Does a Buyer Pay a Real Estate Agent?

The question of whether a buyer directly pays their real estate agent often leads to confusion. Traditionally, real estate commissions made it seem as though buyers were not directly responsible for their agent’s compensation. However, recent industry developments are bringing greater clarity to this aspect of home transactions. This article explains how a buyer’s agent might be compensated.

How Real Estate Commissions Traditionally Work

Traditionally, the home seller paid the real estate commission, typically a percentage of the final sale price. This commission went to the seller’s listing broker, who then shared a portion with the buyer’s agent, a practice known as cooperative compensation. This model meant buyers did not typically pay their agent directly.

Commissions historically ranged from 5% to 6% of the sale price, often split evenly between the listing and buyer’s agent brokerages. For example, on a $400,000 home with a 6% commission, $24,000 would be paid in total, with each brokerage receiving $12,000. This system incentivized buyer agents to show properties and bring offers, as their compensation was part of the overall transaction.

The Buyer’s Relationship to Commission Payments

While the seller traditionally paid the real estate commission at closing, the buyer indirectly contributed to this cost. The commission was typically factored into the home’s listing price. This meant the home’s sale price, which the buyer finances, effectively included the commission for both agents.

The commission was ultimately financed through the buyer’s mortgage and included in the total cost of the home. Buyers did not see a separate line item for their agent’s commission on closing documents, as it was disbursed from the seller’s proceeds. This indirect payment allowed buyers to receive professional representation without incurring upfront, out-of-pocket agent fees.

When Buyers Might Pay Their Agent Directly

There are specific scenarios where a buyer might directly compensate their real estate agent. One common instance is when the buyer and their agent enter into a direct buyer-broker agreement that specifies a commission or fee paid by the buyer. Such agreements can outline various payment structures, including a percentage of the sale price, a flat fee, or an hourly rate.

Another situation arises if the seller offers very low or no cooperative compensation to the buyer’s agent. In such cases, the buyer may agree to make up the difference to their agent. Some agents also offer their services on a flat-fee basis, where the buyer pays a predetermined amount for specific services. Buyers might also receive a “buyer rebate” (where permitted by state law), which is a portion of the commission returned to the buyer by their agent, often applied as a credit at closing.

Recent Shifts in Real Estate Compensation

Significant changes are impacting how real estate commissions are handled, particularly regarding buyer agent compensation. A landmark settlement involving the National Association of Realtors (NAR), effective August 17, 2024, has altered the long-standing practice of cooperative compensation. Under the new rules, listing brokers are prohibited from offering compensation to buyer agents on Multiple Listing Services (MLS). This means the commission amount for buyer agents will no longer be openly advertised on the MLS.

These changes are designed to increase transparency and buyer choice. Buyers are now expected to negotiate and potentially pay their agent’s commission directly. Buyer agents are now required to have a written agreement with their clients, outlining their services and compensation, before showing homes. While sellers can still choose to offer concessions, including funds for the buyer’s agent, this must be negotiated outside the MLS. This shift encourages both buyers and sellers to be more proactive in understanding and negotiating agent fees.