The process of buying or selling a home involves many intricate details, one of the most important being the real estate agent’s commission. Historically, the seller often paid the commissions for both the buyer’s and seller’s agents, but the landscape of real estate fees has been shifting due to changes in industry regulations. The National Association of Realtors (NAR) and the Multiple Listing Service (MLS) have implemented new rules to increase transparency around real estate commissions, giving more control to the buyer and seller. This article will dive deep into understanding who pays the real estate agent, the implications of commission fees, and how buyers and sellers can negotiate these costs.
What is a Real Estate Commission?
A real estate commission refers to the payment made to real estate agents for their services in assisting with buying or selling a property. This commission is typically a percentage of the final sale price of the home and is usually paid during the closing process of the transaction. The commission covers a wide array of services provided by the agent, such as marketing, negotiating, and facilitating the transaction.
- Buyer’s Agent: Represents the buyer in finding and securing a home.
- Seller’s Agent: Represents the seller in marketing and selling the home.
Who Pays the Real Estate Agent?
Before 2024, it was customary for the seller to cover the commission for both the buyer’s and seller’s agents. However, with recent changes following the NAR’s settlement, the traditional model has been altered.
Changes in Commission Structure:
- Pre-2024 Model: The seller would offer a commission for both agents (typically 2-3% for the buyer’s agent).
- Post-2024 NAR Settlement: Buyers now agree to the agent’s fee in writing before touring homes. This shift aims to increase transparency and reduce potential conflicts.
How Do the New Changes Impact Commission Payments?
Following the NAR settlement in 2024, there are key shifts in the way commissions are handled:
- Buyer’s Responsibility: Buyers are now responsible for confirming their agent’s fee before viewing properties.
- Negotiation Freedom: Commission rates can be negotiated by both buyers and sellers, giving more flexibility.
- Buyers Can Still Ask Sellers to Pay: Even though buyers are responsible for their agent’s fee upfront, they can still ask sellers to cover the buyer’s agent commission as part of their offer.
This has created new opportunities for negotiation, where both buyers and sellers have more control over commission payments.
Can You Negotiate Real Estate Agent Commissions?
Yes, real estate agent commissions are negotiable. Commissions are not fixed by law, and they vary from market to market. In many cases, buyers and sellers can discuss these rates with their respective agents to find a deal that works for both parties.
- Sellers and Negotiation: Sellers may choose to offer a commission to attract more buyers, but it is no longer required to list this commission upfront in MLS.
- Buyers and Negotiation: Buyers may negotiate a lower commission rate with their agent if they feel that the standard fee is too high, especially in competitive markets.
Why Would a Seller Pay the Buyer’s Agent Commission?
Historically, sellers have often covered the buyer’s agent commission in order to facilitate the sale of their home. However, with the changes brought by the NAR settlement, it is now more of a negotiable offer.
Seller’s Incentive for Paying the Buyer’s Agent Commission:
- Attracting More Buyers: Offering to cover the buyer’s agent commission can make a listing more appealing.
- Facilitating the Sale: Sellers who offer this may speed up the negotiation process and close the deal faster.
Additionally, sellers can offer concessions, such as a credit or financial incentive, to help the buyer cover this fee or other costs.
Who Pays the Closing Costs?
Real estate transactions also involve closing costs, which include various fees for services associated with finalizing the sale. These costs are usually separate from agent commissions.
- Seller’s Closing Costs: Sellers typically pay between 6-10% of the sale price, covering agent commissions, title insurance, and taxes.
- Buyer’s Closing Costs: Buyers typically pay between 2-5% of the sale price, which may include loan origination fees, home inspections, and appraisals.
Buyers and sellers can negotiate these costs, but certain expenses are standard depending on the transaction type.
How the NAR Settlement Affected Agent Commissions
The NAR settlement reshaped the way real estate commissions are structured. Here are the major changes:
- More Transparency: Real estate agents must provide a written agreement explaining their commission structure before showing properties.
- No More Standard Commissions: Agents must disclose that commissions are fully negotiable, allowing buyers and sellers more power in negotiating the fees.
- Increased Buyer Participation: The buyer is now more involved in negotiating commissions before agreeing to tour homes.
This increased transparency gives buyers and sellers more control and clarity, helping them make informed decisions.
How is Redfin Different When It Comes to Commissions?
Redfin has always focused on offering value to customers by providing transparent and competitive pricing. Here are some ways Redfin differentiates itself:
- Low Listing Fee: Redfin charges a listing fee as low as 1%, which is significantly lower than the traditional 2.5% or 3%.
- Competitive Buyer Fees: Redfin’s buyer fees are also competitive, with the possibility of additional savings if buyers commit to working with Redfin after their first tour.
- Upfront Fee Disclosure: Redfin discloses its fees upfront, allowing customers to make informed decisions without the need for an exclusive agreement.
This model aligns with the company’s mission to provide better deals for customers by offering more flexible options compared to traditional real estate firms.
Frequently Asked Questions
Who usually pays the real estate commission?
Traditionally, the seller pays the real estate commission, but this can vary. After the 2024 NAR settlement, buyers and sellers can negotiate commission payments.
Can I negotiate the commission with my real estate agent?
Yes, commissions are negotiable. Buyers and sellers can discuss the terms with their agent before agreeing to the commission rate.
What are the average commission rates?
Typically, commission rates range from 5% to 6%, with half going to the buyer’s agent and half going to the seller’s agent. However, these rates can be adjusted depending on market conditions and negotiations.
What is the NAR settlement, and how does it affect real estate commissions?
The NAR settlement brought new rules to increase transparency regarding commission fees, requiring written agreements and clarifying that commissions are negotiable.
How can I avoid paying high commission fees?
You can negotiate commissions with your agent, work with a discount brokerage like Redfin, or look for commission-free options in specific markets.
Do sellers always pay the buyer’s agent commission?
No, it’s no longer automatic. Sellers can offer to cover the buyer’s agent commission, but it is subject to negotiation.
Can buyers negotiate commission fees?
Yes, buyers can negotiate the commission rate with their agent before agreeing to any terms.
Conclusion
Understanding who pays the real estate agent commission is crucial for both buyers and sellers, especially with recent changes following the NAR settlement. While the seller traditionally paid the agent fees, the new regulations allow for more flexibility and negotiation. Commissions are now negotiable, and both parties—buyers and sellers—have more control over how and when the agent’s fees are paid.
Whether you’re buying or selling a home, it’s important to have an open discussion with your agent about commissions, and take advantage of the transparency and flexibility now available in the real estate market. With these changes, buyers and sellers alike can make more informed decisions and potentially save money.
To make the best decision for your situation, consult with a knowledgeable agent and learn more about how commission fees can be managed to suit your needs.
