Tony and Suzanne Marriott's Phoenix Arizona Real Estate Blog

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Is Additional Commission To The Buyer Broker A Buyer Closing Cost?!!

A recent question in the Active Rain Q&A by Lynnea Miller sparked this post.

 

To borrow the words of my friend here in the 'Rain - Michael Jacobs:

 

 

It depends!

 

On which state you are in!

 

Physically that is - not mentally!

 

 

In Arizona - it is not - at least not as far as the Buyer being able to use Seller Concessions /  Contribution to Closing Costs towards additional commission to the Buyer Broker.  It is already documented in the current boilerplate AAR contract - this from the folks at AAR legal:

 

Commission Is Not a”Closing Cost” under Section 2(j) of the Contract

Pursuant to lines 77 and 78 of the AAR Residential Resale Real Estate Purchase Contract (the “Contract”), the seller agreed to credit up to 3% of the purchase price towards the buyer’s closing costs. The broker, who represents the seller, just received an Estimated HUD-1 Settlement Statement from the title company, which provides that a portion of that seller concession will be applied toward payment of the commission to the buyer’s broker pursuant to a separate buyer-broker agreement.

ISSUE:

Are commissions paid pursuant to a buyer-broker agreement properly included as a seller concession under Section 2(j) the Contract?

ANSWER:

No.

DISCUSSION:

Lines 77 and 78, when negotiated by the parties, obligate the seller to pay a certain portion of the “Buyer’s loan costs including pre-paids, impounds and Buyer’s title/escrow closing costs.” By its plain language, this section of the Contract does not obligate the seller to pay any additional commissions negotiated between the buyer and the buyer’s broker, as such compensation is not properly considered part of the buyer’s “loan costs, or Buyer’s title/escrow closing costs.”Absent further negotiation, this additional compensation would instead be paid by the buyer.

 

and I understand from a comment in the Q&A from Candice A. Donofrio that the contract is being further fine tuned to eliminate any misunderstanding on ths point.

 

Apparently - according to Mike & Eve Alexander - in Florida - it is permissible!

 

The Buyer can apply any Seller Concessions /  Contribution to Closing Costs towards additional commission to the Buyer Broker!

 

I know that how real estate transactions are handled varies from state to state, and that some states require the use of attorneys - while other states - such as Arizona - permit real estate agents to write clauses in to the contract (subject to approval by their client).

 

We have taken care to suggest to our Sellers that they include language in the contract that definitively precludes the use of Seller Concessions /  Contribution to Closing Costs towards additional commission to the Buyer Broker OR to the Buyer "buying down" points on their loan.

 

And if the amount agreed to by the Seller exceeds the Buyer Closing costs, the additional amount remains Seller's funds.

 

So is this a permissible practice in your State - or not?

 

Enquiring minds want to know!

 

 

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About the Authors - Updated 2018

If you are considering a Traditional or Short Sale of your home in Phoenix, Scottsdale or any location in Maricopa County Arizona, you owe it to yourself to talk with the BVO Luxury Group @ Keller Williams Arizona Realty to determine whether Tony and Suzanne Marriott are the best real estate Brokers in the Phoenix and Scottsdale metropolitan area to help you with the Successful Sale of your home.

Tony and Suzanne have personally Listed, Sold and Closed more than a hundred Short Sales with the highest list to close rate in the Phoenix Metro Area!

Tony Marriott - Chief Operating Officer - BVO Luxury Group @ Keller Williams Arizona Realty

Suzanne Marriott - Chief Learning Officer - BVO Luxury Group @ Keller Williams Arizona Realty

Associate Brokers, REALTORS
BVO Luxury Group
Keller Williams Arizona Realty

Comments

Thanks for your blog, Tony and Suzanne Marriott, Associate Brokers . The whole discussion of my question has been very eye opening for me.  And obtaining clarity from association attorneys has verified that additional selling agent commission is not considered legitimate buyer's closing costs for purposes of a seller credit in Oregon.  However, it is not as clearly defined as you outline in Arizona. During 2017, I will be serving on the state Business Issues committee and will bring this up as something we need further clarity - perhaps through the definitions section of our Purchase & Sales Agreements, or through a rule and/or statute.

Posted by Lynnea Miller, Premier Real Estate Service in Central Oregon (Bend Premier Real Estate) over 2 years ago

Hi Suzanne and Tony --- thanks for the mention.  So many of the answers in life, real estate and time spent in ActiveRain can be summed in "it depends".   Often, there is additional and specific information that is necessary to make a reasonable response.

Posted by Michael Jacobs, Los Angeles Pasadena 818.516.4393 over 2 years ago

I am mentally in a different country like one S of the border with a beach and a tiki bar. Merry Christmas!

Posted by Candice A. Donofrio, 928-201-4BHC (4242) call/text (Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker) over 2 years ago

It is rare in my market that sellers give concessions to buyers.  If and when that were to happen, representing the seller, I would ensure that certain provisions / exceptions /exclusions would apply.  

Posted by Kathleen Daniels, San Jose Homes for Sale-Probate & Trust Specialist (KD Realty - 408.972.1822) over 2 years ago

I saw this question in the Q&A.  I'm not sure how this would be handled in Florida.

Posted by Gabe Sanders, Stuart Florida Real Estate (Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales) over 2 years ago

I suspect it would depend on the state the transaction was happening, and how the contract was written!

Posted by Myrl Jeffcoat, Greater Sacramento Real Estate Agent (GreatWest Realty) over 2 years ago

You are most welcome Lynnea Miller - wishing you a Merry Christmas and a Happy New Year! 

 

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) over 2 years ago

Whenever I contemplate the use of "it depends", you spring to mind Michael Jacobs - wishing you a Merry Christmas and a Happy New Year! 

 

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) over 2 years ago

Enjoy the sun and Christmas cheer Candice A. Donofrio - wishing you a Merry Christmas and a Happy New Year! 

 

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) over 2 years ago

Makes sense to me Kathleen Daniels - wishing you a Merry Christmas and a Happy New Year! 

 

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) over 2 years ago

Agreed Myrl Jeffcoat - wishing you a Merry Christmas and a Happy New Year! 

 

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) over 2 years ago

Always good to hear from you Gabe Sanders - wishing you a Merry Christmas and a Happy New Year! 

 

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) over 2 years ago

This is why I love Activerain. There is always a new wrinkle that could be "it depends". There could be contracts between buyer and buyers agent, but it seems to me (in California and Hawaii), if the buyer wants to include extra commission in the closing costs paid for by the seller, it needs to be disclosed and approved by the seller. Unless it is illegal. The forms themselves are just "boilerplate".

Posted by Hella Mitschke Rothwell, Hawaii & California Real Estate Broker ((831) 626-4000) over 2 years ago

A new trend here in NH is the big franchise buyers writing into their offers seller to pay up to 3% of the buyers closing costs and or prepaids, points or commission Tony and Suzanne Marriott, Associate Brokers 

Posted by Scott Godzyk, One of Manchester NH's Leading Agents (Godzyk Real Estate Services) over 2 years ago

Tony, Suzanne - this happened to me recentlyin a bit different way. 

The buyer's agent was giving money towards closing costs.

Posted by Praful Thakkar, Andover, MA: Andover Luxury Homes For Sale (LAER Realty Partners) over 2 years ago

Exactly Hella Mitschke Rothwell - thanks for stopping by with a comment!

 

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) over 2 years ago

A counter offer to remove "commission" works wonders Scott Godzyk - thanks for stopping by with a comment!

 

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) over 2 years ago

Interesting Praful Thakkar - thanks for stopping by with a comment!

 

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) over 2 years ago

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