Does the Buyer or Seller Pay Commission?

Real estate commission is a fee paid to real estate agents and their brokerages for their services in facilitating a property’s sale or purchase. This fee is typically calculated as a percentage of the home’s final sale price. While the question of who pays this commission can seem complex, it traditionally involved the seller in most transactions. Understanding this payment structure is important for both buyers and sellers navigating the real estate market.

Standard Commission Structure

Historically, the seller has been contractually responsible for paying the entire real estate commission. This commission is customarily a percentage of the final sale price, often ranging between 5% and 6% of the home’s value. The specific rate is negotiated between the seller and their listing agent’s brokerage, becoming a term of their listing agreement.

This commission is a cost associated with selling the property, typically deducted from sale proceeds at closing. Although buyers indirectly contribute as it’s often factored into the home’s price, the legal obligation traditionally rested with the seller. However, significant changes in 2024 mean sellers no longer default to covering compensation for both their agent and the buyer’s agent. Buyers are now generally responsible for compensating their own agent, unless otherwise negotiated.

Commission Distribution

The total commission, whether primarily paid by the seller or negotiated to include buyer contributions, is then distributed among the involved parties. Traditionally, this total commission was shared between the listing brokerage, which represents the seller, and the buyer’s agent’s brokerage. This process is known as co-brokerage, where two different brokerages cooperate to complete a transaction.

In the past, this split was often 50/50, meaning each agent’s brokerage typically received 2.5% to 3% of the sale price. The buyer’s agent’s compensation historically came from the seller’s commission, rather than directly from the buyer. Each brokerage then splits its received portion with its agent, based on an agreed-upon commission split (e.g., 50/50, 60/40, or 70/30).

Factors Influencing Commission

Commission rates are not fixed and are always negotiable. The final rate can be influenced by various elements, including local market conditions, the property’s value, and the experience level of the real estate agent. Sellers may find more flexibility in commission rates in a competitive market where homes sell quickly.

In “For Sale By Owner” (FSBO) situations, sellers might not offer a commission to a buyer’s agent, requiring the buyer to directly compensate their agent for representation. Buyer-broker agreements are also becoming common, where buyers explicitly agree to pay their agent a commission, especially if the seller’s compensation is insufficient or non-existent. Negotiating these terms upfront is important for both parties to understand their financial obligations.