By Kathy McSherry

My sister is a licensed real estate agent and has been helping my husband and I find our first home. Last weekend my husband and I went to look at a new home development without my sister and toured the model homes. When the sales agent asked us if we had any questions, we mentioned that we had our own Realtor. The sales agent suddenly became very rude and said that our Realtor could not get any commission from the builder as she was not present on our first visit. Why is this? It completely turned off my husband and I and we have chosen not to purchase the model plan that we fell in love with. Could you explain who is responsible for paying Realtor’s commissions and how that works?

—Claire P.

You would not be the first person to ask me this question, as many people get confused as to how Realtors get paid or who pays their commissions. First, real estate agents work for real estate brokers. Although some agents are both licensed as agents and as a broker. A real estate license can only hang with one broker. Any fees that are paid to a real estate agent must pass through the broker where their license hangs. For example, my real estate license hangs with Compass.

Only a real estate broker can pay a real estate commission and sign a real estate listing agreement with a seller. Commissions can vary depending on an agent’s experience, etc. Fees can then be deducted from these commissions, i.e. advertising, administrations fees, office expenses, etc. One of the most common types of listing agreements allows a broker to exclusively market a seller’s home. In return for bringing a buyer to the transaction to purchase this home, the seller agrees to pay the broker of the buyer’s agent a commission. Typically, this is a percentage of the sales price and it is shared between the listing agent and the selling agent (the agent representing the buyer). Henceforth, the seller typically pays the real estate commissions involved in a real estate transaction.

Your question however, refers to a new homebuilder. The builder is also the seller in this case and if they agree to a broker co-op (commission to a real estate agent or broker to bring a client into their new home community), that fee could be a flat fee or also a percentage of the sales price. It does not cost you, the buyer, anything to use your own real estate agent to represent you on the builder’s purchase agreement. However, the builder will pay this commission based on “procuring cause,” meaning your agent is the reason you came to the new home community.

Therefore, the builder wants your Realtor to bring you into their sales office and officially register you as their client on your first visit. The sales agents in a builders’ sales office are licensed agents whose real estate license hangs with the broker of record for the company that employs them. If your sister cannot be with you in the future, have her reach out to the sales office and provide your names and they may allow her to come down at a later time to fill out the registration form. This depends on the builder.

Having 14 years experience with new homebuilders, I personally believe in having your own agent as they can act as a liaison between you and the builder. Services that I offer my clients include helping them to understand the pre-qualification process, explaining the timeline while your new home is being constructed and understanding the different phases of construction, assist with selecting the right home for their lifestyle, assist with selecting designer options with the builder, review all of your contracts, and maintain communication with the builder from your first office visit to the point when your keys are handed over to your new home.

I hope this helps, Claire, and best of luck in your home search.

[image provided by canstockphoto.com]

—  Kathy McSherry is a Realtor at Compass. Email your questions to [email protected] or call 702-328-9905.