Compensation is the most misunderstood and frequently the most controversial issue in the real estate business. It is the source of most disputes and has created many false impressions in the mind of the public about the professionalism and integrity of real estate licensees. Unfortunately, confusion about compensation of Buyer's Agents is even more pronounced, primarily because of the relative newness of the practice and also because it changes some long-standing traditions that many in the business do not want to see changed. 

The public seems to perceive a real estate broker or a salesperson as being extremely wealthy, the owners of a Cadillac or Mercedes Benz with a telephone. Although many top producers fit this image, the vast majority of licensees make an average living, and the attrition rate in our business is very, very high. 

One factor that has helped create this sometimes negative image has been our reluctance to discuss our fees in an open and forthright manner. With the trends of disclosure and agency awareness, it is becoming more and more important to hold frank and open discussions about how, when and how much we expect to be paid for our services. We must not keep any secrets from our clients, whether they are buyers or sellers. 

The source of commission does not determine agency. For many years, it was believed that whoever paid your fee was your principal and that merely paying a fee created an agency relationship. This is just simply not true and according to most common law, has never been true.  

1881 decision (Bell V. McConnell, 37 Ohio St. 305, 41 Am. Rep. 528) the Supreme Court of Ohio stated, in effect, that compensation can come from any source provided that there is disclosure and consent of all parties. Almost every state has a statute, legal precedent or regulation that says basically the same thing. The payment of a commission can be one factor used in the determination of agency, but it is rarely, if ever, the only consideration.

Source: Your Competitive Edge in Real Estate

2nd Edition: Gail Lyons-Don Harlan