'For Sale by Owner' - who pays the Buyer's realtor?

If I list my home and hang a sign out 'for sale by owner', and a realtor brings a buyer in, who wants to buy it, who's going to pay the realtor? I did not hire him, so I don't want to pay for him. The buyer will assume that it is covered with his sale price (because I, the seller, normally get less than that). I can imagine, the realtor gives me a reduced offer price, so I never see the share that goes to him. is this how it usually works? In other words, if I get an offer for X, and I accept it, can I assume I get the full amount of X? State: FL

@ThePhoton: Their client (the potential buyer) might be specifically interested in the property but clueless about what to do to buy it without the help of a realtor, and thereby have asked the realtor to arrange things for them.

@Trilarion In the U.S. (OP indicates they're from FL) the commission is almost always paid out of the seller's pot. That's for seller- and buyer-agents.

"I can imagine, the realtor gives me a reduced offer price" - actually as an agent, I would have negotiated a higher offer price, in order for you to have enough to pay my commission. (for those who want to freak out about this comment .. obviously it would be disclosed to my buyer as part of the buyer agent agreement)

9 Answers 9

You negotiate with the buyer's realtor, just like a seller's realtor would do. He already has a contract with the buyers that says he won't charge them a commission. He will have to get it from you. You will tell the realtor his clients will have to offer more to cover his commission, and he will resist. And eventually you will either agree a price and a percentage, or his buyers will walk.

Some jurisdictions have laws that restrict the criteria on which you can decide between competing offers (generally to prevent racial discrimination). I don't know if you're supposed to consider your net after the realtor's commission in such places, or if you have to compare the two offers on the top line price.

This is basically right except that the buyer's realtor is unlikely to take their clients to the FSBO house in the first place unless the client really pushes the issue. The buyer's agent is highly incentivized to steer clear of FSBO properties as it means more work to negotiate with the seller for a commission before their buyer sees the house. It likely means more contracting work if the FSBO seller doesn't have a lawyer to draw up papers. It means they have to talk to the actual seller instead of a colleague (ie. seller's agent).

I recall my parent's realtor basically said on FSBO assume the price can't really be negotiated. We saw it anyway. No offer was made.

One piece of advice: I went through something like this once, and if this kind of negotiation isn't your thing, consider getting yourself a (real-estate) lawyer. I had one save me about $3,000 on a home sale this way with a 3 minute phone conversation with the realtor. I listened in, and there is just no way I could have done that myself. Wouldn't have even known how.

@DeanMacGregor If you advertise a fair rate, say 2% or 2.5%, then they'll come all the same. I know because I just did it and so did a friend. I suggest all people skip the sellers agent altogether these days. You don't need them. Incidentally, there are some protectionist laws. In my state, I was required by law to hire a realtor as a customer, not a client, and he could charge whatever he wants. In my case, I found a discount realtor who was willing to take me as his customer and create an MLS listing. He wanted 0.5% for this. I did all other work involved in selling.

@11684 If either is working with a realtor, they've likely signed an agreement that states they will perform no real estate transactions without their representation and accompanied fees for a certain time, usually 6 months. If you go around them and close a deal while still under contract, they can sue you for damages.

We’re in Utah rather than Florida, but we bought our house like this (almost 6 years ago). The seller wanted nothing to do with an agent and did not list the home anywhere, but just had a sign in their yard. However, we wanted an agent to make sure everything was done properly. The agent asked them to pay the standard commission, and they refused. We decided to just pay the agent ourselves. So, the seller got the full amount of our offer price, and we paid our agent out of pocket what he would have gotten as the buyer’s agent in a normal deal.

Though, we did ask the seller to throw in one of their big TVs and their standalone freezer, which wouldn’t have fit in their downsized new place anyway, and they agreed.

is this how it usually works?

Usually, the seller hires a realtor and agrees to a commission the realtor will get in case of a sale. This commission is included in the price, so the seller receives the amount the buyer offers minus commission. Part of it is shared with buyer's realtor if they have one.

In your case, this commission is not agreed upon when you set the price. You will have to either set the price higher to account for a typical realtor's commission, or tell the buyer's realtor to come back with an offer that includes commission.

