Who Pays the Buyer Agent Commission?

Real estate commissions are fees paid to brokers for facilitating property transactions. These commissions typically cover marketing, negotiation, and guidance through the sale or purchase. Understanding how these fees are structured and disbursed is important for buyers and sellers involved in real estate.

The Traditional Real Estate Commission Model

Historically, sellers paid the entire real estate commission for both their listing agent and the buyer’s agent, as stipulated in the listing agreement. This total commission, often 5% to 6% of the home’s sale price, was divided between the listing and buyer’s brokerages. Buyers did not directly pay their agent at closing.

The Multiple Listing Service (MLS) facilitated this by allowing listing brokers to offer cooperative compensation to buyer brokers. This offer informed buyer agents of the commission they would receive if their client purchased the property. Upon closing, the seller’s proceeds paid the total commission to the listing brokerage, which then disbursed the agreed-upon portion to the buyer’s brokerage.

The commission effectively factored into the home’s overall sale price, as sellers adjusted pricing expectations to account for these costs. This established model meant buyers generally did not need to negotiate or pay their agent’s fee separately.

The Evolving Landscape of Buyer Agent Compensation

The real estate industry is significantly changing how buyer agents are compensated, moving away from the traditional model. A major development is the National Association of Realtors (NAR) settlement in March 2024, effective mid-July 2024. This settlement prohibits listing brokers from offering compensation to buyer brokers via the MLS.

This means buyer agents will no longer automatically receive a commission portion from the seller through the MLS. Buyers and their agents will now need to establish direct compensation agreements. This shift increases transparency regarding buyer agent fees, as buyers will be more directly involved in understanding and negotiating these costs.

Sellers may experience changes in their closing costs, as they might no longer be obligated to pay the buyer agent’s commission directly from the sale proceeds. Conversely, buyers will need to prepare for directly compensating their agents for their services. This evolving landscape encourages greater dialogue between buyers and agents about services and fees, fostering a more competitive and transparent marketplace.

Direct Buyer Compensation Options

With the changes in real estate commission structures, buyers now have several options for directly compensating their agents. Buyers should discuss these various compensation structures with their agents early in the process to determine the most suitable arrangement for their specific financial situation and needs. These direct payment methods necessitate clear and documented buyer-broker agreements outlining the scope of services and the agreed-upon compensation.

Flat Fee, Hourly, or Retainer

One common method is a flat fee agreement, where the buyer pays a predetermined, fixed amount to their agent regardless of the home’s final sale price. Alternatively, some buyers and agents may opt for an hourly rate agreement, where the agent charges for time spent working on the buyer’s behalf. Another option involves a retainer fee, an upfront payment made by the buyer to secure the agent’s services, often credited towards a larger commission at closing.

Seller Credits

Buyers might also negotiate for a seller credit to cover their agent’s compensation. In this scenario, the buyer asks the seller to provide a credit at closing, which can then be used to pay the buyer agent’s fee. This credit is factored into the purchase agreement and can reduce the buyer’s out-of-pocket expenses. Such credits are permissible within certain limits, often applied towards closing costs.

Financing Through Home Loan

Some buyers may explore financing their agent’s commission as part of their home loan, where legally permissible. This option integrates the agent’s fee into the mortgage, allowing the buyer to pay it over the life of the loan rather than upfront.