Do Home Buyers Pay Real Estate Commission?
Clarify common questions about real estate commissions. Learn who typically pays and when buyers might have direct responsibility.
Real estate commissions are payments for professional services provided by agents when buying and selling homes. A common question for prospective homeowners is whether buyers are responsible for paying these commissions. Understanding payment structures and recent industry changes is important for navigating a home purchase. While the traditional model often placed the commission burden on the seller, evolving practices mean that buyers may now encounter different arrangements.
The Standard Commission Arrangement
Historically, the home seller has been responsible for paying the real estate commission for both their listing agent and the buyer’s agent. This arrangement was formalized in the listing agreement between the seller and their agent. The commission, typically a percentage of the home’s final sale price, was negotiated upfront and usually ranged between 5% and 6%. This total commission was then disbursed from the seller’s proceeds at closing.
The listing agreement, a legally binding contract, outlined the specific terms, including the commission rate. For example, on a $400,000 home, a 5% commission would amount to $20,000. The seller was the primary party financially responsible for agent compensation. In this traditional setup, the buyer did not directly pay the real estate agents’ commissions.
How Buyer Agents Receive Payment
Under the traditional model, the buyer’s agent received their share of the commission from the listing agent, who collected the full commission from the seller. This was often referred to as a “cooperating commission,” and the amount offered to the buyer’s agent was typically advertised in the Multiple Listing Service (MLS). For instance, if the total commission was 5.5%, the listing agent might offer the buyer’s agent around 2.5% to 3%. This meant the buyer’s agent was compensated from the seller’s funds, not directly by the homebuyer.
However, new rules effective August 2024 require buyers to negotiate and agree upon their agent’s fee directly with their own agent. This means listing agents no longer advertise buyer’s agent compensation on the MLS. Buyers and their agents must now discuss compensation before property showings, with the buyer potentially responsible for their agent’s payment.
Commission’s Influence on Home Price
While buyers traditionally did not directly pay real estate commissions, these costs indirectly influenced the home’s purchase price. Sellers often factored the commission expense into their asking price. This meant the commission was, in effect, included in the overall price the buyer paid for the home.
The seller’s pricing strategy accounted for the amount needed to cover the commission and their desired net proceeds. A higher commission rate could contribute to a higher asking price. Buyers, through the purchase price, still contributed to the funds from which commissions were paid, even if they weren’t explicitly writing a check for agent fees.
When Buyers May Directly Pay Commission
Recent changes in real estate industry practices have made it more common for buyers to directly pay their agent’s commission. Under new guidelines effective August 2024, buyers are now often responsible for compensating their own agent, unless otherwise negotiated. This shift requires buyers to enter into buyer-broker agreements that outline the agent’s fees and the buyer’s payment obligations.
In scenarios where a seller does not offer compensation to the buyer’s agent, or offers an amount less than the buyer’s agreed-upon fee, the buyer becomes directly responsible for the difference or the full amount. This can occur in For Sale By Owner (FSBO) transactions, where no listing agent facilitates commission payment from the seller. Similarly, some new construction builders may not offer commissions to buyer’s agents, requiring direct payment from the buyer.