Not including the commission makes your selling price look better than it actually is, so I would advise to set the price a bit higher. Otherwise, you risk to get a lot of buyer's realtors knocking, but many of them will walk away if you firmly stick to your price.

Typically, in the U.S., buyer- and seller- agents (or Realtors) acquire their commission from the purchase price. If you don't have a seller-agent, then that commission is not paid. Example:

You list the house at $200,000. Standard commission values are 3/2%, which means 3% for the first $100,000, 2% thereafter. Sometimes they're 3/1.5% or 3/1%, but usually 3/something.

If I offer you $200,000 and you accept, we close, and I used a buying agent, my agent will be paid 3% of the first $100,000, then 2% thereafter (in our example):

$ 100 000 00 x 3 00 % =============== $ 3 000 00 $ 100 000 00 x 2 00 % =============== 2 000 00 $ 3 000 00 + 2 000 00 ============= $ 5 000 00 

Now, commission is almost always paid out of the seller-end, that is, you will receive the value of your house less the commission:

$ 200 000 00 - 5 000 00 ============= $ 195 000 00 

This means, in our example, you would receive $195,000.

To make matters more complicated, a buyer is authorized (read: legally permitted) to ask you for up to 3% of the total sale price for "seller concessions" -- closing costs 1 (most states cap this at 3%). That means, in this scenario, if you accept my offer, I do not use an agent, but I asked for 3% to closing costs, you would receive $194,000:

$ 200 000 00 x 3 00 % =============== $ 6 000 00 $ 200 000 00 - 6 000 00 ============= $ 194 000 00 

Now here's where the math gets tricky: if I use an agent and you give me 3% to closing costs, there are two ways the math works out:

You receive $189,000: value less commission less closing costs:

$ 200 000 00 - 5 000 00 (Commission) - 6 000 00 (Closing Costs) ============= $ 189 000 00 

$ 200 000 00 - 6 000 00 (Closing Costs) ============= $ 194 000 00 (New Commission Price) $ 100 000 00 (New 3% Commission Value) x 3 00 % =============== $ 6 000 00 $ 94 000 00 (New 2% Commission Value) x 2 00 % =============== $ 1 880 00 $ 194 000 00 (Keep the new value) - 3 000 00 (New 3% Commission) - 1 880 00 (New 2% Commission) ============= $ 189 120 00 

So, when you list the house, take these into account. Assume you'll lose about 6% or so of the value (in the $200,000 case, we lost about $11,000, or about 5.5%, but for smaller prices the ratio will be higher). As a result, if you want a value out of the house, list it at least 6% higher. If you're using a realtor / agent, they'll handle this for you and typically use 9-12%.

If we wanted $200,000 from our house, assuming the worst-case scenarios, we'd want to list it around $211,579, which would give us $6,347.37 in closing costs, and $5,231.58 in commission, so about $200,000.05 in the end.

• Commission at 2%, sale >$100,000: salePrice * 0.02 + 1000 ;
• Closing Costs of 3%: salePrice * 0.03 ;
• Find out what you'd "get" (2%, sale >$100,000): salePrice * 0.95 - 1000 ;
• If you know you want "X", 3/2% commission, and 3% closings, find out what the offer must be: (whatYouNeed + 1000) / 0.95 ;

Basically: make sure you read and understand the contract the buyer (or buying-agent) is providing. If this is a non-typical commission agreement, that contract will state as such (and tell you that the buyer does not want you to pay the commission). There's no law that says "who" has to pay it, just that it may be an included component. It's possible that in your scenario the agent will offer you less, it's also possible the agent will offer what you ask, and inflate the price to potential buyers. There are a lot of scenarios here.

Additionally, some notes on Florida law, which seem reasonable and the source seems credible: https://www.floridarealtors.org/NewsAndEvents/article.cfm?id=367168

Question: I have a listing that was only on the market a couple days when three offers came in. The seller accepted one of the offers. Now the broker who represents the buyer whose offer arrived first claims my seller had an obligation to negotiate with his buyer because his offer was presented to the seller first. Is this true?

Answer: No. There is no Florida law that would require the seller to respond to any offer. In addition, no Florida law requires the seller to negotiate with each buyer in the order in which offers were received.

In your state (and mine) there are laws that state if you have an agent, they must present any written offer to you, regardless of how ridiculous it is. Because you are For Sale By Owner, this is not the case. You are free to decide what you want to accept. There is no obligation.

