How commissions work
Real estate agents
operate on the principle of “procuring cause”
when determining who gets the buyer’s agent’s
An agent is the procuring cause if the sale "is
the direct and proximate result of his efforts
It's usually easy
to establish the procuring cause agent--he or
she is the one who showed the home to the buyer
and wrote up the offer. But things get
more complicated if, say, one agent showed the
home and another wrote the offer. Or if
one agent showed the home during an open house
and another returned with the buyers for a
second look. If there's a dispute, agents
usually sort it out at an arbitration hearing or
the courts after escrow closes.
Sometimes more than one agent will claim
to have been the "procuring cause" in
the sale. They usually fight it out
after escrow has closed.
In order to
capture the commission, it's important that you
not let any agent become procuring cause for
your transaction while you're shopping for a
home. Be careful--a small mistake can cost
you thousands of dollars.
Letting an agent show you a house.
Once an agent
shows you inside a house, however briefly, he or
she has a strong claim on some or all of the
buyer's agent's commission if you eventually buy
Going to an open house.
The agent on duty at an open house is usually
the listing agent, who represents the sellers
and splits the 5 to 6% total commission with the
Many listing agents won't mind if you tour their
open houses and then ask a discounter to
represent you. But some will object, saying that
they should receive some or all of the
commission since they were the first to show you
Because of this, I strongly recommend that you
not attend open houses, but if you must:
- don't give
- don't sign
Mistake #3: Visiting a model home on your
normally charge set prices for homes, but many
offer referral fees to real estate agents who
bring them buyers. The only way you can capture
part of this referral fee is to make an offer
through a discount broker that's willing to
share the referral fee with you. In slow
markets, these referral fees can be very
large--I know of one developer who offered 6%!
Many builders, though, won't pay a referral fee
at all unless the buyer is accompanied by an
agent when first visiting the models.
Builders of new developments sometimes
trick prospective buyers into giving
them their names by hosting raffles.
Once you enter your name in a raffle,
the odds that you'll capture any part of
the commission go way down.
Calling the listing agent for information
can't establish procuring cause just for giving
information over the phone, but they may try to
trap you. If there's a combination lockbox
on a vacant property, for example, and the agent
gives you the combination, that agent may later
claim to have shown you the property.
Making an offer on a traditionally listed home
without an agent.
a home is being sold "For Sale by Owner"
(FSBO), you won't be able to capture the
commission by making an offer without a
licensed agent. If you make such
an offer, all of the buyer’s agent’s
commission goes to the listing agent.
Next step: How
much home can you afford?
©Lori Alden, 2008. All rights reserved.