Who Pays Real Estate Commissions: Buyers or Sellers?
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Real estate agent commissions are part and parcel of real estate deals in the US. This is how real estate agents are paid for their services. But who pays real estate commissions: buyers or sellers?
Generally speaking, sellers pay real estate commissions on a transaction. However the fees paid and who is responsible for paying them can all be negotiated before a deal goes through.
Who Pays Real Estate Agent Commissions?
Unlike salaried workers, real estate agents are paid on a commissions basis. That means they earn their income by collecting a certain percentage of the purchase price of a home as their fee. There may be some circumstances in which real estate agents are paid a flat fee for their services, though this is rare.
Traditionally, sellers pay all real estate agent fees, meaning the seller pays both the seller’s and buyer’s agents.
There is no law that exists that specifies the exact percentage that real estate agents must be paid. However, the going rate is usually anywhere from 5% to 6% of the purchase price of a home, split evenly between the two agents. Even then, the commission rate can be negotiated.
Whatever the agreed-upon commission rate is, it must be communicated to the seller before any deal goes through. The fees are then paid out at closing and usually come out of the proceeds of the sale. There could be other variations of how commissions are paid out.
How Do Buyer Agents Get Paid?
Although both buyer and listing agents are paid via commissions from the seller, the money usually goes through a process before it arrives in their hands. When the real estate deal is complete, the commissions are payable at closing and are usually paid directly to the listing brokerage.
The broker then splits the commission between the listing agent who represented the seller and the other agent who represented the buyer.
The exact split will depend on the arrangement that the listing brokerage establishes when the home is initially listed for sale but is usually 50/50 between the listing and buyer agents.
From there, each agent will usually have to share a portion of their commissions with the brokerage they work for unless they are independent. The amount that each brokerage gets depends on the arrangement made when the agent first signed on with the brokerage.
What Role Do Buyer and Seller Agents Play?
The exact services that real estate agents provide for their clients can vary based on the details of the transaction and the agreements made between agents and their clients. Here is a rundown of the more common services provided by real estate agents.
Seller Agent’s Role
Also referred to as the ‘listing agent’, the seller agent lists the home for sale on the Multiple Listing Service (MLS) and other websites to advertise the property.
Typical seller agent duties include:
- Establishing an accurate listing price based on current market conditions.
- Listing the property on the MLS and other relevant websites, such as Zillow and Realtor.com.
- Receiving offers from buyer agents
- Communicating incoming offers to their seller clients.
- Helping the seller assess offers.
- Negotiating the offer price and other aspects of the offer with the buyer’s agent.
- Holding open houses on behalf of their clients.
- Attending the home inspection as the seller’s representative.
- Ensuring that all documents are completed is required for the closing process.
Buyer Agent’s Role
The buyer’s agent spends a lot of time showing homes to buyers. But there’s a lot more that goes into their job than just that.
Typical buyer agent duties include:
- Helping the buyer narrow down the type of home they want to look at.
- Helping the buyer focus on an appropriate price range.
- Coming up with a list of properties that meet the buyer’s criteria.
- Visiting properties with the buyer client.
- Assessing the neighborhoods of homes being shown.
- Evaluating the listing price of homes based on current market conditions.
- Drafting an offer including any comparable sales information, or “comps”.
- Negotiating with the listing agent to come up with a price both parties are satisfied with.
- Attending the home inspection as the representative of the buyer.
- Ensuring that all documents are completed for the closing process.
Ready to Apply For a Home Loan?
If you’re ready to make a home purchase and need a mortgage to finance it, working with a real estate agent can help – especially since buyers don’t usually bear any of the costs. Before you start house-hunting, however, you should get preapproved for a loan. Contact a qualified lender today to start the mortgage application process!