Does the Buyer Pay the Real Estate Commission?

A real estate commission is a professional service fee for agents assisting in a property transaction. This fee is typically calculated as a percentage of the property’s final sale price. It compensates agents for their expertise, time, and effort in marketing, coordinating showings, negotiating offers, and managing paperwork through closing. Their compensation is contingent upon the successful completion of a sale.

Standard Practice for Commission Payment

Historically, home sellers covered the entire real estate commission, compensating both their own agent and the buyer’s agent. This traditional model often saw commissions ranging from 5% to 6% of the property’s sale price, with each agent’s brokerage typically receiving half of that total. For instance, on a home selling for $400,000, a 6% commission would amount to $24,000, with $12,000 generally allocated to the listing side and $12,000 to the buyer’s side.

Significant shifts in commission rules, stemming from a lawsuit settlement, became effective in August 2024. Under these new guidelines, the long-standing practice of sellers paying the buyer’s agent fee is no longer mandated. Buyers are now responsible for negotiating and agreeing upon their agent’s compensation directly, established through a written agreement before property tours commence.

Despite these changes, sellers retain the option to offer compensation to the buyer’s agent as part of the transaction terms. The specific commission rates are always negotiable between the parties involved, varying based on market conditions, property type, and the services provided. Across the United States, average total commission rates remain in the range of 5% to 6%, though they can fluctuate. Once the commission is earned, it is split between the listing agent’s brokerage and the buyer’s agent’s brokerage. Each agent then shares a portion of their brokerage’s allocated commission with their sponsoring broker, based on their individual agreement.

Understanding the Commission Flow

The payment of real estate commissions occurs at the closing of the property transaction. The agreed-upon commission is typically deducted directly from the seller’s proceeds, disbursed from the total sale price before the seller receives their net amount. The process begins when a seller enters into a listing agreement with their chosen real estate agent, which clearly outlines the commission rate for the sale. This agreement formalizes the compensation terms for the listing brokerage. When the sale closes, the title or escrow company manages the distribution of funds. The total commission is transferred from the seller’s closing funds to the listing brokerage. Subsequently, the listing brokerage disburses the agreed-upon portion of the commission to the buyer’s brokerage. Both the listing agent and the buyer’s agent receive their share from their respective brokerages.

When Buyers Might Directly Pay

While the traditional model often involved sellers covering real estate commissions, several scenarios exist where a buyer might directly incur these costs. If a seller does not offer to pay the buyer’s agent commission, or offers an insufficient amount, the buyer becomes responsible for compensating their agent directly. This compensation can be structured as a percentage of the purchase price, a flat fee for services rendered, or even an hourly rate.

For Sale By Owner (FSBO) properties may not offer a commission to a buyer’s agent, requiring the buyer to pay their agent directly if they desire representation. New construction homes often include builder-paid commissions for buyer’s agents, but this is not always guaranteed. Some builders may offer reduced or no commission, potentially requiring the buyer to cover the agent’s fee if they desire representation.

Buyers might also encounter direct payment obligations with limited service listings, where a listing agent may charge a flat fee to the seller and not offer a cooperative commission to the buyer’s agent. Beyond the primary commission, buyers may also be charged separate specific service fees by their agent or brokerage. These administrative or transaction fees, sometimes called “broker service fees,” are typically non-commission charges. They cover administrative overhead and are paid at closing in addition to any commission. Buyers should carefully review their buyer agency agreement to identify any such additional fees before committing to services.

Commission’s Indirect Influence on Buyer Costs

Although a buyer may not directly write a check for the real estate commission in many transactions, the cost of the commission still indirectly influences their overall expenses. Sellers frequently incorporate the anticipated commission fees into the listing price of their home. This strategic pricing means that the total purchase price a buyer agrees to pay implicitly includes the amount earmarked for real estate commissions.

Consequently, the commission effectively becomes part of the home’s financing, as it is embedded within the loan amount. Over the life of a mortgage, the buyer’s monthly payments and the total interest paid will reflect this factored-in cost. Therefore, while not an upfront out-of-pocket expense for the buyer in the traditional model, the commission contributes to the overall financial outlay associated with homeownership.