When it comes to buying or selling a home, there’s one question that often arises: “Who pays the real estate agent?” The answer has traditionally been the seller, but recent changes to industry practices, especially with new rules introduced by the National Association of Realtors (NAR) and the Multiple Listing Service (MLS), have transformed the landscape of real estate agent commissions. These changes, implemented in 2024, aim to bring more transparency to the process, allowing both buyers and sellers to better understand and negotiate commission fees.
This comprehensive guide will walk you through the recent shifts in commission structures, explain how real estate commissions are determined, and provide tips for navigating these fees when buying or selling property. Let’s break down the essential aspects of real estate agent fees, who pays for them, and what changes you need to be aware of.
What is a Real Estate Commission?
A real estate commission is a payment made to the real estate agent or broker for their services in helping a buyer or seller with a property transaction. Typically, this commission is a percentage of the final home sale price. This percentage can vary depending on the location, the property value, and the agents involved. Commissions are paid at the closing of the sale, usually once the transaction is finalized.
In most cases, the seller is responsible for paying the commission for both their agent and the buyer’s agent. Historically, the commission is split between the buyer’s and seller’s agents, but the changes brought about in 2024 have created more flexibility, allowing for negotiation between buyers and sellers.
Who Pays the Real Estate Agent Fees?
The short answer is that both buyers and sellers can negotiate who pays the agent’s commission. Traditionally, the seller would cover the entire commission fee from the proceeds of the sale. This practice, however, has shifted after changes were made to commission structures in the real estate industry in August 2024.
Before the changes, sellers were typically expected to pay the buyer’s agent’s commission as part of the listing agreement. In the new system, buyers must agree to their agent’s fee in writing before they even tour a property. However, they can still ask the seller to cover the buyer’s agent fee as part of their offer.
As a result of these changes, the cost of paying the buyer’s agent commission will now vary depending on each buyer and seller negotiation. Some sellers may still choose to pay the buyer’s agent’s commission as part of their sale, while others may negotiate that cost directly with the buyer’s agent.
How Sellers Navigate the New Commission Process
With the new rules in place, sellers have a couple of options when it comes to handling the buyer’s agent commission. They can either:
- Leave it open-ended: Sellers can ask buyers to make their best offer, which may include compensation for the buyer’s agent. This gives the seller the flexibility to negotiate the commission fee based on the buyer’s offer.
- Proactively offer a commission: Some sellers may choose to offer a commission or a concession as part of their home’s marketing strategy. This offer can be made directly to the buyer’s agent during a showing or at the time of an offer.
Can You Negotiate Real Estate Agent Commissions?
The answer is yes—real estate commissions are negotiable. Commissions are not set by law, and they can vary by brokerage, area, and the specific details of the transaction. In most cases, commissions are flexible, and buyers and sellers have the option to negotiate these fees.
Sellers may offer a lower commission to the buyer’s agent if they want to save money. Alternatively, buyers can negotiate with their agent to lower the commission fee they pay.
Before 2024, commission rates were rarely negotiated, as the seller typically determined what was offered. However, with more transparency and the need for a written agreement before touring properties, buyers are now more likely to negotiate fees with their agent upfront.
Why Would a Seller Pay the Buyer’s Agent Commission?
In some cases, sellers may offer to pay the buyer’s agent commission as part of their efforts to attract more buyers to the property. Offering this incentive can make a listing more appealing, especially in competitive markets where buyers may be more hesitant to commit to a property.
However, the rules have changed. Sellers can no longer advertise or require a fixed commission amount in the MLS. Instead, they can offer incentives or negotiate commission amounts with buyers and agents.
A seller might choose to pay the buyer’s agent commission for several reasons:
- Attract More Buyers: Offering a buyer’s agent commission helps generate more interest in the listing.
- Facilitate the Sale: Sellers may hope that covering the buyer’s agent fee helps finalize the deal quicker.
Instead of offering a direct commission, a seller might provide concessions, which are funds that the buyer can use as they wish—whether for covering closing costs, paying the buyer’s agent, or other expenses.
Who Pays the Closing Costs?
Real estate transactions come with many costs beyond just agent commissions. Closing costs refer to a variety of fees associated with finalizing the sale of the property. These costs are usually paid at the time of closing and can include:
- Title and Escrow Fees: These are related to transferring ownership of the property.
- Loan Expenses: Including underwriting and origination fees.
- Home Inspections: Typically paid by the buyer.
- Transfer Taxes: Paid to state or local governments for transferring ownership.
- HOA Fees: For homes in an HOA, there may be prorated dues or transfer fees.
On average, sellers typically pay 6% to 10% of the sale price in closing costs, while buyers pay around 2% to 5%. However, these costs can vary based on the mortgage type and specific terms of the agreement.
How the NAR Settlement Affects Agent Commissions
Before the NAR settlement, the MLS was used by sellers to advertise the commission they were willing to offer the buyer’s agent. This often created a situation where commission rates were rarely negotiated, and agents knew in advance what they would be paid.
The 2024 changes aimed to provide more transparency and flexibility in commission negotiations. Real estate agents are now required to provide written agreements to homebuyers before showing properties. These agreements must explain the agent’s fees and clarify that commissions are fully negotiable.
This new system fosters more competitive fee structures and allows buyers and sellers to make more informed decisions.
How is Redfin Different When It Comes to Commissions?1
Redfin stands out from other brokerages because of its commitment to providing customers with the best value. At Redfin, the listing fee for sellers is as low as 1%. This is much lower than traditional commission structures that can often charge much higher rates.
Redfin also offers additional savings for buyers who commit to hiring an agent after their first tour. With the Sign & Save program, buyers can save 0.25% on their agent’s fee if they sign an agreement before their second tour. This commitment to transparency and value allows Redfin to stand out as a competitive option in today’s real estate market.
Frequently Asked Questions
Can real estate agent commissions be negotiated?
Yes, real estate agent commissions are fully negotiable. There are no set laws or rules about commission rates, so both buyers and sellers can discuss and adjust these fees.
Do buyers still have to pay for the buyer’s agent commission?
Buyers can negotiate who will pay the buyer’s agent commission. In many cases, the seller may still cover the cost, but buyers can also pay or negotiate the fee as part of the offer.
Why are commission rates different across brokerages?
Commission rates vary because they are not standardized by law. Each brokerage can set its own rates, and rates can vary based on location and the specific needs of the buyer or seller.
What are closing costs, and who pays them?
Closing costs are fees associated with finalizing the sale of a home. They can include title fees, loan costs, inspections, and transfer taxes. Typically, the seller pays 6%-10% of the sale price in closing costs, while the buyer covers 2%-5%.
How has the NAR settlement impacted commissions?
The NAR settlement brought transparency to agent commissions by requiring written agreements between agents and buyers regarding fees, making commission rates negotiable for both parties.
Conclusion
Understanding who pays the real estate agent fees and how they are negotiated is crucial for both buyers and sellers in today’s changing real estate market. The recent changes to commission structures have made it easier for buyers and sellers to negotiate fees, leading to more transparency and competitive options. As a buyer or seller, being aware of these shifts can help you make smarter financial decisions and potentially save money in the process.
Real estate commissions are now more negotiable than ever, and the role of a buyer’s agent fee is up for discussion during the negotiation process. Whether you’re buying your dream home or selling your current property, taking the time to understand these fees will empower you to navigate the process confidently.