All this said, I would recommend speaking with a real-estate attorney about the details, as they will know the specific laws of your state/region.

Source: I work in this industry.

1: Closing-costs are typically things like the appraisal, any "earnest money", etc. If the seller agrees to cover closing costs, then any money the buyer has to put into buying the home up to that value will be reimbursed to the buyer. This does not affect the loan term: it's still a $200,000 loan, the buyer just gets some of the expenses back. Thus, a $194,000 loan is not the same as a $200,000 loan with $6,000 returned for closing costs, these both result in the same seller-payout, but the buyer still has to finance the $200,000 in the latter case. It's complicated, but there are resources out there to explain it in more detail ("seller concessions" and "closing costs" are good terms to search for): https://www.mortgagecalculator.org/helpful-advice/seller-concessions.php

What does a buyer is authorized to ask you for up to 3% of the total sale price for "seller concessions" mean? The buyer can ask for anything they want, no? And the seller can refuse any request? I don't know what this "authorization" is.

@JPhi1618 Most laws say the buyer can ask for up-to 3%, not more than 3%. This is a worst-case assumption. As a result, the buyer is "authorized" (should read "legally permitted", I suppose) to ask for that.

@JPhi1618 So the "closing costs" are things like the appraisal cost, pre-paids (if you put money into escrow for "good faith"), insurance, etc. The buyer gets a check (sorta) to cover all that if the seller concedes. So asking for 3% for closing costs means the buyer gets that back from the seller, but the loan is still the original amount agreed upon. (Still a $200,000 loan, but I get a check for $6,000 to pay for the money I put into it.) If I ask for $6,000 less, but not closing costs, then it's a $194,000 loan, but I don't get a return.

"Standard commission values are 3/2% . " I wouldn't call that standard, but maybe it's common where you live. Where I live, they're all getting 2-3%, unless the house is very expensive, then it might go even lower, but not usually less than 2%. A good answer otherwise.

There's basically two ways you can do a FSBO: with or without an MLS.

You seem to have in mind a FSBO listing without an MLS. In this case, you don't have to pay a buyer's agent anything. But they will ask, assuming they'll even call/knock at all. Once they ask, I suggest you actually offer them a commission rate. I'd start at 1% and see if they'll bite. Realtors are sometimes abrasive in a hokey-car-salesman kind of way. Some of them might be pretty rude and aggressive because they will likely think that is too low. They want 3%, but many will take 2% if you just offer that on your sign, non-negotiable.

If you get an MLS listing (which I strongly recommend because of the massive exposure you'll get, plus auto-caching on Realtor.com at al), your state may require you to be a realtor's customer, which means they must provide a basic level of service for whatever their fee is, but they do not represent you and any information you tell them is not confidential. Even if your state doesn't require this, you need a broker to create an MLS listing for you. You can't just go on the website and do it yourself. In the listing, you must state a commission for buyer's agents in an MLS listing, and it is non-negotiable.

Whether you obtain an MLS listing or not, I recommend you publish a 2% or 2.5% buyer's commission and simply refuse to negotiate anything different. The best rate to select will depend on your house value and going rates in your area. If your house if valued at over $500k, you can offer 2% and you'll get no complaints. If you're trying to unload a 100K DIY gone bad, 2.5% might look too small to some agents.

My source for all this information is very recent personal experience. I sold my house FSBO with an MLS using a discount broker who took me on as a customer for 0.5%. I offered 2.5% buyer's commission. I saved approximately 3% by not also paying a seller agent commission, less $500 to forsalebyowner.com for a listing there. Incidentally, I would just search for a discount broker/realtor from the outset, as I don't think forsalebyowner.com helped in any way, but they did send me a nice sign and connected me with a discount broker. A friend of mine did virtually the exact same thing after seeing my success with the process.

A bit unrelated to your title question, but you ask:

In other words, if I get an offer for X, and I accept it, can I assume I get the full amount of X?

No, certainly not. There's fees everywhere and commissions are only one part of a real estate transaction. If your purchase agreement explicitly says commissions are X, then X is what is paid. $0 is a valid entry, so with regards to commissions, if the purchase agreement says $0 commissions, then yes, you will get your full asking price, less other non-commission fees.