Who Pays Realtor Fees: Buyer or Seller?

Understanding Realtor Fees in Real Estate Transactions

Understanding who pays realtor fees in a real estate transaction is a common point of confusion for many navigating the housing market. Knowing the typical structure of these fees is important for anyone involved in a property transaction.

Understanding Realtor Commissions

Realtor commissions represent the compensation paid to real estate agents for their services in facilitating the purchase or sale of a property. These commissions are typically calculated as a percentage of the final sale price of the home. These fees compensate agents for their expertise and the services they provide throughout the transaction.

The services covered by these commissions often include comprehensive marketing of the property, which can involve professional photography and staging. Agents also offer skilled negotiation on behalf of their clients, aiming to secure favorable terms for either the buyer or seller. Additionally, they manage the extensive paperwork involved in real estate deals and provide guidance and support to clients throughout the complex process.

The Traditional Payment Structure

Historically, the seller has been responsible for paying the entire real estate commission. This traditional model involved the seller paying a total commission to their listing broker, which typically ranged from 5% to 6% of the home’s sale price. A portion of this total commission was then offered to the buyer’s broker as compensation for bringing a buyer to the transaction.

In this long-standing arrangement, the buyer did not directly pay their agent. While the seller technically disbursed the commission, the cost was implicitly factored into the home’s sale price. This meant that the commission indirectly affected the seller’s net proceeds from the sale.

Alternative Commission Arrangements

While the traditional model has been prevalent, other situations and models exist where the payment structure for commissions may differ. In some scenarios, buyers might directly pay their agents, often through a buyer-broker agreement that outlines the terms of compensation. Such agreements specify how the agent will be compensated, which could be a fixed dollar amount or a percentage of the sale price.

Alternative models also include flat-fee brokerages, which charge a set amount for their services instead of a percentage of the sale price. These can range from a few hundred dollars for basic services to several thousand dollars for more comprehensive support. Discount brokerages offer reduced percentage rates, sometimes as low as 1% to 1.5% for listing services, providing a cost-saving option for sellers. In “for sale by owner” (FSBO) transactions, sellers aim to avoid listing agent fees, though they may still need to offer compensation to a buyer’s agent to attract buyers.

Recent Developments in Commission Payments

Significant changes are reshaping how realtor commissions are handled, largely influenced by a recent settlement involving the National Association of Realtors (NAR). This settlement, effective August 17, 2024, has altered the long-standing practices in the real estate industry. A key change is the elimination of the requirement for listing agents to offer compensation to buyer agents via the Multiple Listing Service (MLS).

This development means that buyer agent compensation is now negotiated directly between the buyer and their agent. Buyers are now typically required to enter into written agreements with their agents before viewing properties, clearly outlining the services and fees. While sellers can no longer advertise buyer agent commissions on the MLS, they retain the option to offer concessions outside the MLS to cover a buyer’s agent fees as part of negotiations. This shift aims to increase transparency and flexibility in commission payments for both buyers and sellers.