July 26, 2023
Most homebuyers opt to use a real estate agent when buying a home. Buying a home without a realtor is not advisable because real estate agents have a wealth of knowledge, resources, and expertise that will come in handy, especially for first-time homebuyers.
Even though a majority of real estate buyers and sellers use the services of a real estate agent, most of them do not understand who pays the real estate agent. A lot goes into determining a real estate agent’s commission, and in most cases, both buyers and sellers are responsible for paying different fees.
Here, we will cover real estate agent commission, how it works, how it’s calculated, and ultimately who is responsible for paying what. We’ll also cover the typical buying agent commission so you are informed and well-equipped to find a buyer’s agent who’s most compatible with you.
You might be asking yourself who is responsible for paying commission to the realtor involved in the real estate transaction. While it is negotiable, it is standard practice for the seller to pay the real estate commission for both the listing agent and the buyer’s agent.
You’re off the hook, right? Well, not exactly. The payment does technically come from the seller, but the funds, in most cases, come from the buyer. The fees and commissions are usually wrapped in the price of the home, so we can argue that, in the end, it is the buyer who pays the fees.
However, it is important to note that on the buyer’s statement of adjustment, there is NO mention of commission, so you are not expected to pay any commission directly to your realtor.
With all the talk of realtor commission, realtor fees, closing costs, it can be challenging to keep up with all the lingo. Wouldn’t it be easier to have a unitary fixed amount? It certainly would, but unfortunately, things cannot be that simple. So, how exactly do real estate commissions work and how much do realtors charge?
Step 1:
The listing agent helps the seller determine a gross commission which will be split between the seller’s agent and the buyer’s agent.
Step 2:
Once the amount has been determined, the commissions are then deducted from the seller’s statement of adjustment, after which point the notary sends these funds to the real estate brokerage.
Step 3:
The commissions are received by the real estate brokers and then disbursed to the real estate agents.
Since you don’t directly pay the commissions, a discount wouldn’t affect you as a buyer. Additionally, the commission rate is predetermined by the seller and their listing agent ahead of time, so it’s hard to work in a negotiation.
Nonetheless, agents are willing to provide a commission rebate at closing in some cases. Simply ask your agent if there is any room for negotiation, and they’ll guide you.
It is the norm for the seller to cover the agents’ commissions. However, there are some exceptions where the commission will vary. Here are a few such cases:
It is possible to negotiate the commission price with the real estate agent. Some sellers manage to negotiate with their listing agent to make the burden lighter for themselves and the buyer.
In some cases, the seller chooses to list their house as For Sale By Owner. This is mainly in an attempt to save on costs by cutting agent commission. The seller is still liable for the buying agent’s commission, so you don’t have to worry about buying FSBO as a buyer.
This is another rare exception to the norm. Some sellers negotiate for the buyer to cover some or all of the commission, but this rarely happens because it scares potential buyers away. Even with that, cash-strapped sellers might resort to this, so it is important to carefully read the terms as a potential buyer.
Naturally, if you’re buying a home without a realtor, the seller won’t have to pay the buying agent’s commission, just the listing agent’s. Most homebuyers, however, work with real estate agents. It might seem cheaper to do it alone, but in the long run, you stand to lose more if you don’t get help from an experienced real estate agent.
The typical commission for real estate agents, according to Forbes, ranges between 5% and 6% of the buying price of the home. This amount is usually split between the buyer’s and the seller’s agent at the close in an escrow, unless special arrangements have been made.
Real estate agents usually provide all the details, including the breakdown of the agent fees. When hiring an agent, be sure to pay attention to the details and ask questions if you need any clarification. In most cases, the fee covers:
The total commission is usually between 5% and 6% of the purchasing price, so the buyer’s agent gets 2.5% to 3%, and the seller’s agent gets the remaining half. This is not set in stone, though; it can vary from one agent to another or from one location to another.
Usually, the overall commission percentage is first divided between the two brokerages: the listing broker and the buyer’s agent’s broker. Afterward, each real estate agent receives a portion of the split based on the agreement they have with their broker.
The real estate agent typically gets a larger percentage, while the broker retains a small fee to cover overhead costs. In some instances, the agent is paid a flat fee for each sale made. It is also possible to have an arrangement where the real estate agent gets 100% of their commission, and the broker charges them a recurring bill for office expenses.
