Who Pays Buyer’s Agent Fees: The Buyer or Seller?

Real estate transactions frequently involve various fees, with buyer’s agent commissions being a significant component. A buyer’s agent is a licensed real estate professional who advocates for the buyer’s interests throughout the home-buying journey. This role includes helping to locate suitable properties, coordinating viewings, preparing and submitting offers, and negotiating terms with sellers. Understanding how these agents are compensated is important for anyone navigating the housing market.

The Traditional Buyer’s Agent Compensation Model

Historically, the compensation for both the listing agent and the buyer’s agent was commonly covered by the seller. This traditional model involved the seller agreeing to pay a total commission, usually a percentage of the home’s final sale price, which typically ranged from 5% to 6%. This total commission was then divided between the seller’s listing brokerage and the buyer’s brokerage.

The flow of funds generally began with the seller paying the entire commission to their listing broker. The listing broker would then share a portion of that commission with the buyer’s broker. For example, if the total commission was 6%, it might be split 50/50, with 3% going to the listing agent’s brokerage and 3% to the buyer’s agent’s brokerage. This payment mechanism meant the buyer did not directly pay their agent’s fee out of pocket at closing.

This practice was rooted in the structure where listing brokers would offer compensation to buyer brokers as a condition for listing properties on Multiple Listing Service (MLS) platforms. The commission for the buyer’s agent was often disclosed within the MLS listing information.

Buyer Direct Compensation Scenarios

While the traditional model often involved sellers covering the buyer’s agent fees, there are scenarios where buyers may directly compensate their agent. This can occur when a buyer-broker agreement explicitly outlines the buyer’s responsibility for the commission. Such an agreement might specify that the buyer will pay the agent’s fee, or cover any difference if the seller’s contribution is less than the agreed-upon amount.

A seller might choose to offer zero or a reduced commission to the buyer’s agent, which effectively shifts the payment burden to the buyer. These direct payments can be structured in several ways, such as paying out of pocket at closing.

Financing the buyer’s agent commission into the mortgage loan is generally not permitted by major lending agencies like Fannie Mae, Freddie Mac, and the FHA. Buyers may also negotiate to include the buyer’s agent fee as a seller concession within the purchase offer, which could then be used by the buyer to cover their agent’s compensation.

Evolving Practices in Real Estate Commissions

The landscape of real estate commissions is undergoing significant shifts, particularly concerning how buyer agents are compensated. Recent industry changes are promoting increased transparency and direct negotiation of fees. This means that agents are now often required to provide clear and detailed information about their fees and services upfront.

A notable change is the growing prevalence of mandatory written buyer-broker agreements. These agreements are now often required before a buyer’s agent can show properties, clearly outlining the agent’s responsibilities, compensation rates, and payment terms. This shift ensures that buyers fully understand and agree to their agent’s compensation prior to engaging in property viewings.

These evolving practices are leading to a more explicit discussion of buyer agent fees and encouraging new ways for buyers to engage and compensate their agents. While sellers still have the option to offer compensation to buyer’s agents, this information is no longer advertised on the Multiple Listing Service (MLS). Instead, the negotiation of the buyer’s agent commission often takes place directly between the buyer and their agent.