Does the Seller Pay for the Buyer’s Agent?

Whether a seller pays for the buyer’s agent has traditionally been answered with a yes, though recent developments have introduced significant changes. Historically, the seller covered the entire real estate commission. This practice meant that while buyers did not directly write a check to their agent, the cost was indirectly integrated into the home’s sale price. The evolving landscape of real estate practices, particularly with recent legal settlements, is shifting this traditional model, leading to new considerations for both buyers and sellers regarding agent compensation.

Standard Commission Structure

Real estate commission is a fee paid to agents for their services in facilitating a property sale. This commission is calculated as a percentage of the home’s final sale price. Historically, the total commission ranged from 5% to 6% of the sale price. For instance, on a $400,000 home, a 5% commission would amount to $20,000.

The seller has traditionally been responsible for paying this entire commission out of the sale proceeds at closing, which reduced the net amount the seller received. Commission rates are not fixed by law and are negotiable between the seller and their listing agent.

Buyer Agent Compensation Explained

The total commission paid by the seller has traditionally been split between the seller’s agent’s brokerage and the buyer’s agent’s brokerage. This split was often an equal division, meaning each brokerage received approximately half of the total commission. For example, if the total commission was 5.44%, the listing agent’s brokerage might receive around 2.77% and the buyer’s agent’s brokerage around 2.67%.

Once the brokerage received its share, the buyer’s agent then received their portion from their brokerage based on their individual commission split agreement. These internal splits vary, but a new agent might receive 50% to 60% of their brokerage’s share, while more experienced agents could receive 80% to 90%.

How Commission Agreements Are Determined

The total commission percentage is negotiated between the seller and their listing agent, and these terms are formally documented in a listing agreement. This legally binding contract outlines the specific percentage of the sale price the listing agent’s brokerage will receive upon a successful sale. The listing agreement also specifies the duration of the agreement and the agent’s responsibilities.

Historically, the listing agent’s brokerage would then offer a portion of this agreed-upon commission to the buyer’s agent’s brokerage through the Multiple Listing Service (MLS). This was a blanket offer of compensation. While a buyer’s agent had an agreement with their client, their compensation traditionally stemmed from this offer made by the seller’s listing agent via the MLS.

Financial Considerations for Parties Involved

The traditional commission structure has direct financial implications for both sellers and indirect impacts for buyers. For sellers, the total commission paid directly reduces their net proceeds from the home sale. For example, if a home sells for $300,000 with a 6% commission, $18,000 would be deducted from the seller’s funds at closing to cover agent fees.

For buyers, while they did not typically pay their agent directly, the commission was often factored into the overall sale price. This meant the buyer’s agent’s cost was an indirect expense embedded within the mortgage and purchase price. Buyers would effectively finance this portion of the commission over the life of their loan, influencing their overall housing cost.

Evolving Compensation Practices

Recent developments, including legal settlements, are leading to significant changes in real estate agent compensation models. Effective August 17, 2024, the practice of listing brokers offering compensation to buyer agents via the Multiple Listing Service (MLS) is prohibited. This change aims to decouple the buyer’s agent’s commission from the seller’s obligation.

Under these new practices, buyers are now expected to pay their own agent’s fees, unless otherwise negotiated. Buyer’s agents are now required to enter into written agreements with their clients before touring homes, clearly outlining their services and compensation. Sellers can still choose to offer concessions or contribute to the buyer’s agent’s compensation, but this would be outside the MLS and negotiated directly as part of the purchase agreement.