Of course, there are scenarios where the commission is split among fewer parties. For one, the listing broker could find a buyer directly, in which case they get to keep the full commission. The listing agent could also act as both the seller’s and buyer’s agent in selling a home, meaning they’ll only split the commission with their broker.
To learn more, visit our post detailing the difference between a real estate broker vs agent.
Listing agents and buyer’s agents provide tons of valuable services for their clients, so their commissions are deserved. When you hire a buyer’s agent, these are services they have to provide for you.
Take a look at a few, highlighted below.
When should you contact a realtor to buy a house? ASAP! Your agent has access to the Multiple Listing Service, which means they have a broad selection of potential properties to show you, even if you’re not ready to buy immediately, it’s worth exploring your options early. Sorting through irrelevant listings is time-consuming and unproductive. That’s why you need an agent to do the heavy lifting.
Their job is to save your time by conducting a screening process so that only potential matches are shown to you. Based on your preferences and budget goals, your agent can surf the MLS to find you your dream home.
Buyer’s agents typically have working relationships with homeowners and listing agents. Therefore, they can easily schedule appointments so you can look at houses and inspect them yourself. During this process, they give you a tour of the home, describing the features in detail and pointing out any downsides you might have missed.
Real estate agents usually have tons of experience conducting research on behalf of their buyers. In most cases, there’s more than meets the eye when it comes to property, and it takes expertise and a keen eye for detail to catch any discrepancies.
It’s your agent’s duty to rigorously research any potential property you’re looking to buy. This way, you’ll make informed choices based on your agent’s findings. Moreover, once you reach a deal, your agent will walk you through and complete all the necessary paperwork.
Having an experienced real estate agent representing you is vital when it comes to negotiations. The listing agent is looking out for their client’s needs, so you need someone just as qualified to negotiate for you.
Their in-depth knowledge of the real estate industry and prevailing market conditions can be leveraged during negotiations. A real estate agent will negotiate not only the price of the home but also the terms of the sale, which is something you might have overlooked. It is easy to get lured in by a good price, only to realize the terms of sale are highly unfavorable to you.
Choosing a real estate agent to work with is an important step in the home-buying process because they are ultimately your guide to finding the perfect home for the right price. Finding your first time home buyer real estate agent can be a little overwhelming due to the sheer number of real estate agents available.
However, using an agent finder is one of the best ways to simplify the entire process. Here are some of the ways you can use to find an experienced, trustworthy buyer’s agent.
Social media is a very powerful tool today. You can use it to find virtually anything. This might be a good place to start your search for a suitable buyer’s agent. An agent’s online presence can tell you a lot about them, even before you meet them in person. Go through their website and social media accounts, taking note of the reviews from former clients.
It is highly crucial to ensure that whoever you’re considering is a licensed real estate agent. You can simply check with your state’s real estate regulator to see whether there are any disciplinary actions or complaints against them. This way, you can easily eliminate unsuitable candidates right off the bat.
The people in your network can be a great source of information on real estate agents. You can ask friends, family members, or colleagues who’ve worked with real estate agents for referrals. Of course, they’ll only recommend agents with whom they’ve had a good experience, so you’re assured you’ll get quality services.
However, since your needs are not necessarily the same as your friend’s or your family’s, their recommendation might not be what you’re looking for. This is totally acceptable. For this reason, you should have more than one person recommend their agent, so you have a list of agents to choose from.
The easiest way to find the perfect buyer’s agent for you is using an agent finder. Take advantage of a wide database of tried-and-tested industry professionals, all at your disposal. This is exactly the type of service Newzip provides.
With Newzip’s data-driven matching technology, you are bound to find a qualified and experienced local agent you can get in touch with. All you’d have to do is answer a few simple questions on Newzip’s Agent Finder, after which you are matched with the best local agent who’ll guide you through the entire process.
In the real estate market, buyers and sellers find themselves confused by several different concepts. One of the tricky concepts to understand is how real estate commission fees work. Hopefully, all your questions have been answered, and you feel comfortable taking the next step, armed with this new information.
We believe that the success of any purchasing process depends heavily on your real estate agent and the relationship you develop with them. This is why we are determined to ensure we match our users with the best of the best.
What’s more, our services are entirely free of charge. You get access to the top local real estate agents without paying a dime. So, if you’re looking to hire a real estate agent, Newzip’s Agent Finder is exactly what you need.
