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Every Real Estate Company establishes their own commission rate and broker fees. The illustration below is being shown ONLY as an example to educate consumers on how commission and expenses work. It is usually assumed Realtors makes "tons" of money because of the numbers on the closing statement, not realizing the fees that Realtors actually pay and that there is a broker fee to cover store front expenses.
How a Realtor Gets Paid
While everyone can establish their own rules and practices, it is generally accepted practice that the seller pays all Realtor commissions.
Yes, that means if you are the buyer, you can purchase a home, using a FULL SERVICE Realtor and it will not cost you any cash out of your pocket! The Realtor depends on the seller to pay for their services. Services they are providing to their client buyer. The simplified explanation is this....
A buyer wants to find a home, TN laws says there must be disclosures for all parties involved stating who is representing whom. In order to disclose, an agreement must have taken place between the parties to establish this fact. Enter "The Agreement". There are all kinds of agreements. For this writing and in my business I use an excerpt taken from the standard TAR provided agreement form. Nothing out the ordinary, no added addendums, or complicated clauses that would take a Harvard lawyer to decipher. Basically the Buyer Representation says, "You want to hire me (remember the seller typically pays) to show you homes, gather information, answer all your questions, give you housing advice, help you with a loan, an approval letter and negotiate solely on your behalf. In exchange for this, you agree to purchase your home through me within a specific period of time stated in the agreement. As long as I am your Realtor, the seller will pay my fee. If you go out on your own like the lone ranger and take up with another realtor, you will owe the commission fee." It's kinda like being unfaithful in a marriage, you take up with someone else outside of the covenant (marriage), then you pay."
Just as the Seller has hired a Realtor to list their home, the Buyer must also choose a Realtor to work with to represent them.
Although no money exchanges hands up front, you are essentially hiring me. Until I am hired through a working agreement, I do not work for a client buyer, or a client seller. Relationship must first be established just as it is with the seller who is listing his home.
Until this relationship has been established, a Realtor's services are limited as there is no agreement of getting paid for their work. Realtors don't mind answering general questions, but until they are hired to work for you, they have no obligation to get you in the door of any home. Being a Realtor is a service based business, which requires the most valuable asset any of us have, our time. It cannot be replaced, therefore all Realtors as well as everyone, should have high value and prioritize their time.
Having a written agreement with a Realtor is the equivalent of having a private lawyer, or a Public Defender. Both may have passed “a test” and have the same degree, but one you choose because of your own criteria and the value they will bring to you. The other is assigned to you by default because you waited until the last minute, or didn’t know any better, or “they came with the house”.