Reader question: “Can you tell me who pays the buyer agent fee / commission in a typical real estate transaction? Or does it vary from one situation to the next? I’m a first-time home buyer, and I really can’t afford to pay such a fee. I find the terminology to be somewhat confusing. Thanks.”
Let’s start with a basic definition, for the benefit of all readers. A buyer’s agent is a real estate professional who only represents the person buying the home. He or she does not represent the seller in any way, even though they might get paid out of the seller’s profit. A buyer’s agent has a “fiduciary duty” and responsibility to the person purchasing home home.
The seller’s agent, on the other hand, represents the person who is selling the property. So any information you give to this real estate professional could be used to the seller’s advantage, not yours. In other words, you should be very careful about what you say to a listing / selling agent. Better yet, avoid them entirely by working through an agent of your own!
How Does the Buyer’s Agent Get Paid?
That brings us to the heart of your question: Who pays the buyer’s agent commission fee in a typical real estate transaction? In most cases, the seller pays the agent’s commission out of the money they make from the sale (proceeds). After all, the sellers are the ones who stand to gain from the transaction, financially, while the buyers have to cover their down payment, closing costs, and other housing-related expenses.
So it is usually the seller who pays the buyer agent’s fees in the United States. Just remember that in the real estate world, everything is negotiable. And that applies to commissions as well.
Read: What do real estate agents do for buyers?
In many cases, the seller will build the commission into the sale price. That is, they will increase the asking price of the home to account for the money they are going to pay in combined agents’ fees. So you could end up paying part of the commission indirectly, through the purchase amount. That’s why you should always evaluate the asking price against recent sales in the area. Remember, it’s called an “asking” price for a reason!
Real Estate Commissions Are Based on Sale Price
Here’s something else you should realize about the buyer agent relationship. The amount of money your agent makes is directly related to the price you pay for the home. Their commission is generally expressed as a percentage of the sale price. So the more you pay for the property, the more money your agent makes.
Just keep this in mind if your agent encourages you to increase your offer amount. They might be doing it because your offer is genuinely too low, or they might be doing it to increase the size of their own commission. It depends on the agent. Like any other industry, there are good ones and bad ones out there.
You should never pay more for a home than what it’s worth in the current market, despite what a real estate agent tells you. In fact, your mortgage lender will appraise the home to prevent this from happening. If you offer more than the true market value of the property, you’ll have to pay the difference out of your own pocket (or the seller will have to lower the price).
Some agents will encourage their clients to offer purchase amounts well above the home’s value, just to “edge out” other buyers. But this is not in the direct interest of the client — it’s in the interest of the agent, who gets a bigger commission for a shorter working relationship. (More money, and less time spent earning it.) Meanwhile, the new homeowners are in a negative-equity situation from day one, having paid more than the fair market value. This kind of scenario may be an exception to the rule, but it does happen. So be your own advocate during the home buying process.
This article answers the question: Who pays the buyer’s agent commission fee in a typical real estate transaction? If you have additional questions about purchasing a home, be sure to use the search tool at the top of this website.