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Broker compensation refers to the payment that a real estate broker receives for their services in facilitating the sale or purchase of a property. This payment is typically made when escrow closes.

Broker compensation is negotiable and not fixed by law. It is determined through an agreement between the seller and the seller’s broker. Factors that may influence the negotiation include the broker’s expertise, experience, the type of services provided, and the broker’s time and expenses.

Yes, a seller’s broker may share their compensation with a buyer’s broker if the seller approves it. This arrangement is often incorporated into the overall compensation that the seller pays to the seller’s broker.

No, offering compensation to a buyer’s broker is optional. The seller and the seller’s broker can decide whether or not to offer compensation to buyer’s brokers. However, offering compensation can make the transaction more efficient and attract more buyers, especially buyers obtaining a loan. [Per California Association of Realtors (C.A.R.) Form Broker Compensation Advisory (BCA), 5/24]

Offering compensation to a buyer’s broker can:

  • Help the seller easily calculate net proceeds when evaluating offers.
  • Make the property more attractive to buyers who need financing, as the compensation can be included in the loan rather than paid out-of-pocket.
  • Ensure that buyer’s brokers are motivated and confident about receiving their compensation, making the transaction more efficient.

A buyer’s broker can be compensated in several ways:

  1. Buyer Pays: Through a buyer representation agreement, where the buyer agrees to pay their broker directly.
  2. **Seller Pays:** The buyer can negotiate for the seller to pay the buyer’s broker’s compensation as part of the purchase agreement.
  3. Seller’s Agent Pays: If authorized by the seller, the seller’s broker can pay the buyer’s broker as outlined in the listing agreement.

A Buyer Representation Agreement is a written contract between a buyer and a buyer’s broker outlining the terms of their relationship, including the duties and compensation expected. This agreement helps set clear expectations and avoid misunderstandings.

Buyers should discuss how their broker will be compensated, whether through a buyer representation agreement, negotiating with the seller, or relying on compensation offered by the seller’s broker.

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