Real Estate Representation Contracts

Playing "Gotcha?" Nope, Just Setting Expectations

It's always a good idea for a Realtor and the Buyer they're representing to have a signed Representation contract.

That's true even if the Buyer and Realtor have known each other for years, and already done multiple deals together.

In fact, that's especially true if the Buyer and Realtor have known each other for years, and already done multiple deals together.

What a Contract Does

As a former corporate attorney, I know that a good contract -- and the standard, MN Buyer Rep contract is -- makes everyone's expectations explicit.

How long will the Realtor and Buyer be working together?

What happens if the Buyer wants to buy a home where the Seller is only offering a tiny pay-out? (the part of the commission offered to Buyers' agents).

What if the Seller is a FSBO ("For Sale by Owner"), and isn't offering to pay any commission?

And so on, and so on.

Timing is Everything

All these questions are easily addressed ahead of time (for example, I have a standard way of handling FSBO's, which I explain to all my prospective clients).

However, if and when issues arise in the course of a relationship, when emotions are running high and the Realtor has already invested months (years?) of their time, they can be (much) harder to navigate.

So, in practice, when are Realtors most vigilant about having their clients sign a formal agreement?

Right after a client they were working with without the benefit of a signed contract burned them (unfortunately, even very experienced agents have this happen occasionally).

P.S.: And no, a written contract isn't a panacea, and won't prevent every conflict or problem.

Attorneys often say that if there's good faith and a course of dealing between two parties, a one page contract is sufficient. If there isn't . . . . a 100 page contract won't help.

Realtor Commissions: When it's Smart to Pay More

Want More Showings? Dangle a Fatter Carrot

In a culture -- and economy -- where getting the best possible price is practically a religion (if not a budgeting necessity), why should home sellers consider paying their Realtor a higher commission?

Because they might actually make more money that way.

That's because Realtors who charge more often (but not always) do more, are more skilled, experienced, etc.

Put it this way: who's the better deal, a Realtor who charges 5% or even less to put your home on MLS (and not much more); or, a Realtor who charges 6%-plus and aggressively stages, markets (both pre-list and after), uses professional photography and desktop publishing, networks your home like crazy, hosts Broker and multiple Sunday open houses, promptly follows up showings for feedback, etc.?

Reason #2

Paying a higher commission today can also be a nod to market realities.

Particularly in some Twin Cities suburbs today, it's not unusual to see 20-30 relatively similar homes -- all basically at the same price point -- competing for showings.

If the competing homes are offering a 2.7% payout to the Buyer's agent, bumping that to 3.15% is a relatively cheap way to stand out.

(Note: at least in the Twin Cities, the commission is often split 55-45 between the listing agent, representing the Seller, and the Buyer's agent. On a 6% commission, that comes to 3.3% and 2.7%, respectively; on a 7% commission, the split is commonly 3.85% and 3.15%.)