Does the Home Seller Pay All Realtor Fees?

When selling a home, understanding real estate agent fees is crucial for both sellers and buyers. This article clarifies the typical payment process for real estate commissions, detailing their nature, allocation, and final disbursement at closing.

Real Estate Commission Fundamentals

A real estate commission is a fee paid to agents for their services in facilitating a property sale. This fee is typically calculated as a percentage of the home’s final sale price. While the national average has been around 5.44%, this figure generally ranges between 5% and 6% of the sale price.

Commission rates are not fixed by law or regulation; they are negotiable between the seller and their listing agent. Agents provide various services for this commission. These include conducting market analysis, marketing the home, coordinating showings, managing paperwork, negotiating offers, and guiding clients through the process until the sale concludes.

The Commission Structure and Allocation

Historically, the home seller paid the entire real estate commission from the sale proceeds. This total commission was then typically divided between the seller’s listing brokerage and the buyer’s brokerage. The buyer’s agent’s compensation traditionally originated from the seller’s funds as part of this commission split.

Significant changes in real estate commission guidelines, effective August 2024, have altered this arrangement. Under new rules, listing agents may no longer offer compensation to buyer’s agents on multiple listing services (MLS). Buyers are now responsible for compensating their own agents, and a written agreement between the buyer and their agent, clearly specifying the fee, is required before showing homes. Sellers can still choose to offer compensation to a buyer’s agent, often as a strategic move to make their listing more appealing and attract potential buyers.

When compensation for both agents is paid by the seller, the total commission is often split roughly 50/50 between the listing brokerage and the buyer’s brokerage. Each individual agent then receives a portion of their brokerage’s share, based on their agreement with their firm, which can vary (e.g., 60/40 or 70/30 in the agent’s favor). Although the seller is the party directly paying the commission, the cost is often factored into the home’s sale price, meaning that buyers indirectly contribute to these fees through the overall purchase price.

Payment of Fees at Closing

Real estate commissions are typically disbursed at the closing of the home sale, when property ownership officially transfers. The commission is not paid upfront but is deducted directly from the seller’s proceeds before the remaining net funds are transferred. Agents do not receive payment until the transaction is finalized.

A closing agent, also referred to as a settlement agent or escrow company, facilitates this disbursement. This neutral third party prepares documents, holds funds, and ensures all financial aspects are handled correctly. The closing agent distributes the commission to both the listing and buyer’s brokerages according to agreed-upon terms.

Once brokerages receive their portions, they pay their individual agents. For homeowners, real estate commissions are generally not directly tax deductible as an itemized expense. However, these fees are considered a selling expense and can reduce capital gains when calculating tax liability from the property sale.