Understanding the Buyer’s Agent Fee

If you're in the market to buy a home, you might have questions regarding the buyer's broker commission costs and who pays the buying agent. This article explains the buyer's brokerage compensation system.

What Is a Buyer's Agent Fee?

A buyer's agent fee is the commission a real estate agency collects to represent the buyer in exchange for successfully closing a deal. A buyer's agent commission is typically between 2% and 3% of the transaction value or half of the overall commission. The seller's broker and agent get the other half of the commission.

Who Pays the Buyer's Agent Commission?

The seller is usually responsible for paying the buyer's agent commission. This is a relatively straightforward process. When a seller hires a realtor, they typically agree to pay the realtor a fee of 4% to 6% to sell their property. The seller's agent will then usually agree to split the commission with any participating buyer's agents. That implies the seller will ultimately pay both their agent's fee and the buyer's agent's compensation.

Do Sellers Pay the Buyer's Agent Commission?

Although sellers may seem to be on the losing end of the bargain since they are responsible for paying a fee to the buyer's agent, a crucial nuance must be considered. Commission is often included in the asking price of a property since the seller understands and accepts its importance in the sale process. This can be perplexing since, while the money for the buyer's agent commission is coming from the seller, the buyer paid for the property with the agent's fees included. In this case, the buyer has really paid the agent's commission.

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Does the Seller Have to Pay a Buyer’s Agent?

To put it simply, yes. Sellers and listing brokers often enter into an agreement known as an "exclusive right to sell" or something similar. This contract incorporates brokerage fees as a mandatory seller obligation. The listing firm may split the commission with the selling and purchasing agents.

Remember that agents put in a lot of effort to close a deal and earn commission, so you can expect them to be more cautious about guaranteeing their payment in writing.

Why Does a Seller Pay the Buyer’s Agent Commission?

A seller pays the buyer's agent commission to incentivize these agents to show and market their property to potential buyers. The commission, typically a percentage of the sales price, is split between the buyer's agent and the listing agent. The seller pays the commission after closing the deal as a part of the total sales price.

How do buyer's agents get paid? Commission is a cost of doing business for the seller, as it helps ensure that as many potential buyers as possible see their property. By paying commission, the seller can reach a larger pool of potential buyers through the networks and connections of real estate agents. In addition, a buyer's agent can also help negotiate the sales price and terms on behalf of the buyer, which can also benefit the seller.

It's important to note that commission is not set by the seller but by the brokerage or the multiple listing service (MLS). It's also important to remember that commission is not a fixed amount; it can be negotiated. Some sellers prefer to pay a lower commission rate in exchange for a higher sales price, while others may be willing to pay a higher commission to sell the property more quickly.

What Services Does a Buyer’s Agent Provide to a Client?

A buyer's agent assists a buyer with the house search, bidding, and closing process. During the search phase, an agent helps the buyer locate properties, schedule showings, and obtain essential property information, such as utility bills and tax statements.

When it's time for the buyer to make an offer, the buyer's agent evaluates neighboring homes, recommends a price, and drafts a formal offer letter. This begins the negotiating process, in which a buyer's representative attempts to get the optimum combination of price, concessions, and conditions for the buyer.

The buyer's agent also expedites the closing process when the seller accepts the offer. This includes obtaining loan approval, adhering to the contract's deadlines and conditions, and attending the closing. The buyer's agent is only rewarded when this final stage is finished. 

Why Are Buyer's Agent Fees So High?

The commission paid to the listing or selling agency impacts the commission paid to the buyer's agent. Most real estate agents and brokers belong to a local multiple listing service (MLS) and board of realtors. Here they pledge to work together and divide whatever commission they earn. This means that the selling agent effectively sets the commission for the buying agent.

It's difficult for a seller to reduce the buyer's agent cost, but a buyer may deal with a broker who gives a refund. When a buyer's agent gives back some of the money they earned, this is called a commission rebate.

Avoid Dual Agency

"Dual agency" occurs when one agent represents both the buyer and the seller. In this scenario, only one agent would get the entire commission from a property sale. It's easy to be fooled by the seeming benefits of this situation, but in reality, it's one that most people and agents would rather avoid.

Several jurisdictions have made dual agency illegal because of its potential to cause conflict. Dual agency is a significant obstacle to real estate brokers fulfilling their contractual obligation to their customers, which is to always act in their clients' best interests. An agent representing both parties in a transaction cannot provide fair, appropriate, or honest representation to either party if they also represent themselves.

Is It Worthwhile to Use a Buyer's Agent?

Before the internet, buyer's agents had to physically scan and gather property listings for their clients, price every home based on current statistics, take clients around on home tours, and manually manage all offer and closing paperwork.

Today, many homebuyers choose to handle their own house hunting, and as a result, the customer does much of the "searching" instead of the realtor. Meanwhile, most modern-day real estate agents spend at least half their time promoting themselves to acquire new clients. In other words, they spend most of their time acquiring new clients rather than finding you properties. An agent seldom finds a "pocket listing," or off-market property, like they did in the past.

The 2.5-3% buyer's agent commission mainly covers these sunk expenses rather than the time they spend helping you get your offer accepted and move into your new house. However, buyer's agents still do have value. Even if you are comfortable shopping for properties on your own, it may be worthwhile to use an agent.

Suppose you want the advantages of house hunting independently but still need help with showings or offer papers. In that case, your best alternative may be to use broker rebate programs to "pay yourself" for time spent browsing properties.

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Can I Avoid Paying a Buyer’s Agent Commission?

A commission rebate is the most basic way for homebuyers to save money during property purchases. After completing the closing processes and the ownership transfer, the buyer's agent pays the client, finalizing the rebate. Unfortunately, some jurisdictions have made this technique illegal, which many experts believe is anti-competitive and harmful to the real estate industry.

First-time homebuyers shouldn't use advanced home-buying methods, such as dual representation. Although these options are feasible, working with a realtor who gives buyer rebates or cash back is a far less risky approach to saving on a buyer's agent commission.

Bottom Line

While other charges are associated with a real estate transaction, agent fees are often the most costly. As a result, it's critical to clarify who is responsible for paying what. Although the seller theoretically pays the money for the buyer's agent commission, this fee is typically included in the price of the house, which means that, contrary to common belief, the buyer is often the one covering the cost.

While the buyer's agent fee may seem hefty, remember that real estate agents work very hard to ensure the happiness of their customers and operate in their best interests. They deserve the compensation that they get. Use caution when negotiating commission allocations to avoid conflict.

If you're looking for a real estate agent, Redy can help! Have top local real estate agents bid for the opportunity to sell your home and choose the best fit for you while making some extra cash. Get started today!

To learn more about selling your home, visit our Home Seller Resources >