Ohio Real Estate Agency and Commissions Explained

Many prospective homebuyers tend to have the same questions for me about how Real Estate Agents get paid when representing buyers. So I have decided to answer their questions and hopefully yours, about the subject as well. I will explain Agency Representation as well as how agents get paid in a real estate transaction...

First of all, it is very important for everyone to understand agency and who represents whom in real estate transactions and the variations that are possible. There are several possibilities of representation when it comes to real estate transactions in Ohio:

1. The most common scenario involves two agents from different brokerages. There is a Listing Agent, that represents the Seller, who works for 'ABC Realty' and a Selling Agent, that represents the Buyer, who works for 'XYZ Realty'. Each agent has a fiduciary responsibility to their respective client, which means that they are bound to the duties of Obedience, Loyalty, Disclosure, Confidentialty, Accountability and Reasonable Care. Each agent and brokerage has the best interest of their respective client at the core of their activities.

2. The next possibility involves two agents in the same brokerage, Split Agency. The Listing Agent and the Selling Agent both work for 'ABC Realty'. Each agent still has a fiduciary responsibility to their respective client and the brokerage is a dual agent for both clients. Dual Agency does not change any of the fiduciary responsibilities to either client, in any way.
2a. There is a variation of this that you should also be aware of. The brokerage could have a policy where all agents in that brokerage represent all clients of the brokerage. If this is the case ,then both agents owe both clients the same level of fiduciary resposibility and this variation could also mean that confidential information of both clients may be accessible by both agents.

3. A third possibilty of agency involves one agent representing both parties, Dual Agency. The Listing Agent, and the brokerage, will represent both Seller and Buyer. Again, Dual Agency does not change any of the fiduciary responsibilities to either client, in any way. The agent involved in this type of agency has to be very careful not to disclose any confidential information of one client to another client, or give any unfair advantage to one client over another. Each client is still owed the duties of Obedience, Loyalty, Disclosure, Confidentiality, Accountability and Reasonable Care.
3a. The only variation to this agency, really isn't a true variation at all except that there is only one agent involved. The Agent represents only one of the parties, either Seller or Buyer, and the other party is not represented by an agent.

All of the above listed Agency types should be disclosed using the State of Ohio Agency Disclosure Statement, prior to entering into a purchase contract. Also, all agents should disclose to you the types of Agency that their brokerage participates in using the Consumer's Guide to Agency, during your first meeting with them.

Now that you know the different ways that you can be represented in a real estate transaction, let's get to the question at hand. How do agent's get paid when they represent Sellers and/or Buyers. Well, the answer is quite simple actually. This is how it works....

Typically, the Listing/Seller's Agent will negotiate a commission amount, or percentage, with the Seller to be paid to their brokerage when they find a ready, willing and able buyer. If that buyer is represented by another agent with another brokerage, then that commission is shared, or split, with the Buyer Agent's brokerage, as stipulated on the Multiple Listing Service (MLS) listing for the property. However, If the buyer's representation falls within Split Agency, Dual Agency or if the Buyer is not represented, then the Listing Brokerage keeps all of the commission negotiated.
If the Seller/Owner is not represented by an agent (For Sale By Owner, FSBO), then either the Seller can agree to pay the Buyer Agent's brokerage a commission for finding a ready, willing and able buyer or, in rare occassions, the Buyer can pay the Buyer Agent's brokerage a commission for their services.

Agents, typically, have negotiated with their broker, a split of the commissions received by the brokerage for the transactions that the agent participated in.

As you can see the commissions to real estate agents is usually paid directly from the seller's proceeds from the sale. Buyer's don't normally have to pay any commissions directly out of their pockets. Although, it is all being paid for in the purchase price of the property.

I hope this has answered alot of your questions about Agency and Commissions in Ohio. I look forward to answering any further questions and hopefully, representing you in your next real estate transaction.

For more information, please visit the Ohio Division of Real Estate and Professional Licensing 
Also feel free to take an extensive look at Agency in Ohio via this Agency Manual