July 21, 2006: Who pays whom for real estate? Follow the money...

The conventional wisdom in real estate is that the seller pays the sales commission to both the listing agent and the buyer's agent. Is that really the way things work? To find out, follow the money.

Imagine a closing conference. Normally, we don't have these in Arizona. Buyers sign their documents at one time, sellers at another. Neither party need ever set foot in Arizona, for that matter.

But for the sake of discussion, picture a settlement conference. Let's invite everyone who has a seat at the table, so to speak, so we can see who pays whom.

At the head of the table is the escrow officer, who will be getting paid escrow fees and title insurance premiums.

Next comes the County Recorder, who will receive a recordation fee. At the next seat is the County Assessor, who will receive property tax payments. Then comes the insurance underwriter, who will get the hazard insurance premium.

The seller will get a big pile of money, some of which will be passed along to the seller's mortgage lender.

The two Realtors will both get paid, of course.

The buyer's lender arrived at the table with a big satchel of cash, but the lender will be taking some of it back in the form of loan origination fees and pre-paid interest. Moreover, the money the lender brought is really the buyer's money. It was lent on the surety of the home and the buyer's income and credit.

In fact, everyone seated at that closing table is going to be pocketing money--with one exception.

That one exception is the buyer, who pays for everything else, either out of pocket or on credit. The seller doesn't pay the Realtor commissions--or anything else. The seller gets paid by the buyer--as does everyone else.

If you're putting money into your pocket, you're getting paid, no matter how the transaction is structured. If you're taking money out of your pocket, you're paying. The buyer pays for absolutely everything associated with the sale of a home.


Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.

Spread the word: Click here for a printer-ready version of this column.

Or: Steal this book: I've written over 200 of these real estate columns. They are consistently one of the most popular features on our blogs. Many of them are dated and/or entirely Phoenixocentric. But many others are timeless and generic. If you want to use any of my columns on your weblog or web site, feel free. Three rules: Don't change my text, credit me as the author and give me a link back to http://www.bloodhoundrealty.com/ with appropriate anchor text. Something like this, perhaps:

<a href="http://www.bloodhoundrealty.com/" target="_blank">
Phoenix Realtor Greg Swann</a> suggested I share this with you:
Am I link-baiting? You bet. The quid pro quo is free content for your site that pulls eyeballs and excites interest.

 
About BloodhoundRealty.com: Who we are and how we work