If you’ve never held a sales job before, the concept of getting paid on commission can be a little puzzling.
How does the pay structure work? How much can a person make on commission? And, as a client, are you on the hook for paying that commission? When it comes to real estate, you may be wondering: Does a buyer’s agent get a commission?
The short answer is yes — you can expect the buyer’s agent to get a commission. Both the listing agent and buyer’s agent involved in the deal typically receive a commission amounting to an average 2.5%-3% each. That commission amount is almost always deducted from the seller’s proceeds at closing.
Commission rates aren’t always the same across the board, and a buyer’s agent may earn a higher commission on one property over another. However, the general “rules” on how a buyer’s agent makes their money toe the same line.
In this post, we’ll discuss how a buyer’s agent gets paid, who pays them, how much a standard commission runs, and we’ll answer some of your other questions to provide an in-depth look into how buyer’s agent commissions work.
To start, does a buyer’s agent get a commission?
Yes — they do! In many transactions, the buyer’s agent and the listing agent will split a commission fee. This fee varies depending on an area’s local market but on average, sales commission rates run between 5% and 6% of a home’s sale price.
Jennifer Grosskopf, a Realtor® in Philadelphia, Pennsylvania with 16 years of experience buying and selling homes, says the conversation about commission rates and how they’ll be handled usually takes place early on in the homebuying process.
“Typically how it works with a buyer and buyer’s agent is they have a meeting prior to actually looking at properties,” says Grosskopf, explaining this is when the buyer and agent execute a buyer-broker agreement. At this stage, compensation will be determined and the broker will have a percentage of the potential sale price outlined in the contract.
It’s just not a line item on their side of the transaction, but the purchase price is elevated enough to cover that.
- Jennifer Grosskopf Real Estate AgentCloseJennifer Grosskopf Real Estate Agent at Keller Williams
- Years of Experience 17
- Transactions 371
- Average Price Point $292k
- Townhomes 245
Who usually pays the buyer’s agent commission?
There are two things that Grosskopf says all buyers should know when it comes to buyer’s agent commissions: The first is how “commissions in real estate are always negotiable,” and the second is how most buyers are actually the ones paying the commission in the end, even though they appear to be paid by the seller.
“It’s just not a line item on their side of the transaction, but the purchase price is elevated enough to cover that,” explains Grosskopf.
Even though it’s standard practice for the seller to pay all real estate agent commissions, one could say it’s actually the buyer who’s paying the agent’s commission because the commission is typically figured into the list price of the home.
When it comes to negotiating the buyer’s agent commission, however, this is usually done by the seller. Even though you could say that the buyer is the one paying the commission in the end, the seller is taking the commissions out of their proceeds at closing so they will usually want to negotiate the agents’ commissions.
How much does a buyer’s agent make from a home purchase?
As we mentioned above, the average commission paid to the real estate agents when the sale of a house goes through typically ranges between 5% and 6%. This percentage is usually divided in half, so each agent will receive between 2.5% and 3% of the purchase price as a commission.
Not all agents are paid on commission, however, and not all agents will be paid the same amount on every transaction. Depending on how the commission was negotiated, it is possible that a seller’s agent or a buyer’s agent will receive 3% of the purchase price as a commission while the other only receives 2% from the same transaction.
Are all agents paid with the same fee structure?
Nope! There are three common ways real estate agents get paid:
Commission: The most common fee structure, an agent receives a percentage of the final sale price of a home as their commission. Because this fee is a percentage, the amount an agent will receive can change depending on the final sale price of the home.
Flat Fee: This is a set amount of money that the seller agrees to pay the agents as compensation for their work. This fee is usually a couple thousand dollars, depending on the level of service that is agreed upon. This number will not be impacted by the final sale price of the home, so it is usually a less expensive option. Opting out of the full range of services that a real estate agent provides, however, is not always a good idea.
Salary + Bonus: With this fee structure, the agent receives an annual salary and their company awards bonuses to incentivize their agents to sell more homes. Bonuses may be awarded for things like receiving a five-star client review or hitting a sales target.
What exactly are you paying your agent to do?
Looking for your picture-perfect dream home is a time-consuming, tiring, and complicated endeavor. This is especially true in competitive markets.
Hiring a top real estate agent when you’re ready to buy a home gives you the upper hand as a homebuyer. But don’t take our word for it, the National Association of Realtors (NAR) found that 87% of buyers who purchased a home in 2021 did so with the help of a real estate agent or broker.
By hiring an agent to help you buy a home, you’ll be working with a professional who’s privy to local insider knowledge about an area’s current market and has a network of trusted specialists such as mortgage lenders, inspectors, contractors, and more.
