Buying a new house is a huge financial commitment. There is the cost of the home itself — but then there are also the closing costs, HOA fees, property taxes, homeowners insurance, and paying for necessary repairs. So where do buyers agent fees fit into this? And how much are they, again?
Buyers real estate agent commissions can feel expensive and complicated, especially when it’s your first time buying a home. The fact that they’re usually percentage-based can feel strange, but commissions are a lot more common than most people realize.
Some clothing stores pay staff commissions on sales! And servers’ tips (usually 20% of your bill) are like a commission fee, too.
To make it a little easier for you to understand, we spoke with top agents and real estate investors, did a lot of research, and have answered the most common questions buyers have about buyer’s agent commissions below.
By the time you finish this article, you’ll have a solid grasp of what you’re getting for that commission fee, where it comes from, and will be ready to negotiate (or not!) with your agent.
What is commission?
A real estate commission is the fee paid to agents to cover the cost of their services.
Many agents have additional operating costs that are not obvious to you, the buyer. These can include association fees if they’re part of the National Association of Realtors (NAR), special certification classes and exams, licensing fees, and much more.
Many agents are paid purely on commission, which means the commission is their entire income. That income is completely dependent on doing a good job for you and finding you a house that you want to buy.
Zach Walkerleib, a luxury specialist with over 10 years of experience in Las Vegas, Nevada, explains: “What real estate agents on the buyer’s side need to do is really show their value in ways that are above and beyond navigating the real estate transaction.
“They need to go into a vendor lists and have concierge programs where we can help you with movers, we can help you with handyman, we can help you with all these different things in addition to just the transaction; we’re going to be there for you, as your advisor after the transaction and on, and on, and on.”
Are agents always paid on commission?
Nope! This is definitely the most popular business model for real estate agents, but some agents and brokerages will charge a flat fee instead of commission.
While a flat fee agent can seem like a better deal upfront, you may be sacrificing some level of service in favor of a lower commission fee. Scouring listings for your dream home can be a time-consuming process, and with a lower fee on the line, agents may have to take on more clients to break even, which can mean less time available to spend on your house hunt.
Some agents offer tiered pricing for their flat fees, which might be a good compromise, depending on your budget and criteria for your future home.
Who pays the buyer’s real estate agent commission?
This gets a bit complicated: Both the listing agent (representing the seller) and the buyer’s agent (representing the buyer) get paid at the closing table, when money changes hands from buyer to seller.
The seller technically pays both the buyer’s agent and the listing agent commission on the sale … and a seller can actually set parameters around how much commission they are (or are not) willing to pay a buyer’s agent.
That said, those commissions are coming out of the money that you paid for the house as the buyer — so in a sense, they are packaged into the mortgage loan that you are taking out to buy the house.
Are commissions included in buyer closing costs?
No; they are paid separately by the seller. Commissions come out of the sticker price of the home and are not added on as part of a buyer’s closing costs.
As a buyer, your closing costs will typically range between 2% and 5% of the purchase price, and this is an additional expense or fee that you pay on top of the agent’s commission.
How much is the typical buyer’s real estate agent commission?
Total agent commission on a sale, for both the buyer’s agent and the listing agent, is usually between 5% and 6% of the total home purchase price. According to HomeLight Real Estate Agent Commissions Calculator, the national average is 5.8%. Your local market could be higher or lower.
The total commission is typically split 50/50, so a buyer’s agent commission would usually range between 2.5% and 3% of the home’s purchase price.
However, individual agents have different commission rates. Some individual agents might charge as much as 5% on their own, while others may take as little as 1%. Don’t forget, a lower fee might also mean fewer services.
Let’s ballpark some commission rates based on median and average sales prices in different parts of the country to give you an idea of what this might look like for you. We’ll use the HomeLight Calculator’s national average real estate agent fee of 5.8% and the Federal Reserve Economic Data’s information for Q1 of 2021 for the median and average regional home prices.
As a luxury real estate agent, Walkerleib’s numbers can be much higher, even at the standard 3% commission. “On a $1 million home, $30,000 is the commission check. On a $2 million home, it’s $60,000. It continues to go up and up and up.”
And to justify his commission, he keeps asking himself, “So what are you bringing to the table that is worth that kind of money?” It’s a good question your agent should be able to answer, too.
Does the buyer’s agent keep the entire commission?
Here’s a secret most people don’t know: The buyer’s agent almost never keeps the entire commission they earn on a deal.
In most real estate agencies, a buyer’s agent is supervised by a broker, and the broker typically takes anywhere between 30% and 50% of the buyer’s agent’s commission as the broker’s fee.
This can drop the buyer’s agent’s commission to between just 0.5% (at the low end) and 2% (at the high end) of your home’s sale price for all those hours of legwork.
What’s included in the buyer’s agent commission?
A buyer’s agent commission is earned by all the extra work they do for you, some of which you might not even be aware is happening in the background.
