As a Buyer, Do I Pay a Realtor Fee?
Demystify who pays your realtor fee. Learn about typical arrangements, rare exceptions, and the importance of your buyer-broker agreement.
Demystify who pays your realtor fee. Learn about typical arrangements, rare exceptions, and the importance of your buyer-broker agreement.
When purchasing a home, buyers often wonder who pays real estate agent fees. In most standard real estate transactions, the buyer does not directly pay their realtor’s commission. The fee has been traditionally covered by the seller, though recent changes in industry practices have introduced more direct negotiation for buyer agent compensation.
Historically, sellers paid the entire real estate commission, covering fees for both their listing agent and the buyer’s agent. This arrangement is usually formalized within the listing agreement between the seller and their agent. The total commission typically ranges from 5% to 6% of the home’s final sale price.
This total commission is then divided between the seller’s agent and the buyer’s agent. This compensation structure is generally factored into the home’s sale price, meaning the buyer indirectly contributes to the fee through the purchase price. However, significant changes implemented in August 2024, stemming from a legal settlement, now require buyers to discuss and agree upon their agent’s fees directly, as offers of compensation are no longer advertised on multiple listing services (MLS).
While sellers traditionally covered agent commissions, buyers may directly pay their real estate agent’s fee in certain situations. This often occurs when a buyer enters into a specific buyer-broker agreement that stipulates direct payment. Such an agreement becomes relevant if the seller’s commission offer is insufficient or if the seller chooses not to offer any commission to the buyer’s agent.
One common instance is when purchasing a For Sale By Owner (FSBO) property, where the seller might refuse to pay any real estate agent fees. In such cases, a buyer may need to pay their agent’s commission, typically ranging from 2.5% to 3% of the purchase price, out of their own funds. Alternatively, the buyer might negotiate with the seller to include the commission in the home’s sales price, effectively rolling it into their mortgage, with the seller then using proceeds to pay the agent at closing.
New construction homes also present a scenario where buyer payment might occur. Traditionally, builders often covered the buyer’s agent commission, usually 2.5% to 3% of the sale price. However, with recent industry shifts, buyers should confirm if the builder will cover this fee, as direct negotiation between the buyer and their agent regarding compensation is now more prevalent. If the builder does not offer a commission, the buyer may be responsible for their agent’s compensation. Some buyers might also choose to compensate their agent through an hourly rate or a flat fee, which are alternative payment models separate from the percentage-based commission structure.
A buyer-broker agreement, also known as a buyer agency agreement, is a legally binding contract establishing the relationship between you and your real estate agent. This document is designed to protect both parties by outlining mutual duties and responsibilities. As of August 17, 2024, new requirements in many areas necessitate signing this agreement before viewing homes.
This agreement typically specifies the duration of the working relationship, the agent’s responsibilities, and the compensation structure. It clarifies how your agent will be paid, including any circumstances under which you might have a direct financial obligation for their services. The agreement ensures that your agent provides dedicated representation, acting in your best interests throughout the home-buying process. Reviewing this document carefully before signing is advisable to understand all terms and conditions, particularly concerning compensation.
While overall real estate commissions were historically negotiated between the seller and their listing agent, buyers now influence their agent’s compensation directly. Commission rates are not fixed by law and are always negotiable. This negotiation typically occurs when establishing the buyer-broker agreement.
Some buyer’s agents may offer rebates, which involve returning a portion of their commission to the buyer. These rebates are legal in most states and can be provided as a credit at closing or as a direct payment. Negotiating a reduced fee or a rebate can help offset some of the buyer’s costs, particularly in competitive markets. Any agreed-upon compensation arrangement, whether a percentage, flat fee, or rebate, should be clearly documented within the buyer-broker agreement to ensure transparency and mutual understanding.