For this broker moment I want to discuss some of the basic questions that have been asked recently.
1. What is the difference between a Gross Commission and a Net Commission?
The Gross Commission is the purchase price offered in section 2 of the REPC. The Net Commission is the purchase price minus any closing costs. Let’s pretend there is a home with a purchase price of $400,000 and the Buyer has asked for $10,000 in closing costs to be paid by the Seller. The Gross Commission would be based off of $400,000, whereas the Net Commission would be based off of $390,000.
You can determine what is being offered as a commission on the MLS. If you use the “Agent Full Report” and look at the very bottom of each listing you will see BAC which stands for “Buyer Agent Commission” and you will see “Comm. Type” which will tell you if the commission is a gross commission or a net commission.
2. Now let’s suppose the commission on a property is 1% and your Buyer Broker Agreement states that your client will pay you a 3% commission if the BAC doesn’t pay you in full.
The first thing is you want to have the discussion with your Buyer before showing them homes that will talk with how they want to proceed with homes that are offering a commission for less than what you are willing to work for. If you are writing an offer, you can use the “Real Estate Brokerage Payment Addendum” to collect an additional fee directly from the Seller. Here’s the wording from that addendum:
Seller’s Payment to Buyer’s Real Estate Brokerage.
Seller agrees to pay $______ or %_____ of the Purchase Price to Buyer’s Brokerage. This payment shall be made in addition to any other compensation offered by the Seller’s Brokerage to Buyer’s Brokerage. The provisions of this Addendum shall survive Closing.
The key here is this amount is in addition to any other compensation offered. So in this example you would put 2% in the blank. That means you will get 2% from the Seller and a 1% BAC from the Listing Brokerage.
3. Wouldn’t it be easier to just put “Buyer’s Agent Commission to be 3 percent” on an addendum to the REPC?
Let me explain why that wouldn’t work. As agents we have agreed to not interfere with another agents relationship with his/her client. The Seller has hired a listing agent and has offered to pay the listing broker for their services. The listing broker will put on the MLS how much commission they will offer you if you bring the buyer to the home. If you were to put “BAC to be 3%” then you are now interfering with the contract between the Seller and the Listing Broker.
4. Now let’s turn the scenario around. Let’s say the commission offered is 3% but you are wanting to contribute 1% of your commission to your client, the Buyer.
The best way to do this is to put together escrow instructions and reference that the escrow instructions are only valid upon acceptance of an addendum. Here’s an example:
Escrow Instructions: Buyer Agent Commission to be reduced $4000. This document is only valid if Addendum #___ between Buyer and Seller is accepted.
Addendum #___: Seller’s Contribution to Closing Costs. Seller agrees to contribute at Settlement the amount of $4000 to be applied at Buyer’s discretion toward any or all of the following:
(a) a permanent reduction, or temporary reduction, in the mortgage loan interest rate
(b) mortgage financing costs
(c) closing costs
Any unused portion of Seller’s contribution may, at Buyer’s option, be used to reduce the Purchase Price.
You will notice that the addendum doesn’t reference escrow instructions. The REPC or Addendum can’t reference escrow instructions or BAC, however, the Escrow Instructions can be contingent upon acceptance of an addendum.
5. Can we turn earnest money in at the office?
By default, earnest money is turned into the Brokerage Real Estate Trust Account, unless the contract states it will be deposited somewhere else such as a title company.
6. How soon does earnest money get released if the Buyer cancels?
There is no rule regarding how fast Earnest Money needs to be released when the contract is cancelled or in default. A rule of thumb that I use is similar to the rules on turning in Earnest Money, which means the brokerage will release those funds which we can legally release, within four calendar days of receiving the request. Generally it’s ready the next business day after receiving the request.. Please don’t expect a check to be cut back to the client on the same day as a cancellation.
7. If I represent the Buyer, do I need to notify the Seller if I haven’t received the Earnest Money by the fourth calendar day?
Yes. It’s your obligation to notify the listing agent. THE EASIEST WAY FOR A BUYER TO BE IN DEFAULT IS BY NOT TURNING IN EARNEST MONEY WITHIN THE FOUR CALENDAR DAYS! Please make sure you reiterate the importance of getting those funds on time.
I hope this helps. Let me know if you have any questions.