A buyer’s agent will typically help you …
Figure out what types of homes and areas will work best for your needs, saving you time and energy on doing this research yourself.
Set you up with MLS access and help you find homes in your budget. If you’ve moved areas, the MLS you need now may be different from your previous one, as they vary by location. Your budget also may have changed, and how much house you can buy might have changed with it.
Arrange to walk through homes that especially interest you. As they do so, they’ll be able to share insights about the home/area/neighborhood that they know from other showings of the same home or in the same area.
Answer your questions about the market in general and specific homes in particular. Agents will know more about the area than you’ll be able to learn during your house hunt; they’ve worked in it over the course of months or years. They’ll also have access to insights from other agents, including the listing agent, that may be hard to come by. And they’ll be happy to share them all with you if you just ask.
Determine an offer price. A buyer’s agent is your advocate and will help you figure out the intersection of how much is a realistic and good price for you for this particular house. You may want to offer a little more or less depending on the features of the house, and an agent will help you figure out the numbers that make the most sense for you and for this house.
Write the offer. Once you know that number, you need to write the offer in a way that makes the seller likely to accept it. Your agent will do that for you.
Negotiate with the seller. Your offer price may be lower than the listed price, at which point your agent will need to negotiate with the seller on your behalf and help them see why their listed price is too high and why your offer price (or something close to it) is reasonable and fair.
Handle earnest money and escrow. When you make an offer for a house, you need to put the deposit money into escrow until you exit negotiations (and the money is either returned to you or claimed by the seller), or you close on the house (and the money is delivered to the seller.)
Set a timeline for the deal to close. The average timeline for closing with a standard mortgage in April 2021 was about 51 days. During that time, you will have several things you need to do to ensure you’re paying a good price for the house. Fortunately, your agent will be helping you with several of them.
Attend inspections. Even if you’re buying a home with cash and don’t have to have an official home inspection, do it anyway. An inspection will surface current and potential issues that you should be aware of, even if it’s only for informational purposes.
Negotiate post-inspection repairs. Your inspection may uncover issues or concerns that should be repaired before you move into your new home. Your agent will help you figure out which repairs need to happen now, and which ones can wait.
Negotiate post-appraisal price adjustments. Your home appraisal might put a different value on your dream home than you just agreed to pay. If that’s the case and you need to renegotiate your offer price, your agent will help you with that.
With the final walkthrough. You may be distracted by the emotions of walking through your soon-to-be home. Having your agent on hand to help you confirm that basic home systems are working and which unfinished repairs you’re taking on can be really helpful.
Hold your hand at closing. If you’re feeling emotional, your agent can literally or figuratively hold your hand through this big step. They’ll also reassure you by performing an unemotional final check of all the documents to ensure everything is accurate and error-free.
Is commission ever negotiable?
Yes, and some agents will take less than 2% to 3% from the get-go. It’s usually smart to ask what kinds of services you’ll be provided so you can make sure the agent isn’t cutting corners anywhere significant. You’ll want to ask for the same services list from flat-fee agents, as well.
Some brokerages or platforms will also offer you a rebate at closing for a portion of the commission. If you work with an agency that offers a rebate, then at closing, you’ll get a portion of the buyer’s agent’s commission to use for whatever you want, including closing costs. As this is usually percentage-based, how much you get back will depend on your house budget.
However, Evan Roberts, real estate investor and owner of Dependable Homebuyers in Baltimore, Maryland, offers a good reason not to negotiate your buyer’s agent commission:
“We never negotiate the fee. That’s them telling us what they need to be motivated and hustle to get us the contract. With that in mind, the higher their fee, the better the deal has to be that they bring us — the numbers have to work.”
What if the same agent represents both the buyer and seller — will I get a break on commission?
In theory, yes. But it’s more complicated than it seems.
When a buyer and seller use the same agent to complete a home sale transaction, it’s called dual agency. Most states allow dual agency situations, but there are nine states where dual agency is illegal to greater or lesser degrees:
When two agents at the same brokerage are representing both the buyer and the seller, it’s known as designated representation, and it’s not legal in some states.
States where designated agency is illegal include:
Some states allow brokerages to designate a brokerage licensee to represent the buyer and one to represent the seller, and each brokerage licensee would have fiduciary responsibility to their party. The states that don’t allow dual agency but do allow designated representation include:
The agent might advertise dual agency as a deal because the total commission paid is lower — perhaps 4% instead of 6% — but it’s all going to the same agent, so they’re earning more overall — 4% in this case, instead of half of 6% (which is 3%.)
Think carefully before going this route; a dual agent can’t truly represent your best interests if there’s a conflict of interest in the deal. More so than in any other deal, a dual agent may be motivated to close the deal, earn the commission, and satisfy two clients at once, even if neither client gets as good a deal as they might have with their own agent acting wholly in their best interests.
Header Image Source: (Rachel Moenning / Unsplash)