If you’re planning on buying or selling a home, one of the most common queries is how much is it all going to cost? It’s not cheap to sell or purchase property, but while you can expect to drop some cash on both sides of a sale, knowing who is expected to pay for what is vitally important.
The vast majority of home sales are completed through the use of listing and buying agents; real estate professionals who work on both sides of the transaction and represent either the buyer or the seller to ensure things run as smoothly as possible. Real estate can be confusing, which is why having an agent to represent you and protect your interests is a great idea.
Real estate agents don’t work alone, though. They are part of a brokerage, whose main duty is to connect buyers and sellers to complete a transaction. But the biggest thing to consider here is that brokerages don’t usually pay real estate agents a salary. Instead, they work for commission, which is “the amount of money that the buyer’s agent receives from the broker after a real estate deal.”
Who pays the buyer’s agent commission?
To put it in the most basic of ways, the seller technically pays the buyer’s agent commission. But in many situations, someone who is selling a home wants to know how or why they are paying for the buyer’s agent. Shouldn’t the person purchasing the property have to pay for their own representation?
The process of how a buyer’s agent gets paid is fairly simple. The seller pays their agent’s listing brokerage. That brokerage then pays the listing agent, as well as the buyer’s brokerage. From there, the buyer’s brokerage pays their agent (the buyer’s agent). So, the commission is split between the listing and buying agents, and the money has come from the seller.
Do sellers pay the buyers agent commission?
Although on the surface, it seems that sellers are paying the buyers' agent commission, and getting the short end of the stick, there’s a major caveat to be taken into consideration. When selling a home, the paying of commissions is often acknowledged by the seller and then factored into the listing price of the house. This can be confusing because while the money for the buyer’s agent commission is technically coming from the seller, the buyer has purchased the property at a price that included the agent’s fees.
So, in this instance, the buyer has actually paid the commission of their agent.
Does the seller have to pay a buyer’s agent?
In short, yes. Sellers will usually sign an “exclusive right to sell” or other similarly named contract, which is essentially an agreement between the seller and the listing broker. In this contract, there will be an included clause that requires the seller by law to pay the brokerage fees. The listing brokerage is then authorized to distribute these fees to the listing and buying agents.
Remember, agents do a lot of hard work in order to finalize a transaction and earn their money, so they will usually be very diligent about ensuring their commission is covered in writing.
Why are buyer agent fees so high?
The buyers agent fee is partially dictated by the listing or selling agent's fee. Since most brokers are members of their local MLS and board of realtors, they agree to cooperate and split fees equally, meaning that the selling agent essentially pre-negotiates the buyers agent fee.
While a seller cannot easily renegotiate the buyers' agent fee, the buyer can choose to work with a broker who offers a rebate. A buyer agent commission rebate is when the buyer's agent rebates them a portion of their commission.
Avoiding “dual agency”
Dual agency is a situation in which the same agent is representing both the buyer and the seller. In this case, one agent would receive all of the commission from the sale. While this might sound like a good thing, it’s actually a scenario that most people and agents want to avoid.
In many states, dual agency is illegal due to the likelihood that it will spark conflict. Real estate agents promise to represent their clients to the best of their abilities and always act in their best interests, and dual agency more often than not prevents this from happening. If one agent is representing both parties, it’s virtually impossible for them to maintain adequate, fair, and honest representation on both sides of the transaction.
What if a home is listed as For Sale by Owner?
Sometimes, people list their property as For Sale by Owner in order to reduce the costs of listing fees or paying an agent. However, if a buyer who is represented by an agent purchases the property, the seller is still generally expected to pay the buyer’s agent commission. In this instance, sellers will often include a clause that determines the amount they will pay the buyer’s agent upon the sale of the home. This amount is usually in the range of 2%-4%, but as mentioned above, buyer’s agents should be diligent in ensuring their commission is covered in writing.
It’s important to remember that real estate agents do plenty of hard work in order to guarantee the satisfaction of their clients and act in their best interests. They deserve the commission that they make, so due diligence should be taken when navigating the payment of commissions to ensure that no conflicts arise.
While there are multiple costs included in a real estate transaction, agent fees tend to be the single largest expense. Because of this, it’s important to have an understanding of who is expected to pay what. Although the money for the buyer’s agent commission is technically coming from the seller, this cost is nearly always factored into the price of the home, which means that contrary to popular opinion, the buyer usually ends up being the one footing the bill.