Do Buyers Pay Realtor Fees in California?

For many individuals navigating the housing market, a common question arises: who pays the realtor fees when purchasing a home in California? Historically, the prevailing understanding was that sellers bore the entirety of these costs, a belief deeply embedded in real estate transactions. Recent shifts within the industry have brought this long-standing practice into sharper focus, prompting a reevaluation of how real estate professionals are compensated. This article explores the evolving landscape of real estate commissions in California, clarifying the financial responsibilities for buyers.

Historical Commission Payment Practices

For an extended period, the standard practice in California real estate dictated that the seller was responsible for paying the total real estate commission. This commission, typically a percentage of the final sale price, was then divided between the listing agent, who represented the seller, and the buyer’s agent, who represented the buyer. This arrangement meant that while buyers did not directly pay their agent out of pocket, the cost was indirectly factored into the home’s overall sale price.

The commission structure was often set between the seller and their listing agent, with a portion of that agreed-upon fee automatically offered to the buyer’s agent through the Multiple Listing Service (MLS). This system, while convenient for buyers who rarely saw a direct charge for their agent’s services, also led to a lack of transparency regarding the compensation structure.

Current Commission Payment in California

Real estate commission payments in California are undergoing changes, particularly following a nationwide legal settlement involving the National Association of Realtors (NAR) and California’s Assembly Bill 2992. These developments, with key changes effective in August 2024 and January 2025 respectively, are reshaping how buyer’s agents are compensated. While sellers still commonly cover the total real estate commission, the mechanism and transparency of how the buyer’s agent receives compensation have evolved.

Under the new framework, offers of compensation to buyer’s agents are no longer permitted on MLS platforms. This change aims to increase transparency and foster direct negotiation between buyers and their agents regarding compensation. Buyers generally do not directly pay their agent out of pocket at the close of escrow unless a specific buyer-broker agreement dictates otherwise.

Instead, the buyer’s agent’s compensation is typically paid from the seller’s side of the transaction, often as a percentage of the listing agent’s commission, but this is now explicitly negotiated. Sellers can still offer a concession to cover some or all of the buyer’s agent’s fee, which can be included in the purchase agreement. However, this offering is now a choice for the seller, not an automatic obligation, and must be negotiated directly.

The agreed-upon compensation for the buyer’s agent is then specified in a written agreement between the buyer and their agent. This agreement clarifies the terms of representation and how the agent will be paid, whether by the buyer directly or through a seller concession.

Understanding Buyer-Broker Agreements

Buyer-broker agreements are formal contracts that establish the professional relationship between a homebuyer and their real estate agent. These agreements outline the agent’s responsibilities, the scope of services to be provided, and the terms of their compensation. With recent regulatory changes, a written buyer-broker representation agreement is mandated for buyer’s brokers to receive commission in real property sales in California.

These agreements must clearly define the agent’s compensation, which can be structured as a percentage of the purchase price, a flat fee, or an hourly rate. This compensation may still be paid by the seller, either directly or through the seller’s broker, if agreed upon. However, the agreement also specifies that the buyer is ultimately responsible for this compensation, with any amounts received from other parties credited towards the buyer’s obligation.

Furthermore, the agreements must detail when compensation is due and include an expiration date, which generally cannot exceed three months, unless the buyer is a corporate entity. This ensures transparency and provides a clear understanding of the financial commitment.

Negotiating Commission and its Impact on Buyers

While a buyer does not typically negotiate the listing agent’s commission directly, the total commission agreed upon between the seller and their listing agent is ultimately factored into the home’s sale price. This means that the buyer indirectly bears some of this cost as part of the overall purchase price.

Buyers should engage in open discussions with their agents about the commission structure outlined in their buyer-broker agreement. This includes understanding scenarios where they might be responsible for a portion of their agent’s fee, especially if the seller’s offered compensation is insufficient or absent. Buyers can also request that the seller pay some or all of their agent’s compensation as a seller concession within the purchase offer.

This negotiation can influence the overall cost of buying a home. If a seller agrees to cover the buyer’s agent’s fee, it can reduce the buyer’s out-of-pocket expenses at closing. Conversely, if a seller declines, the buyer remains responsible for compensating their agent as per their agreement.