What’s a Buyers Agent?
Think of your buyer’s agent as your personal advocate in an ultra-competitive housing market. A buyer’s agent is a licensed real estate expert who serves as a trusted advisor and advocate for homebuyers. From the first showing to the final signature at closing, they guide clients through every step of the purchasing journey. With deep market knowledge and skilled negotiation tactics, buyer’s agents help identify the right properties, craft competitive offers, and ensure a smooth, informed transaction tailored to the buyer’s needs and goals.
What if I told you that finding out your closing expenses (including your buyer agent’s commission) is similar to getting the bill at the end of your meal at a restaurant? I’m not one for butchering jokes, so I’ll leave the particulars to Jerry Seinfeld… but he once told a joke about the confusion on a patron’s face when reviewing the tab at the end of a meal.
Just like a sommelier recommends the perfect wine, a great agent matches you with the right property and negotiates every dollar. However, unlike a restaurant bill, a buyers agent commission doesn’t have to be a surprise.
What is a Buyers Agent Commission?
Essentially, this is the fee paid to the real estate agent representing the buyer during the sale of a home. The commission varies in percentage and is typically calculated as part of the home’s final sale price. The buyers agent commission often ranges anywhere between 2% and 3%.
For example, if a home sells for $500,000, and there is a 3% commission, the fee would amount to $15,000.
How Realtor Commissions Have Traditionally Worked
Before the Summer of 2024, listing agents would approach property owners/sellers to obtain a signed listing agreement. The listing agreement creates a client relationship between the seller and their real estate agent, aka listing agent.
As part of the listing agreement, the listing agent negotiates their own commission as well as the commission of the buyer’s agent. The total commission is often split evenly between the listing agent and the buyer’s agent.
For example, a $1,000,000 property with a 6% total commission (or $60,000) would be split as 3% ($30,000) to each transaction side.
Since the buyers agent commission was negotiated at the onset of the client relationship, it was not commonly revisited upon offer and contract negotiations. This means that if the seller agreed to pay 3% to the buyer’s agent, they would pay at closing.
What changed with the NAR settlement?
In August of 2024, the National Association of Realtors or NAR settlement resulted in a $418 million lawsuit. The main results from this settlement were:
- Requirements for all Real Estate Buyer’s agents to obtain a signed Buyer’s Agreement with each client before showing them properties
- Requirements for Agents/Realtors disclose their commission from the onset of the working relationship
- Requirements for Agents/Realtors to inform their clients that commissions are negotiable and cannot exceed the amount agreed upon per the Buyer’s Agreement
- Sellers are no longer required to pay buyer agent commissions, and sellers who are willing to pay commissions can no longer ask their agent to publicize the commission amount on the MLS, property description, or property notes
Why Does the Buyers Agent Commission Matter More Now?
The recent NAR settlement shifted who negotiates and pays buyer agent commissions. For NYC buyers, this means understanding commission structure early in the process, ideally before making an offer.
Now that agents are required to sign agreements with their buyers, the commission topic is being discussed much sooner. We believe this discussion is most effective when it occurs early to improve transparency and limit closing-day surprises.
Our team and clients have not been affected since we have operated similarly for years. Since 2017, we have signed buyer agreements with all our buyer clients.
Have Broker Fees Increased Since The Nar Settlement?
We believe real estate broker commissions have not changed since last August’s settlement. Real estate and other business publications have long speculated on the decline of Realtor commissions, among other things.
There are even agencies out there that offer buyer agent services at steep discounts, buyer beware, but those have existed for several years. As we near the one-year anniversary of the NAR Settlement, there have been no noticeable shifts in the amount of commissions earned by brokers at the end of a property sale.
Current Options for Buyers Agent Commission
Seller Still Pays All Or Partial Commission (Option 1)
As mentioned, buyer agent commissions are negotiable at the onset of a buyer-realtor relationship via the buyer’s agreement. That said, homebuyers and investors can still negotiate so that their offer includes the buyer agent’s commission. Thus, the seller pays for the broker’s compensation.
Using the $1,000,000 example above, the 3% buyer agent commission can be negotiated as part of the deal so that the total purchase price is $1,000,000 but the net-to-seller amount is $970,000.
In this scenario, the seller is covering the entire broker fee.
If the seller is only agreeing to pay part of the commission i.e. 2%, the offer can be structured as follows:
$1,000,000 purchase price, net-to-seller amount is $980,000, seller also agrees to a $10,000 concession which allows the purchaser to finance the rest of the commission (1%).
