How do you know who pays the buyers agent commission?
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Both a buyer and seller will likely sign an agreement with their agent when they go to buy or sell a home. In the agreement, it will outline who pays for what and what you are responsible for. Our company's listing agreement states the percentage the seller is responsible to pay, and this does include a part for both the buying and selling agent. Our MLS requires us to put on each listing how much we will pay an agent who sells one of our listings. We have some companies who have an agreement on file with us to pay a fixed percentage which may be different than the MLS. We agree to pay 50% of the commission to any company who will in turn do the same for us when we sell their listings. There is a cancellation fee in our listing agreements to cover our market efforts if you change you mind and decide not to sell. The cancellation fee doesn't apply if it doesn't sell during the listing period, only if you cancel the agreement.
If you are working with an agent to BUY a home, you will sign a Buyer's Agency Agreement. Our agreement has basically the same language as a listing agreement--we agree to accept the listing agency's split with us, usually 50%. However, if you use an agent to buy a for sale by owner, you may have to pay out of pocket for the agent's fee. This ensures you get professional service every time and the agent gets paid to provide for their families. Agents will be able to answer questions, walk you through every step and help you stress less about the process. There may be a cancellation fee in your buyers agreement, to cover the time and efforts of your agent. The cancellation fee applies only if you cancel the agreement, not if you don't find a home you want to buy.
The majority of the time the seller is paying both the listing and selling agent, however, there are many people who want to change this. You may have noticed looking at houses on Zillow, the buyer's agent commission is now listed so a buyer knows how much an agent is getting paid. There are legislatures trying to make it so sellers only pay their agent and buyers pay their agent. This would be difficult for many buyers as they already have to come up with a down payment (and possibly purchase price) plus closing costs. Buyers who are using VA or USDA loans often don't have funds for either of those costs so how would they pay a buyer's agent fee? This would leave many of them without an agent to protect their interests.
You could also say the buyer pays the buyer's agent commission as well as the seller's agent because their purchase price, whether cash or loan, pays the seller who then pays their costs before walking away with a check. This is another reason buyer's agent's fees are showing up on listings services, so buyers understand they are paying this fee in a roundabout way. The seller comes to their listing price and price they agree to sell at by calculating all their costs, including commissions.
The commission is not only split between the agents, but also the brokers. If there are two different agents involved, likely there are two different brokers involved also. This means the commission gets split 4 ways. Additionally, the commission has to cover marketing of your listing, the agents time and gas to show you listings and attend appraisals and pay their self employment taxes since they are independent contractors. It gets whittled down pretty quickly.
Agents work to find you a home knowing they may never get paid. They travel to homes you want to see with their gas and time. They prepare a market analysis so you can list your home and get a good price, never knowing if you will list your home with them. They negotiate offers and inspection repairs, not knowing if they will get accepted and you will close. They are at the closing table to make sure all your questions and concerns are taken care of, but also to finally get paid so they can cover the costs incurred while your home was listed or helping you find a home to buy. It can take several months for a home to close as agents wait to get paid. So, don't be upset with an agent if they won't show you a home if it's too far away or you don't have a preapproval. They want to make sure they are working with people who will close.
Whether your agent is representing you as a buyer or seller, make sure you understand if they are representing one or both of you in a transaction. Real estate agents are one of the few professions where both sides can be represented by the same agent. You always have the option of choosing your agent. Buyers need to understand when they call on a house for sale, they are likely calling the listing agent who represents the seller. They will also deal with you fairly and honestly, but until you sign a buyer's agency, they are only working for the seller.
Can you negotiate a commission? Yes a commission is negotiable, like any other parts of an agreement between two parties. However, when you negotiate with an agent they may be less likely to put in a full effort to sell or help you buy a home. Listing commission pays for the marketing of your home which is the main job of an listing agent, through photos, videos and social media. Buyer's commission pays for your agent's time and efforts of negotiating, finding homes you will be interested in, as well as answering any questions along the way. Remember, the value you give is the value you will receive.
Buying or selling a home will likely be the biggest transaction of your life! Don't you want an expert on your side, who sees the value in what they are offering you?
Please feel free to reach out to any agent at our company for clarification on buyer's agency or who pays the commission!
