Do Buyers Pay Commission to Real Estate Agents?
We know that real estate agent fees are how most real estate agents get paid for the homes that they sell, but do buyers pay commission to real estate agents? Commission and pay structures can vary from state-to-state and brokerage-to-brokerage, but you want to know who’s responsible for the bill.
Who Pays the Commission of the Real Estate Agent?
Thankfully, if you’re buying a home you’re probably off the hook for paying the commission of the real estate agent. In a prior post, I covered the various types of agency practiced and some of the variations that occur in how buyers and sellers can be represented in a real estate transaction, so if you want some insight on that matter check that out. In almost all real estate transactions, the seller is the one who pays the commission for the buyer and the seller.
The seller and listing agent negotiate a commission rate at the time the home is put on the market for sale. This rate is then split with the buyers agent who brings a buyer for the property being sold. When the seller(s) set a listing price for the home, they usually take the agent’s commission into account; it’s the cost of doing business.
How Much is the Commission for a Real Estate Agent?
As indicated in the section above, this is a negotiable point between the seller of the home and their listing agent. The real estate agent commission is a percentage of the sales price. So, the specific amount depends on how much the home sells for, but it’s commonly 6% of the sale price.
For example, if the home sells for $500,000, a real estate agent commission of 6% would be $30,000. Because it is common to split this 50/50 with the buyers agent, the listing agent would get $15,000 and the buyers agent would get $15,000. Further, the agents often will not see that full amount as they often will only get a percentage of that since they must split that with their broker. So, if I’m the buyers agent and I’ll earn $15,000, but because my brokerage and I have an agreement where I only get paid 60% of that $15,000, that means I get $9,000 before taxes and any fees I may have to pay.
The commission is split between the buyer’s agent and the seller’s agent. It’s a separate contract between the brokers and NOT something the buyer gets to negotiate as part of the offer (hold your negotiating for the closing costs). On a rare occasion, a buyer and seller may sign off on a reduction of a commission split being paid to the agents, but that is often just to give notice to all parties that this will take place. It often is negotiated solely between agents working for the respective parties to negotiate the best deal for their clients interest. Again, it’s not something you need to worry about as a buyer. If it’s something you need to know about, your agent should discuss it with you.
Dual Agency: One Agent Representing Both Parties
While not always a common situation in real estate, but if the agent you’ve hired to represent you also represents the seller of the house you’re buying, it’s called dual agency. Dual agents represent the interests of both the buyer and the seller. This can sometimes be the case when you call the agent whose name is on the sign of the house you’re interested in. This can lead to potential conflicts of interest and limited fiduciary duties offered to both parties, which can mean that your agent can no longer advise you on if the price you offer on a property is good or not. Similarly, the seller will want to know if they are getting a good deal or not from an offer. In either situation, the agent would have to have a neutral position (and answer) and could not advise buyer(s) or seller(s) on offers and sale prices.
Some buyers make the mistake of calling the listing agent who has the home up for sale thinking they will get a better deal on the home. Sometimes, buyers are under the false impression that they have to pay the agents commission and by using the listing agent will get a reduction in commission they pay, which as already stated above, buyers DO NOT pay the agents commission, the seller does. The only one benefiting in the situation is the agent, who gets a bigger paycheck at the end.
You also will not likely get a “better deal” for the home. Afterall, the seller had the agent first in this situation and they are tasked with working for the sellers best interest and getting the most money for the home. As a buyers agent also, that agent may not be able to advise you on how much to ask for towards closing cost, and they definitely won’t be able to tell you if the seller will take less for the home. Again, the duties offered to both parties in a dual agency situation are limited. Are you sure you don’t want independent representation?
In some states—Florida, Colorado, and Kansas—dual agency is illegal in a real estate transaction to outright eliminate any question that the agent was neutral in representing the seller and the buyer, and avoid the chaotic scenario depicted above. But in the states (Ohio being one of them) that allow dual agency, agents are required by law to disclose that they’ll be representing both sides to their clients.
Critics who advise against dual agency worry about potential conflicts of interest—the chance that the interests of both the buyer and seller will not be met. And to their credit, one can understand how this could be a problem.
When it comes to real estate commission, a dual agent gets to keep everything because he or she is doing more work by representing both sides.
What are Closing Cost?
Closing costs are the miscellaneous fees separate from the real estate agent fees and commission that must be paid at closing. They cover things such as:
- Loan processing
- Title company fees
- Surveyor costs (if needed)
- Recording of the real estate deed
- Any taxes or homeowners association fees, which may need to be prorated if they’re already paid
The amount of the real estate closing costs will vary with each home sale/purchase and can range widely from 2% to 7% of the home’s purchase price.
Your agent or the title company will provide you with a buyer’s sheet that details the closing costs, and by federal law you must receive what’s called a “good-faith” estimate of your closing costs from any lender you use in your real estate purchase.
As for who pays the closing costs, that’s where your negotiating skills (or your Realtor’s) come into play. There is no cut-and-dried rule about who—the seller or the buyer—pays the closing costs, but buyers usually cover the brunt of the costs compared with sellers.
Closing cost are negotiable, and having a knowledgeable, independent agent to negotiate on your behalf, and who knows what your lender permits you to ask for towards closing costs can benefit you greatly. Don’t let any realtor or vendor convince you otherwise!
Attorney fees, commission rates, recording costs, and messenger fees can all be negotiated down.
Sometimes the buyer will have written into the contract that the seller will pay the buyer’s closing costs up to a certain percentage or amount.
This is why you need a good real estate agent to negotiate a contract for you.
If the closing costs are too steep and the sellers won’t chip in as much as buyers would like, the buyers can request that real estate closing costs be rolled into the mortgage.
So whether you’re the buyer or the seller, the listing price isn’t the only number you should focus on. Those fees outside the price of the house can add up, and you don’t want to be hit with any surprises late in the game.