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We have always glowed with excitement at the idea of getting something of value for nothing. Most of us realize, by the time we are adults in an American society, that there are very few things free in commerce. The air we breathe and the open sunlight is still free and that is because human greed has not figured a way to tax it or make a profit on it. We have contrived a way to charge for water, food, shelter, a place to exercise, energy, transportation and communication. I and my family need all of these things, so, I am in the trap of needing to charge something for the professional services we render to Buyers of Real Estate that we assist.
When we have a house to sell, we call a Realtor® who offers to "List" the property and to promote it in the market place to generate offers, from Potential Buyers, as close to the "Listed Price" as possible. That "Listing Agent" represents the Seller and instructs the Seller that, in most cases, the "fee" agreed upon will be split with another agent for "finding and bringing a ready, willing and able Buyer to the transaction." The total fee charged on the Listing Contract is agreed upon by the Seller and the Listing Agent and is not set by any group of people outside the transaction. However, trends and ranges emerge and become obvious. So, some will call the fees "Normal", which is prohibited by law. Five to seven percent of the selling price is a number that many brokerage firms have determined is necessary to stay in business, and those numbers frequently appear on listing and MLS documents.
The "Listing" Agreement provides: For services performed by and for people (Seller, Buyer, Agents, Lender, Appraiser, Inspectors, Title and Escrow), involved with a sale and purchase. Such things as values, times, events and benefits are also addressed. Agency, is addressed too and in today's world, specific laws provide for each, the Seller and the Buyer to be represented by Exclusive Agency.
When an EBA is Involved, the courts have ruled that the EBA, can accept payment for services rendered from people on either side of the table. This is because a Buyer might have limited funds and some proceeds of the loan might be required to pay for many of the Buyer's services. It is customary for the Buyer's cash down payment and the proceeds of the Buyer's loan amount be credited to the seller and then the "fees" are shown on the HUD-1 to be "paid" by the Seller. To do it otherwise confuses some people at all levels of the transaction. Therefore, we presently dance with custom and get the deal done and the people involved made happy or at least satisfied.
The "Fee" charged by any Agent, is usually agreed upon as a percentage of either the "Selling Price" or with some EBA's the "Listed Price" (removing the "conflict of interest" factor). It can also be agreed upon as a "flat fee", which will cover a range of transaction prices. The fees can also be charged on an hourly basis for specific services to be performed. Fees can be paid in advance, on a progress basis or at the closing table. Most fees are paid at closing, as that is when the most money is flowing in the transaction.
The Seller pays, per the Listing Agreement. Only the X % stated in the Agreement computed on the "Selling Price". Is what the Seller is obligated to pay. That portion of the "Marketing Fee" designated for the Buyer's Agent (usually 50% of the total fee stated) is given to the EBA at the closing of escrow. For example, if the Buyer and the EBA have agreed that the EBA's fee should be 3.0% of the Listed Price, the EBA's services might conceivably cost the Buyer 3.0% of the amount saved between the Listed Price and the Selling Price. Conversely, if the Seller and Its Agent is offering 3.5% of the Selling Price to the Buyer's Agent, in such event, the Buyer would receive the difference as a "Commission" refund on the HUD-1.
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