Who Actually Pays Realtor Fees in Alabama?

Realtor fees, often referred to as commissions, represent a significant cost in real estate transactions. Many individuals buying or selling a home in Alabama are uncertain about who pays these fees. Understanding typical commission arrangements helps both buyers and sellers navigate the housing market. This article explains the standard practices for realtor fees in Alabama.

Understanding Realtor Commissions in Alabama

In Alabama, real estate commissions are typically a percentage of the home’s final sale price. This percentage is usually agreed upon between the seller and their listing agent, formalized within a listing agreement. The total commission generally covers the compensation for both the seller’s agent, known as the listing agent, and the buyer’s agent.

Traditionally, the seller paid the entire real estate commission. This commission, averaging around 5.68% of the home’s sale price, was then split between the listing brokerage and the buyer’s brokerage. For instance, on a $350,000 home, the total commission could be approximately $19,880. While the seller ultimately funds this amount, the cost is often considered when determining the home’s listing price.

This document also typically specifies how the total commission will be divided, including the compensation offered to a cooperating buyer’s agent. This ensures transparency about the financial arrangement at the outset of the selling process. The commission is paid to the agent’s brokerage, which then pays the agent their portion according to their internal agreement.

Compensating Buyer’s Agents

A common question is how buyer’s agents are compensated, as buyers generally do not pay them directly out-of-pocket at closing. Even though a buyer’s agent works exclusively for the buyer’s interests, their commission has traditionally been drawn from the total commission the seller agreed to pay. This arrangement has allowed buyers to receive professional representation without incurring an additional, direct fee at the time of purchase.

The mechanism for this compensation involves commission sharing between the listing brokerage and the buyer’s brokerage. This fee is typically a percentage of the sale price, averaging around 2.91% of the home’s value. This practice helped to encourage buyer agents to show properties listed by other brokers.

Recent changes, influenced by the 2024 National Association of Realtors (NAR) settlement, have shifted how buyer’s agents are compensated. Buyer’s agents are now required to sign a buyer agency agreement with their clients before providing services. This agreement explicitly details the services the agent will provide and how they will be paid. While sellers can still offer to pay a buyer’s agent concession to help attract buyers, the buyer is now contractually responsible for their agent’s fee.

In situations such as “For Sale By Owner” (FSBO) properties where no commission is offered by the seller, a buyer may need to pay their agent directly as per their buyer agency agreement. This direct payment ensures the buyer’s agent receives compensation for their efforts in finding the right property and assisting with the transaction.

Negotiating Realtor Fees

Real estate commissions are not fixed by law and are open to negotiation between the client and their real estate agent. This flexibility allows both sellers and buyers to discuss rates and terms that align with their specific circumstances. Factors such as current market conditions, the agent’s experience level, and the property’s value can influence the negotiation process.

For sellers, negotiating the listing agent’s commission can lead to significant savings. Some agents or brokerages may offer lower rates, particularly if the property is expected to sell quickly or if the seller is also purchasing a new home through the same agent. Alternative business models, such as discount brokerages or flat-fee services, also exist, offering reduced commission rates in exchange for different service levels.

Buyers, under the new regulations, directly negotiate their agent’s compensation through a buyer agency agreement. While a buyer can still request that the seller contribute to their agent’s fee as part of the purchase offer, this contribution is now a negotiated concession rather than a default. In cases where a seller does not offer a concession, the buyer would be responsible for paying their agent directly, as outlined in their agreement.

Realtor Fee Payment at Closing

The payment of realtor commissions typically occurs at the closing of the real estate transaction. This means that neither the buyer nor the seller usually pays the agents directly with a separate check before the sale is finalized. Instead, the commission amounts are handled as part of the overall financial settlement.

The commission is itemized on the closing disclosure (CD) or settlement statement, which is a detailed breakdown of all costs and credits associated with the home sale. For sellers, the agreed-upon commission is deducted directly from their proceeds from the sale of the home. For example, if a home sells for $200,000 with a 5.68% commission, approximately $11,360 would be withheld from the seller’s funds.

The closing agent, often an attorney or title company representative, is responsible for disbursing these funds. They ensure that the listing brokerage and, if applicable, the buyer’s brokerage receive their respective portions of the commission directly from the sale proceeds. This integrated process simplifies the payment for both parties, as the funds are transferred as part of the larger transaction.