As a homebuyer, you are entrusting your buyer’s agent to do the following:
- Help you write a compelling purchase offer
- Evaluate the (true) worth of a home based on current market conditions
- Find a home that may not be on the market yet (thanks to that insider knowledge mentioned above)
- Get in touch with the right services — movers, contractors, home maintenance professionals, and more
- Keep a lookout for any red flags when viewing or researching a property
- Provide a personalized list of homes based on your criteria: budget, location, style, size, nearby amenities, and more
- Reach out to listing agents to schedule home tours and gather information about each property
- Attend all inspections to ensure that nothing gets left out
- Answer any questions you have and address any issues that arise throughout the homebuying process
- Coordinate the signing of the purchase contract and handle any legal issues that come up
- Keep tabs on the closing timeline to make sure you make it to the closing table on time
At what stage of the process do agents get paid?
Payment typically takes place after closing, explains Grosskopf. This is after the sale of the house has been finalized and all required loan documents and deeds have been signed. Once funds are wired by the buyer and their lender to escrow, the escrow company will disburse the commissions.
The commission, otherwise known as Realtor® fees, is subtracted from the proceeds of the home sale. The funds are first passed to the agent’s brokerages who then pay the agents (…or agent, as we’ll learn more about below) involved in the transaction.
What if the deal falls through?
There are several reasons a home sale may never make it across the finish line. A few of the most common reasons homes sales fall through are:
- Financing issues (not qualifying for a mortgage)
- The home inspection reveals some unexpected, big-ticket problems
- Title review reveals that the seller cannot legally sell the home or there is a missing owner
- Appraisal comes in low, and the buyer does not have enough cash to pay the difference between the appraised value and the sale price
- Buyer can’t secure homeowners insurance because the property is in a high-risk area
- The buyer decides the house simply isn’t for them, after all
Many buyers include contingencies in their purchase agreement that allow them to back out of a sale, penalty-free, if certain issues with the house arise during the home inspection, appraisal, or during mortgage qualification.
“It’s not typical that a buyer’s agent is going to get paid if a deal falls through,” says Grosskopf, but it all comes down to what’s stated in the contract between the buyer’s agent and buyer. If a buyer backs out and the home sale is never finalized, unless required per the contract, the buyer’s agent will more than likely not receive a commission.
Does a buyer’s agent pay their own taxes on their commission?
The seller is not responsible for paying income taxes on the agent’s commission.
Many real estate agents who receive commissions are considered self-employed in the eyes of the IRS and they are in charge of paying their own taxes on their commission.
What if just one agent is handling the transaction, aka a dual agent?
Dual agency occurs when a single real estate agent is representing both the buyer and seller in a single home sale transaction. In this scenario, if the sale is successful, the agent gets to keep the full commission. This could be the standard rate of between 5% and 6% of the sale price, but it could be lower depending on the agent.
This type of representation might not be legal in your state, however. Dual agency is currently illegal in the following eight states as of January 2022:
In states where dual agency is legal, the agent is required to disclose that they are working as a dual agent to both the buyer and seller. Both parties must agree to this representation and sign a disclosure that asserts that they have been informed.
Dual agency is a highly debated topic in the real estate community. You can learn more about the ins, outs, and controversy around dual agency here.
Can a buyer’s agent turn down taking on a new client?
Before a buyer’s agent decides to work with a new client, they’ll have a few details to consider. They need to decide not only if they’re the right fit for that particular buyer, but also if they’re willing to take on the risks that come with representing a new client.
A few of these risks that real estate agents typically weigh include:
- The time required to conduct local market research and arrange home showings
- Transportation and personal vehicle expenses. The NAR reports that the largest expense for most real estate professionals includes vehicle expenses and transportation, averaging $1,200 annually.
If an agent simply does not have the bandwidth to provide quality customer service, they might feel it necessary to decline representing a potential buyer.
However, real estate agents cannot turn down potential buyers (or any client) using discriminatory practices. The Fair Housing Act prohibits real estate agents from discriminating against buyers bases on their race, color, national origin, sex, religion, disability, or familial status. Sexual orientation and gender identity are also protected characteristics in 21 states and the District of Columbia.
Find the right agent
When working with a buyer’s agent, remember that not all agent commissions are the same – although, they are negotiable. In most cases, you won’t have to worry about the negotiation part, the seller will take care of it.
Prior to beginning your home search, schedule a sit-down with your real estate agent so you can ask questions and get any agreed-upon terms clearly outlined in your contract.
If you’re still on the lookout for the right agent to help you find your new home, take the stress out of house-hunting with HomeLight’s agent match. With our service, you let us know what you’re looking for in a home and in a real estate agent, and we’ll do the research. We only recommend the top performing real estate agents working in your area – those with a proven track record of success handling needs like yours.
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