Who Pays Real Estate Agent Commissions?

1. Seller pays listing agent; buyer pays buyer’s agent

If you have sold a property before and had the 6% agent commission deducted from your sales proceeds, which also covered the commission of the buyer’s agent, you would see the difference right away. In this arrangement, you will only be paying for the commission of your listing agent, which would generally be around 3% of the total sale price.

This part of the NAR settlement change is expected to lower the asking price of some properties, which used to account for the 6% commission paid out to agents for helping the transaction close. The buyer will shoulder the commission that goes to their buyer’s agent.

Here’s how that would look for our $350,000 example property for sale:

• Listing agent: $10,500 (3% commission) paid for by the seller
• Buyer’s agent: $10,500 (3% commission) paid for by the buyer

2. Seller covers listing and buyer agent fees

Negotiations are a standard part of the homebuying process, and it’s not just the closing costs that can be negotiated. As in the traditional commission model described earlier, a buyer can negotiate for the seller to cover the 3% buyer’s agent commission.

Sellers may also consider offering to pay the buyer’s agent commission to market their home or make it more attractive to buyers. However, the compensation offer can no longer be included in the MLS posting.

Here’s how that would look for our example property for sale:

• Listing agent: $10,500 (3% commission) paid for by the seller
• Buyer’s agent: $10,500 (3% commission) paid for by the seller

3. Seller negotiates for buyer to pay both agent fees

While rare, it is also possible for a seller to negotiate for the buyer to cover some or all of the commission. While this might seem like an attractive option if you’re looking to save a bit of cash, Hartmann advises against it, saying, “If sellers tell buyers that they’re going to have to pay [both] commissions, they’re going to scare those buyers away.”

Here’s how that would look for our example property for sale:

• Listing agent: $10,500 (3% commission) paid for by the buyer
• Buyer’s agent: $10,500 (3% commission) paid for by the buyer

4. Seller sells FSBO to save on listing agent fee

Some homeowners choose to forgo help from a real estate agent and sell their home For Sale By Owner (FSBO). According to NAR, FSBO sales account for around 7% of U.S. home sales and typically garner 23% lower prices on average than agent-assisted sales.

Here’s how that would look for our $350,000 example property for sale:

• Listing agent: $0 (seller takes on many of the tasks the listing agent would traditionally handle)
• Buyer’s agent: $10,500 (3% commission) paid for by the buyer

It’s also important to note, however, that sellers will likely spend a portion of their commission savings since they’ll need to pay for marketing and other items that an agent normally includes with their commission.

5. Buyer negotiates for FSBO seller to pay the buyer’s agent

Selling FSBO means you are not enlisting the help of a seller’s agent, but that does not mean that you’re off the hook when it comes to commissions altogether. If your buyer enlisted the help of an agent, they might negotiate for you to pay for their buyer’s agent commission. To reiterate, determining who pays the agent commissions relies heavily on the negotiation between the buyer and the seller.

If you agree to pay for the buyer’s agent commission, that would mean $10,500 less on your sales proceeds, assuming a 3% agreed-upon commission rate. Take note that this would be deducted from the sale price of the house, which is generally lower than what you would get from a listing agent-assisted sale.

6. Both buyer and seller pay no commission

Some FSBO transactions may not have to account for any commission at all if the seller sells to someone they know who does not enlist a buyer’s agent (for instance, if the buyer is a friend or a family member).

Some less common agent commission exceptions

The examples above are not exhaustive, and depending on the final agreement between the buyer and the seller, the commission amount can vary greatly. There are also some exceptions worth mentioning.

Seller enlists flat-fee listing agent or discount brokerage

Some listing agents (around 3% nationally) charge a flat fee for their services instead of taking a commission based on the final sale price. Because these agents have a capped pay system, they may not have a vested interest in increasing the sale price of your home.

Furthermore, flat-fee agents usually only provide limited services like setting up lockboxes for vacant home showings or simply listing your property on the MLS. Even if your flat-fee agent is a full-service agent, they’ll have a smaller budget to market your home. In the end, this can bring down your sale price significantly. For these reasons, we recommend avoiding low-commission agents for most home sales.

Here’s how this arrangement might look using our $350,000 example home:

• Listing agent: $99-$5,000 flat fee paid by the seller
• Buyer’s agent: $10,500 (3% commission) paid for by the buyer

Seller negotiates their listing agent commission

While the commission price is a negotiable agreement between you and your agent, keep in mind that you truly do get what you pay for when it comes to real estate agents. An agent willing to come down on their commission fee might be desperate for new clients or inexperienced with negotiations.

