Who Pays the Realtor Fees in a Home Sale?

Real estate fees are a standard component of property transactions, compensating professionals who facilitate buying or selling a home. These fees enable real estate agents to provide services like market analysis, property showings, negotiation, and assistance with closing. Understanding the structure and payment of these fees is important, as they are a significant financial consideration in real estate sales and purchases.

Standard Commission Practices

Historically, the seller typically paid the entire real estate commission from the home sale proceeds. This traditional model involved a single commission rate, often ranging from 5% to 6% of the final sale price. This commission was generally split between the listing agent, who represents the seller, and the buyer’s agent, who represents the purchaser. This practice meant a portion of the seller’s payment effectively compensated the buyer’s agent, incentivizing buyer agents to show the property.

Significant changes, effective August 17, 2024, have altered this traditional structure. Sellers can no longer offer buyer agent compensation on Multiple Listing Services (MLS). This means the long-standing practice of the seller covering the buyer’s agent’s fee through a blanket offer on the MLS is no longer in effect. While sellers may still choose to offer concessions that a buyer could use to cover their agent’s fees, this is no longer a default practice advertised on the MLS.

This change aims to increase transparency regarding agent compensation. It shifts the responsibility for negotiating and potentially paying the buyer’s agent fee more directly to the buyer. Despite these changes, the overall commission rates, which average around 5.44% nationally, have seen only slight adjustments, with listing agent commissions averaging 2.77% and buyer agent commissions averaging 2.67%.

Buyer Agent Compensation Models

With recent industry changes, compensation models for buyer agents have evolved, emphasizing direct agreements between buyers and their agents. Buyers may now be directly responsible for negotiating and paying their agent’s commission.

A key aspect of these evolving practices is the mandatory use of written buyer-broker agreements. As of August 17, 2024, real estate agents working with buyers are required to enter into a written contract with their clients before showing them properties. These legally binding contracts define the scope of services the agent will provide, the duration of the agreement, and the compensation structure.

Compensation for buyer agents can be structured in several ways, as agreed upon in the buyer-broker agreement. Options include a percentage of the home’s final sale price, a flat fee, or an hourly rate for the agent’s services. The exact amount is negotiable between the buyer and their agent.

Buyers also have options for how this compensation is funded. They can pay their agent’s fee directly out of their own funds at closing. Alternatively, buyers can negotiate with the seller to include a concession in the sales contract, which could then be used to offset the buyer’s agent’s fee. This negotiation would be part of the overall purchase agreement rather than a separate offer of compensation from the seller on the MLS.

How Realtor Commissions are Structured and Paid

Realtor commissions are typically calculated as a percentage of the home’s final sale price. This percentage is agreed upon between the seller and their listing agent, formalized in a listing agreement.

The total commission is usually deducted from the gross proceeds of the home sale at the closing table. This means the seller does not typically write a separate check for the commission outside of the transaction. Instead, the funds are disbursed directly from the sale proceeds.

An escrow agent or closing attorney plays a central role in this financial flow. At closing, the escrow agent ensures all conditions of the purchase agreement are met before distributing funds. They disburse the agreed-upon commission amounts to the respective brokerage firms of both the listing and buyer agents.

Each brokerage then further splits its portion of the commission with its affiliated agent, based on their pre-negotiated agreement. The agent’s share is their compensation for their services.

Negotiating and Formalizing Fee Agreements

Real estate commissions are not fixed fees; they are fully negotiable between the client and the real estate professional. This applies to both the listing agent’s commission paid by the seller and the buyer’s agent’s commission, which buyers may now directly negotiate and pay.

Formalizing these agreements through written contracts ensures clarity and avoids misunderstandings. For sellers, this involves a listing agreement, which outlines the terms of their relationship with the listing agent’s brokerage. Key elements in a listing agreement include the agreed-upon commission rate, the duration of the listing, and the marketing strategy.

For buyers, a buyer-broker agreement formalizes the relationship and compensation structure with their agent. This contract, now mandatory in many instances before an agent can show properties, specifies the services the agent will provide, the term length of the agreement, and the agreed-upon compensation. It also details how and when the buyer will compensate their agent, whether through a percentage, flat fee, or other arrangements.