What if they won’t pay buyers agent commission OR agree to a seller’s concession?
New York is one of the most competitive environments out there. Why would Real Estate be any different?
As mentioned, Real Estate commissions are negotiable which means that sellers are given the clear option to refuse to compensate a buyer’s agent. To take things a step further, there are sellers who won’t agree to a seller’s concession.
Seller’s concessions are financial contributions by the seller that are used towards the buyer’s fees. They offer an alternative that can reduce closing costs due at signing and save some deals from falling apart. In New York, seller’s do not typically pay a buyer’s fees but they will agree to a higher purchase price if it helps get the deal done. Basically, they’re agreeing to let buyers finance an amount higher than purchase price in order to help the buyer cover other costs. This makes the term “seller’s concession” is a little misleading, right?
Now let us look at our sample purchase if the seller will not pay the buyer’s agent’s commission, OR agree to a seller’s concession.
If you have a $970,000 Seller Net price and a $30,000 Buyer Agent Commission (due at closing), then you have a $1,000,000 Total Purchase Price
Buyer Pays the Buyers Agent Commission (Option 2)
As shown above, if the seller refuses to pay the buyer agent commission, that commission is subtracted from the offer amount.
In most cases, buyers who purchase a home and pay broker commission as a closing cost can finance the commission. Rather than bring a $30,000 check to closing, they can include this expense in their mortgage loan and pay it over the loan period (most commonly 30 years). This is the most common option for paying broker commissions because it limits the out-of-pocket expenses due at closing. Other closing costs include attorney fees, title fees, and lender closing costs.
Buyers who do not wish to include commission in the loan typically bring a certified check made payable to the broker to closing.
Real Estate Tip: Offer Concessions When Selling Your Property
When selling your property, offer the buyer agent commission. When a seller agrees to compensate buyer’s agents, it leads to more inquiries/calls (aka more interest), showings, offers, and net proceeds at closing! Although commission cannot be publicly marketed, a section in the MLS indicates whether or not the seller is agreeing to “concessions”. Offering compensation incentivizes buyer’s agents to prioritize your property over others in the market.
The Buyers Agent Commission Comes From the Transaction (Option 3)
Picture this,… the buyer arrives at the closing table with a briefcase of cash. Someone dumps the cash on the table and begins distributing funds aka closing costs to different parties.
A handful of cash goes to the attorneys, another handful goes to the title company, another handful goes to the bank, and a handful goes to the city and state (transfer taxes). Then… just before the seller reaches in to grab their proceeds, another handful of cash is given to the Real Estate Agents.
Now that all of the handfuls of cash have been distributed, who would you say paid the commission?
A colleague of mine would say, “the buyers agent commission is paid from the transaction”.
What do you think: is it the buyer, the seller, and/or the transaction who pays real estate agent’s commissions?
Pro Tip: Always confirm how commission will be paid before submitting an offer. A good agent will help you negotiate this early.
Is It Worth It To Hire A Buyer’s Agent?
As demonstrated in the $1,000,000 transaction example above, a good buyer’s agent could and should be able to negotiate their buyers agent commission as part of the deal. That said, plenty of people buy homes without a buyer’s agent. If you have current market knowledge and negotiation experience, you may be able to put your own deals together.
Everyone’s situation is different so if you’re not sure whether or not it makes sense to hire a buyer’s agent, you may not have met the right one.
Some Things You’ll Want To Find Out Before Determining If An Agent Is Right For You:
- What can I expect from my agent and what does my agent expect of me?
- How is the buyers agent commission fee structured?
- How will I know if a seller is willing to pay the buyer agent’s commission?
- How can hiring this agent save you time and money?
- Related to the buyer’s agreement:
- What is the term length on the agreement?
- What if my neighbor wants to sell me their house directly?
Takeaways: Do Sellers Pay the Buyers Agent Commission?
In summary, signing a buyer’s agreement with a quality buyer’s agent will save you time and money. Furthermore, a great buyer’s agent will provide value equal to or, oftentimes, more than the commission. They can save you precious time and negotiate to have their fee taken from the seller’s net proceeds.
Remember, buyers agent commission is negotiable and a great agent would never let commission get in the way of a deal. Find someone who knows how to locate, analyze, and put together a deal.
If you’re planning on selling your home, the GoREbuild team can connect you with top-rated listing agents who understand all the nuances in your local housing market. Book a consultation with our team to discuss closing fees, go over any deals of interest, or answer other questions you might have!
