You’re starting to think that paying rent is for chumps. You want to buy a home and have the money you pay each month. Plus, you want to be invested into something that is yours instead of lining your landlords pockets. You start thinking about the math of how much home you can afford, taxes, insurance, closing costs and then you start to wonder, who pays the buyer’s agent commission? The answer can vary based on a few factors.
What most new home buyers and sellers who enter the market fail to realize is that it is technically customary for the seller to be the one who pays the buyer’s agent commission. Let’s start from the beginning. First, the listing agent negotiates with the seller a percentage of the sale price that they will keep as their commission. As an example, let’s say they agree to 6%. The listing agent then shares that 6% with the buyers agent for bringing a ready and able buyer for their seller. The percent that the listing agent is willing to share with the buyer’s agent will be stated in their marketing, typically 50%.
However, it is totally dependent on the wishes of the seller, since they are the one paying, to determine how the funds are divvied up. Occasionally, you may see that a seller wants to list with an agent for a discounted amount (say 1.5%) but offer a 3% reward to the agent who brings the buyer.
Refer to Your Buyer’s Agency Agreement
In some states, it is customary that when you are working with an agent to help you purchase a home, they will have you sign an agreement. This contract lays out what is expected of you and of your agent. In this agreement, the agent’s commission will be clearly stated that x% (or minimum dollar amount) is to be paid for their work. When it comes to who pays the buyer’s agent commission, the agreement will state that if the seller or listing agent does not compensate the buyers agent, then the buyer is responsible to satisfy the agreed upon amount to their agent at closing. In that scenario, leaving you, the buyer, paying the commission if the seller isn’t offering one.
Is the Home For Sale By Owner?
As you scour the internet for your dream home, you may see some houses for sale that are not listed in the MLS. You might come across them on Zillow or happen to stumble upon a handwritten sign at the corner of a neighborhood that says “FOR SALE BY OWNER”. This means that the owner decided to not pay a listing agent to market the home. Depending on the seller, they may or may not be willing to be the one who pays the buyer’s agent commission.
Your agent can inquire with the homeowner, but it may be stated in their listing as to whether they are willing to compensate the buyer’s agent. If no, then the buyer is responsible to satisfy the agreed upon amount to their agent at closing. This goes back to reading your buyer’s agency agreement (if you have one) so you know what is expected of you. There are FSBO cases where the seller is only willing to offer a certain amount to your agent, and in that case, you are left to make up the remainder.
In the End, It’s All Negotiable
Now you’re a little more informed as to how the system works and who pays the buyer’s agent commission. This is a good time to mention that when it comes to real estate- everything is negotiable. Haggle with a FSBO, cut a deal with your agent for a commission rebate or make peace with the fact that you may have to foot the bill. After all, buyer’s agents gotta eat too.