Do Buyers Pay Realtors? How Agent Commissions Work

Understanding how real estate agents are compensated is a common question for those entering the housing market. Many homebuyers wonder if they are directly responsible for paying the agents involved in a home purchase.

Standard Real Estate Commission Practices

In residential real estate transactions, the seller traditionally pays the real estate commission. This commission is agreed upon in the listing agreement between the seller and their listing agent’s brokerage. The total commission, often 5% to 6% of the home’s sale price, is then split between the listing agent’s brokerage and the buyer’s agent’s brokerage. This division, known as cooperative commission, incentivizes buyer’s agents to show properties listed by other brokers.

The Multiple Listing Service (MLS), a database of properties for sale, facilitates this structure by allowing listing brokers to offer compensation to cooperating brokers. This arrangement means that, in most standard sales, the buyer does not directly pay their agent. Instead, the commission is disbursed from the sale proceeds at closing.

Buyer’s Indirect Contribution to Commission Costs

While the seller directly pays the real estate commission, this cost is often incorporated into the home’s listing price. Sellers factor the commission expense into their pricing strategy, viewing it as a cost of doing business. Thus, when a buyer purchases a home, the commission is indirectly borne by them as part of the overall purchase price.

The commission is not an additional charge added on top of the agreed-upon sale price; rather, it is embedded within it. Therefore, the funds a buyer uses to acquire a home, whether through financing or cash, implicitly contribute to covering the agent commissions. This highlights the distinction between who physically writes the check and who ultimately bears the economic burden of the transaction costs.

Scenarios Where Buyers Directly Pay Agents

Despite the traditional model, less common situations exist where a buyer might directly compensate their real estate agent. One instance involves flat-fee or fee-for-service agreements. Here, a buyer pays a fixed amount for services, rather than a percentage-based commission. This can be appealing for higher-priced properties where a percentage commission would be substantial.

Another scenario arises with For-Sale-By-Owner (FSBO) properties, where the seller may not offer a commission to the buyer’s agent. If the buyer wishes to retain agent representation, they might agree to cover their agent’s compensation directly. With new construction homes, builders often pay buyer’s agent commissions (2% to 3% of the sale price), but if a builder does not offer a co-broker commission, the buyer may pay.

Exclusive buyer agency agreements can also include clauses that stipulate direct buyer payment. If the commission offered by the seller is less than the amount agreed upon in the buyer-agent contract, the buyer may be obligated to pay the difference at settlement. Such clauses ensure the buyer’s agent receives the agreed-upon compensation, even if the seller’s contribution is insufficient.

Understanding Buyer Agency Agreements

A buyer agency agreement, also known as a buyer-broker or buyer representation agreement, is a formal contract between a homebuyer and their real estate agent. This document outlines the professional relationship’s terms, specifying the agent’s responsibilities and service scope. It ensures the agent acts in the buyer’s best interests throughout the home-buying process.

The agreement also details the agent’s compensation structure. It clarifies how the agent will be paid: through a commission offered by the seller, a direct payment from the buyer, or a combination. This transparency defines the buyer’s financial obligations and ensures they understand how their agent’s services are compensated. The agreement often specifies the representation’s duration and conditions for termination.