Who Pays the Broker Fee When Buying a House?

Understanding who pays real estate broker fees, also known as commissions, is a frequent question for those navigating the housing market. These fees represent the compensation real estate agents earn for their professional services in facilitating a property’s sale or purchase. This compensation covers activities from market analysis and property showings to negotiation and handling paperwork.

Understanding Real Estate Commissions

Real estate commissions are typically calculated as a percentage of a home’s final sale price. This percentage is not fixed by law and can vary based on market conditions, property type, and negotiations. Historically, the total commission has often ranged between 5% and 6% of the sale price. This amount is customarily split between the listing broker, who represents the seller, and the buyer’s broker, who represents the buyer.

The listing agent markets the property, attracts buyers, and secures sale terms for the seller. The buyer’s agent assists the buyer in finding properties, negotiating the purchase price, and navigating the transaction to protect the buyer’s interests. Both agents are compensated for their expertise and effort in bringing a real estate deal to a successful close.

The Seller’s Primary Role in Commission Payment

Traditionally, the seller has been contractually responsible for paying the entire real estate commission. This arrangement is established through a listing agreement signed between the seller and their listing agent’s brokerage. This agreement specifies the total commission percentage, which is then paid from the sale proceeds at the closing of the transaction.

After receiving the full commission, the listing broker shares a portion with the buyer’s broker. This “cooperating commission” is often advertised through the Multiple Listing Service (MLS), a platform real estate professionals use to share property information and compensation offers. For many years, buyers did not directly pay their agent, as compensation was derived from the seller’s overall commission, which incentivized buyer’s agents.

Recent developments, particularly changes effective in August 2024 stemming from a National Association of Realtors (NAR) settlement, have altered this traditional dynamic. While sellers can still choose to offer compensation to a buyer’s agent, the responsibility for compensating the buyer’s agent now rests more directly with the buyer. Any offer of compensation from a seller to a buyer’s agent must be disclosed in writing and approved by the buyer.

Buyer-Side Commission Arrangements

Even when the seller traditionally covered the total commission, the buyer indirectly contributed to the buyer’s agent’s compensation. This is because the commission was factored into the home’s sale price, meaning the buyer effectively paid it as part of the overall purchase.

Buyer-broker agreements are now increasingly important contracts between a buyer and their real estate agent. These agreements formally outline the agent’s responsibilities and detail how the agent will be compensated. Such agreements typically state that the buyer’s agent will first seek compensation from the seller’s offered commission. However, they also include clauses that may require the buyer to pay their agent directly if the seller’s offered commission is insufficient or not offered.

In some scenarios, buyers may directly compensate their agent through various arrangements, such as a flat fee, an hourly rate, or a retainer, particularly when the seller does not offer a commission. This direct payment ensures the buyer’s agent is compensated for their work, maintaining their fiduciary duty. These direct payment terms are established upfront within the buyer-broker agreement, providing transparency regarding the buyer’s financial obligations.

Variations in Commission Payments

Specific types of transactions and market conditions can introduce variations in how real estate commissions are handled. In a For Sale By Owner (FSBO) transaction, the seller is not represented by a listing agent and may or may not offer a commission to a buyer’s agent. If no commission is offered, the buyer might need to pay their agent directly as per their buyer-broker agreement, or negotiate for the seller to cover this cost as a concession.

New construction homes also present unique commission structures. Builders often have their own sales representatives and may offer commissions to outside buyer’s agents. This commission is typically included in the home’s sale price, meaning the buyer usually does not pay it out-of-pocket. Some builders may offer buyer incentives instead of, or in addition to, agent commissions, or they might have varying commission rates depending on the development or market.

The negotiability of real estate commissions is an important aspect, regardless of the transaction type. Commission rates are not mandated by law and can always be negotiated between the parties involved. While a standard rate between 5% and 6% has been common, buyers can negotiate with their own agents on the fee structure. This negotiation can depend on factors such as market conditions, the agent’s experience, and the scope of services provided.