THE INESCAPABLE CONFLICT: BUYER AGENT COMPENSATION
In the majority of real estate transactions in Vermont, buyer agents get compensated by the seller of the property. They normally receive 3% of the purchase price as a commission.
There is an inherent conflict in this system.
The role of an agent is to look out for the best interest of their client. In the case of a buyer of real estate, the agent is supposed to try to get the buyer the property they want at a price they can afford.
A serious problem arises however when the buyer and seller are close to agreeing to a price but because of the fees to the buyer's agent the two parties cannot finalize the transaction.
Assume for a moment that a buyer finds a home that he would like to purchase and that it is listed for sale at a price of $275,000. The buyer informs his agent that his budget does not allow him to spend more than $265,000 for this home.
Based upon his client's budget, the buyer's agent presents an offer of $265,000 to the seller. The seller informs the buyer's agent that the seller needs to net at least $259,000 from this transaction to cover all of their costs. The seller decides to reject the offer because after paying the buyer's agent a 3% commission, the seller will only be left with $257,050, which is not enough to cover their costs.
The seller suggests to the buyer's agent that the agent reduce his commission from $7,950 (3% of $265,000) to $6,000 so that the seller can realize a return of $259,000 and cover their costs.
What should the agent do in this scenario? If he adheres to his promise to look out for the best interest of his client, he will reduce his commission so that he fulfills his role of helping his client get the property he wants at a price he can afford.
However, there are very few, if any, agents in Vermont that currently believe that they should reduce their commission to help finalize the transaction. Most agents view their compensation as distinct from the transaction between their client and the seller and this is where the root of the problem lies.
The only way to eliminate this inherent conflict is for buyer agents to work for a flat fee. To our knowledge, we are the only brokerage firm in the State of Vermont representing buyers for a flat fee.
When we represent buyers, we receive $3,500 for our services. If our commission is more than $3,500, we refund the balance of the commission to our client.
For instance, if our client purchases a $300,000 home, we only keep $3,500 from the seller's commission and give the balance to our client. Thus, our client receives a $5,500 check from us at the time of closing.
Unlike most agents who receive higher compensation when their client purchases a more expensive home, our clients actually save more money when they purchase a more expensive home. This removes the inherent conflict and allows our clients to know that we are acting in their best interest and not our own.