Do Sellers Pay Buyers Agent Commission?

Real estate commissions represent a significant component of home buying and selling, often prompting questions about who bears these costs. Understanding the structure and flow of these payments is important for both sellers and buyers engaging in property transactions. Recent industry developments have influenced how these commissions are handled, particularly regarding the compensation for a buyer’s agent. This article will explain the current practices and financial implications of real estate commissions.

The Standard Practice of Commission Payment

Traditionally, home sellers were responsible for paying the entire real estate commission, which encompassed fees for both their own listing agent and the agent representing the buyer. This arrangement meant that the seller’s listing agreement with their broker would stipulate a total commission percentage. This percentage was then used to compensate both sides of the transaction.

Recent changes, particularly those stemming from the National Association of Realtors (NAR) settlement effective August 2024, have shifted this long-standing practice. Under the updated guidelines, buyers are explicitly responsible for compensating their own real estate agent. A buyer must now enter into a formal agreement with their agent that outlines the terms of their compensation.

Despite this shift, sellers can still choose to offer compensation to a buyer’s agent as a concession to attract buyers, though this offer cannot be listed on multiple listing services (MLS). If a seller offers such a concession, the buyer may not need to pay their agent directly from personal funds at closing. However, the fundamental responsibility for the buyer’s agent’s fee now rests with the buyer.

How Real Estate Commissions are Structured

Real estate commissions are a percentage of the home’s final sale price, ranging from 5% to 6% of the transaction value. This total commission is established in the listing agreement between the seller and their listing broker. In the traditional model, this percentage was split, often equally, between the listing broker and the buyer’s broker.

Once the buyer’s broker received their portion of the commission from the listing broker, they would compensate the individual buyer’s agent according to their internal agreement. This internal split between an agent and their brokerage can vary, often ranging from 50% to 70% or more for the agent, depending on experience and sales volume.

Under the new rules, buyer’s agent compensation has changed. While a total commission percentage is still negotiated between the seller and their agent for the listing side, the buyer’s agent compensation is now a separate negotiation directly between the buyer and their agent. The seller may or may not offer a concession to cover this fee, and if they do, it would be handled outside the MLS.

Understanding the Financial Implications

For a home seller, the real estate commission directly impacts their net proceeds from the sale. The agreed-upon commission amount is deducted from the final sale price of their property at closing. For instance, on a $400,000 home with a 5% commission, $20,000 would be allocated to commissions, reducing the cash the seller receives. This deduction is a direct expense for the seller, influencing their financial outcome.

Historically, the cost was implicitly factored into the home’s overall sale price. This meant the buyer indirectly contributed to the commission through the price they paid for the property. Buyers did not see a separate line item for their agent’s fee on their closing disclosure.

Under the new regulations, buyers now face the explicit responsibility of compensating their agent. This compensation can be an out-of-pocket expense for the buyer, or it may be financed into their mortgage if permissible by their lender. This change provides greater transparency regarding who pays whom, and the total cost of homeownership for buyers and net proceeds for sellers will continue to be influenced by market conditions and negotiation dynamics.

Negotiating Real Estate Commissions

Real estate commission rates are not fixed by law and are always open to negotiation between the seller and their listing broker. This negotiation occurs when the seller signs the listing agreement. Sellers can discuss the total commission percentage with their chosen agent, aiming for a rate that aligns with their financial goals.

The new industry rules have also made the compensation for a buyer’s agent explicitly negotiable between the buyer and their agent. Buyers have direct discussions about the fees their agent will charge for their services. Although sellers are no longer required to offer buyer agent compensation, they retain the option to offer concessions that could help cover the buyer’s agent fees.

Such concessions can serve as a negotiation point in the overall sales transaction. This allows both sellers and buyers to tailor agreements to their specific circumstances and market conditions.