HERE'S HOW AGENTS WORK AND GET PAID IN PENNSYLVANIA:

PA ACT 112 effective 11/25/99
(Requirement of Consumer Notice — Business Relationship Agreement)

Walk into just about any real estate office and you need to understand who they are, who they work for, and how they are paid. And it's complicated!

Brokers and Agents

The first thing to understand... there is a difference between a broker and an agent. A broker runs a real estate office; an agent works with the broker and is generally the person that helps you buy or sell your home. Agents are independent contractors (self employed) and as such receive no salary or employee benefits from the broker. Agent income is derived only after a closing from the commission paid to the broker usually by the seller of the property, but in some cases by the buyer. In short, agents are not “hired” by the company they affiliate with, they do represent that company but they are “hired” by their clients — the buyer or the seller!

The broker/company provides the agent with an office to work out of, a negotiated commission split, and often a company name that customers will recognize.

In return, the agent is responsible for helping clients buy and sell houses which earns them a commission. This commission is split between the broker (to cover the brokerage overhead expenses) and the agent (to compensate them for their work). Note that agents cannot by law receive commissions or other monetary gifts such as bonus incentives directly from clients. Bonuses must first be paid to the broker and then the agent may receive them either in part or (usually) in full.

The Traditional {OLD} Agency Model

For most home sales, the seller hires an agent and signs a contract with the broker called an "exclusive listing agreement."

This means that regardless of who buys the house (even if it's a close friend of the sellers) or who finds the buyer, the seller agrees to pay the broker a percentage of the sales price — a commission — in exchange for their help selling the home.

The Listing Agent

One of the listing agent's roles is to let as many buyers and other agents know about the home for sale as they can. The agent lets all the local agents know about the home through a shared information computerized database called a Multiple Listing Service. Since thousands of agents see the listing almost immediately, it is quite likely that another agent has the perfect buyer for the property.

The Selling Agent

That agent — who often works with another broker — is called the "selling agent." OK, that's a little confusing since this agent works with the buyer, but after all, we do park in a driveway and drive on a parkway.

The selling agent is also technically known as a "subagent" of the listing agent. This means that even though the selling agent spends their time helping the buyer find the perfect house, they share the listing agent's commission. The buyer must now by PA law Act 112 sign a "Consumer Notice" and a "Business Relationship Agreement"—designating that the agent is NOT representing them in the buying process before homes are shown or any other service is rendered. Buyer consumers must understand that whoever the licensee may be, a Business Relationship Agreement is required BY LAW between the consumer and that broker/licensee. There are NO exceptions. Note:  Most real estate brokers no longer recognize "subagency" and do not offer a commission to "subagents." The day of the "subagent" is virtually gone in Pennsylvania.

So now, where accepted in practice there are four parties that get a 'piece' of the one commission that the seller agreed to pay in the listing agreement. You can see these parties and how they fit together below:

The Commission Splits

commission3.gif (3510 bytes)

The important points of this model:

•Usually there are 2 brokers and 2 agents involved.
•The agent who works with the buyer (the "selling agent") is a subagent of the listing agent.
•They all share the one commission in the listing agreement
•BUYER HAS NO REPRESENTATION in the transaction.
•This model is no longer practical and generally no longer in use.

Newer Agency Models in Pennsylvania

Buyer's Representative

In the traditional model, the selling agent is a subagent of the listing agent. As a result, the agent working with the buyer represents the seller, and is bound by law to get the best price and the best deal for the seller, rather than the buyer.

To avoid any conflict of interest, buyers should work with a buyer's representative. In this situation, the buyer's agent is not an agent of the seller—even though they normally will get a piece of the listing broker's commission. Occasionally, under some circumstances, a buyer's broker (and agent) is paid directly by the buyer. In either case, a buyer's agent only represents the buyer. The buyer must now by PA law Act 112 sign a "Consumer Notice" and a "Business Relationship Agreement" — designating the agent is representing them in the buying process before homes are shown or any other service is rendered. A buyer should have only one buyer agent contract in effect at any time, therefore the buyer should work only with the agent they have contracted with until they either purchase a property or terminate the contract with the agent per it's provisions. Buyer consumers must understand that whoever the licensee may be, a Business Relationship Agreement is required BY LAW between the consumer and that broker/licensee. There are NO exceptions.