In the end, quality agents who charge a 3% commission easily recover their fee by boosting your net home sale proceeds. According to HomeLight’s research, top-performing agents sell homes for 10% more than their peers on average — that difference covers agent commission and then some.

Here’s how that would look for our example property for sale:

• Listing agent: $7,000 (negotiated 2% commission) paid for by the seller
• Buyer’s agent: $10,500 commission paid for by the buyer

It’s worth mentioning that negotiating a lower commission for your listing agent does not mean the buyer’s agent also gets a lower commission. That is an entirely separate negotiation to be had.

Buyer is not represented by a real estate agent

A buyer won’t pay the average 3% buyer’s agent’s commission if they are not working with an agent. However, this is not a common scenario. NAR reports that 89% of buyers purchase their homes through agents or brokers, and only 6% purchase directly from the previous owner.

If you’re one of the 6% of buyers who are not represented by a buyer’s agent, here’s how the commission breakdown would be for this transaction:

• Listing agent: $0-$10,500 paid for by the seller (depending on if they’re selling FSBO, negotiating for a lower commission, or enlisting a full-service agent at a 3% commission rate)
• Buyer’s agent: $0 commission paid for by the buyer

You don’t hand over commission for nothing — the fee pays for valuable services

When you partner with an expert real estate agent, you’re gaining access to loads of valuable skills and services. Here are some of the services listing agents and buyer’s agents provide in return for their well-earned commissions:

Listing agents

• Marketing: Listing agents typically spend a considerable amount of time and money marketing your home to potential buyers. Agents not only use an MLS to give your listing widespread visibility, but they also harness social media, local ads, open houses, and other methods to put your home in front of quality leads.
• Pricing: Pricing is one of the most important factors in a home sale. Price too high and your home will languish on the market until it draws low bids; price too low and you leave money on the table. An experienced real estate agent intimately knows the local housing market and can pinpoint your home’s fair market value. They’ll assess your home’s features, location, construction, and other factors to develop the best possible pricing strategy for your sale.
• Offering repair advice: After the home inspection, your agent will help you understand what repairs your buyer’s lender requires, which structural and safety issues need to be addressed, and which repairs might not be necessary to complete the sale.
• Staging: Staging involves decluttering and styling your home so it looks as attractive as possible. Your agent may bring in pieces of furniture or use virtual staging to attract buyers.
• Negotiating: Going from an initial offer to closing involves many moving parts. A listing agent communicates with buyers to iron out the details of your deal, working out contingencies, title searches, and all the other components of the closing process while advocating on your behalf so that you end up with the best possible deal.

Buyer’s agents

• Searching the MLS: A buyer’s agent has access to the Multiple Listing Service, which means that they can offer their clients a broader selection of potential properties.
• Reporting property matches: To save buyers time sorting through hundreds of irrelevant listings, buyer’s agents curate the best available properties based on their client’s preferences and price goals.
• Scheduling showings: Buyer’s agents work with homeowners and listing agents to set up appointments for you to go and check out potential new homes in person. They also walk clients through the property and point out its best features, as well as any downsides they’ve identified.
• Preparing written agreement before touring houses: The NAR lawsuit settlement terms also include preparing a “buyer-broker agreement to show property.” Your agent would know all the terms to include in this agreement and will explain in detail all the necessary components.
• Negotiating: Like listing agents, buyer’s agents advocate for their client’s interests when negotiating the price and terms of the sale. A buyer’s agent rigorously researches a home and uses their pre-existing knowledge of the market as leverage during negotiations. After reaching a deal, a buyer’s agent helps their client understand and complete all of the necessary paperwork.

Sell your house faster and for more

Thinking about selling soon? We’d be happy to introduce you to a few top local real estate agents. Our service is 100% free, with no catch. Agents don’t pay us to be listed, so you get the best match.

Get Started

Choosing the right agent is important

You’re paying your agent to sell your home for the most money possible, so you should know that they have the experience and skill to get the job done. As Hartmann puts it, “You will ultimately end up getting what you’re paying for in the long run, and I’ve seen many people regret second decisions they’ve made after hiring the wrong agent.”

To get started on your search for the perfect agent, use HomeLight to match you with the three best agents for your home sale. Remember to interview your candidates and ask questions related to your specific selling goals. After doing so, you’ll have a tried-and-true industry professional on your side.

Header Image Source: (Curtis Adams/ Pexels)