Do You Pay a Realtor When Buying a House?

When buying a home, many people wonder if they will pay a real estate agent directly. A real estate agent, or realtor, is a licensed professional who assists with real estate transactions, including finding properties, negotiating offers, and managing paperwork. They offer market insights and guidance through a complex process. Understanding how agents are compensated is important for any prospective homebuyer.

The Standard Practice for Buyer Agent Commissions

In most residential real estate transactions, the seller typically pays the entire real estate commission. This commission is usually established in the listing agreement between the seller and their agent. The buyer does not typically pay their own agent directly.

The commission amount is generally factored into the home’s listing price. This means that while the seller is formally paying the commission at closing, the cost is indirectly passed on to the buyer as part of the purchase price of the home. For example, if a home is listed at $300,000 with a 6% commission, the seller would pay $18,000, but this amount is built into the $300,000 the buyer agrees to pay. This long-standing practice means buyers traditionally haven’t seen a direct charge for their agent’s services on their closing statement.

How Real Estate Commissions are Structured and Divided

The total real estate commission, paid by the seller, is divided between the listing agent’s brokerage and the buyer’s agent’s brokerage. This total commission commonly ranges from 5% to 6% of the property’s sale price. For instance, if the total commission is 6%, it might be split evenly, with 3% going to the listing agent’s brokerage and 3% to the buyer’s agent’s brokerage.

After the commission is received by the brokerages, it is further split with individual real estate agents based on their agreement with their firm. This internal division, known as a commission split, varies significantly. New agents might receive 50% to 60% of their share, while experienced agents could receive 80% to 90% or more. Some brokerages also use a cap system, where once an agent reaches a certain sales volume, they may keep a higher percentage or even 100% of their commission for the remainder of the year.

Scenarios Where Buyers Might Pay an Agent Directly

While the seller traditionally covers commissions for both agents, homebuyers might directly compensate their agent in specific situations.

One such instance is when purchasing a “For Sale By Owner” (FSBO) property. The seller may not offer a commission to a buyer’s agent, requiring the buyer to negotiate and potentially pay directly.

Another scenario involves buyer representation agreements that stipulate a minimum fee. If the commission offered by the seller does not meet this minimum, the buyer is responsible for the difference.

Transactions for properties not typically listed on a Multiple Listing Service (MLS), such as off-market deals, may not adhere to standard commission structures. In these cases, direct negotiation and payment from the buyer to their agent might be necessary. Understanding the terms of any agreement with a real estate agent before committing to a purchase is important.

Additional Financial Obligations for Homebuyers

Beyond agent compensation, homebuyers face several other financial obligations throughout the home purchasing process.

Down Payment

The down payment is often the largest upfront cost, typically ranging from 3% to 20% or more of the purchase price, depending on the loan type. First-time buyers often put down around 9%, while repeat buyers might put down 18% or more.

Closing Costs

Closing costs represent another expense, generally ranging from 2% to 5% of the home’s purchase price. These fees cover various services and expenses associated with finalizing the mortgage and property transfer. Common closing costs include:

• Loan origination fees (typically 0.5% to 1% of the loan amount for processing the application)
• Appraisal fees (usually between $300 and $600, paid for a professional valuation of the property)
• Home inspection fees (averaging $300 to $500, covering a thorough assessment of the property’s condition)
• Title insurance (which protects against defects in the property’s title, typically costs between 0.5% and 1% of the purchase price)
• Attorney fees (if required or desired, can range from $500 to $1,500 for residential closings)
• Recording fees (to officially register the property transfer), prorated property taxes, and initial homeowners insurance premiums (often collected at closing to establish an escrow account).