The Usual Buyer Representative Commission Split

commission4.gif (3519 bytes)

The important points of this model:

•Usually there are 2 brokers and 2 agents involved.
•The agent that works for the buyer works exclusively for the buyer.
•The agent that works for the seller works exclusively for the seller.
•The seller's agent is paid by the seller and the buyer's agent is usually paid by the seller but can in some circumstances be paid by either the buyer or seller... Example: a for sale by owner who refuses to pay a commission  — the buyer must pay the commission as agreed to on the "Business Relationship Agreement".
•The buyer should be represented by only one buyer agency contract at a time — one agent.

Dual Agency

"Dual agency" is when the buyer's agent and the listing agent work with the same broker or are the same agent. This is legal in Pennsylvania, but not all states. In most cases, this will work out fine, but must be fully disclosed in writing to both the buyer and seller. "Dual agency" is coming under increased criticism and may be abolished in the future.

commission5.gif (3141 bytes)

With dual agency, the commission is split among only two or three parties (listing agent, buyer agent and broker). This usually doesn't change the agents' commission, but could increase the broker's. An agent who lists and sells their own listing (called - double dipping) usually gets a higher commission.

The buyer must now by PA law Act 112 sign a "Consumer Notice" and a "Business Relationship Agreement" — designating the agent is representing them as a dual agent in the buying process before homes are shown or any other service is rendered. A buyer should have only one buyer agent contract in effect at any time, therefore the buyer should work only with the agent they have contracted with until they either purchase a property or terminate the contract per it's provisions. Buyer consumers must understand that whoever the licensee may be, a Business Relationship Agreement is required BY LAW between the consumer and that broker/licensee. There are NO exceptions.

The important points of this model:

•Both agents work for the same broker... (this can also be a single agent if they are selling their own listing.)
•The single broker splits the commission with their agent(s.)
•This relationship must be disclosed in writing to the buyer and seller.
•The buyer should be represented by only one buyer agency contract at a time — one agent.

Designated Agency

In designated agency, the broker may, with your consent, designate one or more licensees from the company to represent you. Other licensees in the company may represent the seller and shall not be provided with any confidential information about you. The designated agent(s) shall have the same duties as are listed above under seller agency and buyer agency. The buyer must now by PA law Act 112 sign a "Consumer Notice" and a "Business Relationship Agreement" — designating the agent is representing them as a dual agent in the buying process before homes are shown or any other service is rendered. A buyer should have only one buyer agent contract in effect at any time, therefore the buyer should work only with the agent they have contracted with until they either purchase a property or terminate the contract per it's provisions. Buyer consumers must understand that whoever the licensee may be, a Business Relationship Agreement is required BY LAW between the consumer and that broker/licensee. There are NO exceptions.

In designated agency the broker is a dual agent (as described above) and has the duty to:

•Take reasonable care to protect any confidential information you disclose to the licensee(s)
•Take responsibility to direct and supervise the business activities of the licensee(s) who represent the seller and buyer while taking no action that is detrimental to either party's interest in the transaction. 
Note: because of the scope of adequately protecting any confidential information with licensees who are all independent contractors...and who are generally unwilling to assume the inevitable civil liability of such a scenario most real estate brokers do not offer this option at the present time.

The important points of this model:

•Both seller and buyer agent(s) work for the same broker... 
•The single broker splits the commission with their agent(s.)
•This relationship must be disclosed in writing to the buyer and seller.
•The buyer should be represented by only one designated buyer agency contract at a time
•This model is seldom used in Pennsylvania

Transaction Licensee

A broker or salesperson who provides communication or document preparation services or performs other acts for which a license is required WITHOUT being an agent or advocate for either the seller or the buyer. The licensee has the duty of limited confidentiality in that the following may not be disclosed:

•The seller will accept a price less than the asking price
•The buyer will pay a price higher than the price submitted in a written offer
•The seller or buyer will agree to financing terms other than those offers
•Does not show homes, provide any analysis, advice or counsel to any party of the transaction

Other information deemed confidential by the consumer shall not be provided to the transaction licensee.
The buyer must now by PA law Act 112 sign a "Consumer Notice" and a "Business Relationship Agreement" — designating the licensee is a Transaction Licensee before any service is rendered. Buyer consumers must understand that whoever the licensee may be, a Business Relationship Agreement is required BY LAW between the consumer and that broker/licensee. There are NO exceptions.

The important points of this model:

•The licensee represents neither party to the transaction.. is NOT an agent to either party
•The licensee can disclose confidential information to either party about the other with the exception of those three cited above.
•The licensee is paid through a written agreement with the party's to the transaction
•This model is seldom used in Pennsylvania


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© Copyright 2010 by Jon DePoe "All rights reserved."
Jon DePoe
KW Referral Company LLC
724-222-5500 Ext 112
412-884-1720
PA RS191534L

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