents where all the agents work for the seller and you have to have a special either transactional agent or something like that agreement? How about in Nevada? How does that work here?
Oana: OK. In Nevada, we don’t have that. In Nevada, the brokers each work for their own client. If a broker represents both the buyer and the seller, then there’s a different form that we have to sign. It’s called Consent to Act that gives everybody notice and permission to work for both the buyer and the seller. But generally when we have different brokers involved, broker A works for the seller and broker B works for the buyer.
Todd: I know people are going to respond to this video one and say, “No, no, no. The seller pays the whole commission. So everyone is working for the seller.”
Oana: I appreciate that perception. However contractually, the only person being paid by the seller is broker A.
Oana: His broker.
Todd: So the listing broker.
Todd: He has the only agreement to get paid compensation.
Todd: And he could take all that money and say, “I’m not going to pay you, other agent. I have an agreement to get paid and we would have to arbitrate that if they didn’t pay us.”
Oana: Exactly, because remember broker B, the buyer’s broker, does not have an agreement with the seller to get paid. His agreement is with broker A, not with the seller.
Oana: He is not paid by the seller. He is paid by broker A.
Todd: Now I know that half the people are also going to go, “No, no, no. The buyer is the one paying all the commissions because the buyer brings all the funds to escrow, so all the money gets paid out of that. So technically, the buyer is paying everybody. The buyer is paying the seller’s agent, the listing agent.” So half the people now are going to say, “No, no, no. The listing agent is working for the buyer because the buyer is the one bringing the funds to start the transaction.”
How do you respond? Because I get that every time. Every time we talk about commission, half the people say, “No, the seller pays everything,” and half the people will say, “No, it’s really the buyer because they bring the funds.” Then they have other people who go, “Well how did the buyer get the money?” If the buyer got it from a job, then their employer is the one paying everyone because the employer got the money and then he gave it to the buyer and then the buyer gave it to the seller. And then how did the employer get the money?
So like where the money originated. So what do you say to people who are going to say, “No, no, no. It’s actually the buyer paying for it. All the agents work for the buyer”?
Oana: Look, the bottom line is who we have fiduciary responsibility to.
Todd: OK. So the fiduciary responsibility for the buyer is the buyer agent.
Todd: The seller is the seller listing agent.
Oana: Right. So if you win the lottery, there’s everybody who put in money to the lottery. Are they all bringing money to the transaction? Well of course not.
Oana: So look, who does everybody work for? The listing broker, broker A, works for the seller. The buyer’s broker, broker B, works for the buyer. This is who we have fiduciary responsibilities to. These are the people that we are accountable to.
Todd: OK. Good. I think that answers the question. So in Nevada, we have special duties owed to each client.
Oana: Absolutely. We have duties owed to each client and the only way you have dual representation is if both the buyer and the seller sign a form called Consent to Act that informs everyone that you have one broker acting for both parties. All parties are informed and all parties agree to that. So it’s not enough to inform the parties. They actually have to agree to that.
Todd: OK. The other thing that I will mention is that for those people who believe that the buyer is the one paying for all the agents, tell that to the seller when they’re A, signing the listing agreement the first place because they always fight over that; and then two, when the net proceeds get paid, it’s taking off their money. Maybe you have the purchase price minus all the agent commissions that come out their side.
Oana: The seller gets paid less.
Todd: Yeah. Seller gets paid less. Anyway, well thank you very much.
Oana: You’re welcome.
Todd: So that is my update for today and hope to see you on another video. Thanks.