Who Pays Buyer Realtor Fees?

For many individuals considering a home purchase, a common question arises: “Who pays the buyer’s real estate agent fee?” While these fees were traditionally integrated into the seller’s overall commission, recent developments are reshaping this understanding. This shift means real estate agent compensation is becoming more transparent, requiring a clearer understanding from both buyers and sellers.

The Traditional Model of Buyer Agent Compensation

Historically, real estate agent compensation followed a structure where the seller covered the fees for both their listing agent and the buyer’s agent. This began when a seller engaged a listing agent, signing an agreement that outlined a total commission as a percentage of the home’s sale price, typically 5% to 6%. For instance, on a $400,000 home, the total commission could be between $20,000 and $24,000.

Within this arrangement, the listing agent offered cooperative compensation to the buyer’s agent through the Multiple Listing Service (MLS). This offer, often half of the total commission (typically 2.5% to 3% of the sale price), incentivized buyer’s agents to show properties. The commission was paid from the seller’s proceeds at closing, with the listing broker sharing the agreed-upon portion with the buyer’s broker. While funds originated from the seller, the cost was indirectly factored into the home’s sale price, becoming an embedded expense buyers often financed as part of their mortgage.

Recent Shifts in Compensation Practices

The traditional real estate compensation model has undergone significant changes due to recent legal challenges and settlements. Class-action lawsuits, such as the Sitzer-Burnett case, alleged that certain real estate practices inflated commission costs and hindered competition. These lawsuits prompted a settlement by the National Association of Realtors (NAR) in March 2024, agreeing to pay $418 million in damages and implement rule changes.

Effective August 17, 2024, a major change prohibits listing brokers or sellers from offering compensation to buyer agents on MLS platforms. This eliminates the previous system where buyer agent commissions were readily visible and automatically offered via the MLS. Consequently, buyers may now need to directly negotiate their agent’s compensation.

While the MLS can no longer be used for cooperative compensation offers, sellers can still offer concessions to buyers outside of the MLS, which buyers might use to cover agent fees or closing costs. The new rules also mandate that real estate agents working with buyers must enter into formal, written representation agreements with clients before touring properties. These agreements aim to increase transparency by outlining the agent’s services, responsibilities, and how their compensation will be determined.

Direct Buyer-Agent Agreements

With shifts in compensation practices, direct buyer-agent agreements are becoming more common and, in many cases, mandatory. These formal documents, often called buyer-broker or buyer representation agreements, establish a contractual relationship between the homebuyer and their real estate agent. The agreement clarifies the agent’s fiduciary duties to the buyer and details the services they will provide, ensuring transparency regarding the agent’s role.

Under these agreements, buyers directly negotiate and agree upon the method and amount of their agent’s compensation. Compensation can take several forms, including a fixed percentage of the purchase price, a flat fee, or an hourly rate. For instance, a buyer might agree to pay their agent a flat fee of a few thousand dollars or 2% to 3% of the home’s sale price. These agreements are entered into upfront, often before the agent begins showing properties, ensuring the buyer understands their financial obligations from the outset.

The terms of these agreements must be clear, specifying the exact amount or rate of compensation and prohibiting the agent from receiving more than the agreed-upon amount from any source. This direct negotiation empowers buyers to discuss fees and seek more competitive rates for agent services. While some states previously encouraged or required such agreements, they are now a requirement for NAR members, ensuring a consistent standard of disclosure across transactions.

Financial Considerations for Buyers and Sellers

The evolving real estate commission structure introduces new financial considerations for both homebuyers and sellers. For buyers, the most significant change is the potential need to directly pay their real estate agent. This direct payment could impact a buyer’s upfront cash requirements, as they may need to budget for agent fees in addition to down payments and closing costs. While some buyers might negotiate for seller concessions to cover these fees, such as a credit at closing, this outcome is not guaranteed and depends on market conditions and negotiation.

For sellers, the changes mean they are no longer required to offer cooperative compensation to buyer agents via the MLS. This could lead to lower overall commission payouts, saving them thousands of dollars on a sale. However, sellers must consider how not offering buyer agent compensation might affect their listing’s attractiveness and the pool of potential buyers. Attracting buyers whose agents expect compensation might require sellers to adjust their pricing strategy or be open to negotiating concessions.

Both parties now face increased negotiation opportunities and responsibilities. Buyers have more power to negotiate their agent’s fees, leading to varied compensation models and rates. Sellers can choose whether to offer any contribution towards a buyer’s agent’s fee, and if so, how much, typically through direct negotiation or seller concessions. Clear communication and a thorough understanding of the financial implications are important for navigating these new dynamics.