Who Pays Realtor Fees in Tennessee?

Real estate transactions involve real estate agents guiding individuals through buying or selling property. These licensed professionals facilitate connections, navigate market conditions, and assist with negotiations. Agents are compensated through commissions, an established component of real estate dealings, covering the support provided to ensure a successful property transfer.

Standard Practice for Realtor Commissions in Tennessee

In Tennessee, real estate commission practices have undergone a significant change following recent industry settlements. Historically, sellers paid the entire real estate commission, which was then divided between their listing agent and the buyer’s agent. This commission was typically deducted from the proceeds of the home sale at closing. The cost was often integrated into the home’s final sale price, meaning buyers indirectly contributed through their purchase.

As of August 2024, new guidelines require buyers to formally agree to their agent’s compensation in a written agency agreement before receiving services. Buyers are now directly responsible for compensating their own agent. Sellers may still choose to offer a concession towards a buyer’s agent’s fee, but this is a negotiated term and is no longer advertised on the Multiple Listing Service (MLS).

The average total real estate commission rate in Tennessee typically ranges from 5.42% to 5.8% of the home’s sale price. If a seller offers to cover both agents’ fees as part of negotiations, the amount is usually split, with the listing agent receiving approximately 2.75% and the buyer’s agent receiving around 2.67%. Even with the updated rules, sellers often find it beneficial to offer some compensation to attract a wider pool of potential buyers.

How Realtor Commissions are Structured

Realtor commissions are structured as a percentage of the property’s final sale price. This percentage is not legally mandated or fixed, allowing for negotiation between the client and their real estate agent. For sellers, the agreed-upon commission rate is documented within the listing agreement signed with their agent. Similarly, buyers now enter into an agency agreement with their agent, specifying the compensation terms.

These commissions cover services provided by real estate agents throughout the transaction process. Agents assist with pricing the property through market analysis, implement marketing strategies including photography and MLS listings, and coordinate property showings. They also manage negotiations, prepare and review contracts, and guide clients through paperwork. The final commission amount is determined upon the successful closing of the sale.

Distinguishing Realtor Fees from Other Transaction Costs

While realtor commissions are an expense in real estate transactions, they are distinct from other financial obligations known as closing costs. Closing costs encompass various fees and expenses incurred by both buyers and sellers during the final stages of a property transfer. These costs are paid to third-party service providers, not directly to real estate agents for their brokerage services.

For buyers, typical closing costs include loan origination fees, which are charges from the lender for processing the mortgage application. Other common expenses include appraisal fees and inspection fees. Buyers may also pay for title insurance, escrow fees, recording fees, prorated property taxes, and attorney fees, with total buyer closing costs ranging from 2% to 5% of the purchase price.

Sellers also incur various closing costs separate from realtor commissions. These may include transfer taxes, recording fees, and title and closing service fees. Prorated property taxes and attorney fees can also be part of the seller’s expenses. Excluding real estate commissions, seller closing costs in Tennessee range from 1% to 3% of the sale price.