You could also ask the very same question about the fee collected by any fully commissioned sales agent. Who pays the fee made by the car salesman when you buy a car from the dealership? The most simplistic answer is ultimately that the person opening their wallet or their checkbook will pay this and all other fees. But in real estate, it’s more complicated. Let me explain.
All real estate transactions have at least two parties in the transaction – a buyer and seller, a tenant and landlord, a tenant and a sublease, etc. In most cases, both parties are represented by their own agent who advocates for their respective ‘side’ of the transaction. If we take a buyer and seller, in most cases, a buyer partners with an agent he selects and they enter into a transaction. The buyer purchases the real estate and gets the deed to the property. So he did not pay any real estate fee. Correct? Well, not exactly. If we peel back the layers of the transaction a bit, we see that the buyer did pay the seller money (or an in-kind exchange of value). The seller pays a fee to the agent who represented the seller and he also pays a fee to the agent who represented the buyer. One might still take the position that the seller paid all fees, right? Not so fast. Let’s look closer.
Any savvy seller knows what they need to generate as a net amount of proceeds from the transaction. They also are aware that they will incur sales costs such as escrow fees, deed transfer fees and a long list of other potential fees that erode the gross sale amount, including sales commissions. Of course all of these anticipated costs are added to the net amount to establish an asking for-sale price. And based on the market, probably an amount added in as well for the inevitable price negotiation with the buyer.
Based on this, a compelling argument can be made that the buyer actually pays the real estate fees, even though the seller writes the check – because that check is funded with the buyer’s money. The same argument can be made with all commissioned sales transactions. If a commissioned salesman records no sales today, no one pays anything. If that salesman makes a sale, he’s paid a small percentage of the sale by the seller’s side of the transaction, using the buying side’s money.
There are further complexities when it comes to real estate leasing and we will deal with that next week. If you can’t wait, call us for an explanation today and how this discussion impacts how you should find the most effective representation for your next industrial real estate need.
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