How does a buyer pay their real estate agent?

The vast majority of folks end up needing and using the services of a real estate agent when they purchase a home. This agent is known as the Buyer’s Agent who will negotiate with the Seller’s Agent on behalf of the buyer. It is important to realize how your real estate agent gets paid when you buy a home, otherwise you may end up overpaying for their services.

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Typically on the sale of a home in the US, a commission is paid to both agents by the seller of the property, usually spilt 50%-50% between the two agents. The commission is decided by the seller when they list their property, and payment is made from the seller’s proceeds when the sale closes. From a buyer’s perspective, it often feels like the services of their agent are free, and many buyers ignore the subject of commissions altogether. It is easy to ignore the commissions and just buy a home, but an informed consumer needs to understand compensation when choosing to hire an agent.

Having the seller pay for the buyer’s agent commission is very popular, and most buyers actually like that they don’t have to worry about paying an agent. After all, there are already enough costs to worry about when buying a home.  However, it is important to remember that the buyer is the only person bringing money to the closing table, and ultimately the commission costs for both agents are wrapped up in the price that the buyer is paying for the home.

Before you hire an agent to help you buy a home, have a conversation with them about how they are compensated.

  1. How much is the seller paying the buyer’s agent?
  2. What services will they provide?
  3. Is their fee negotiable?

If an agent won’t answer these questions, or if they indicate that there is no fee, find another agent. A professional agent will always be willing to discuss their compensation and service level with you. Some will be willing to negotiate their fee and others will not. Some agents also offer commission rebates to buyers. Sometimes there are even agent incentives to entice agents to show a particular property or to get an offer in by some deadline. These incentives are obviously a powerful agent motivator and an legitimate tool for sellers to market their home, but such incentives and deadlines may run contrary to the best interests of a buyer. Once again, a professional agent will be willing to disclose such incentives and assure you that they always have your best interests in mind.

Being a buyer’s agent can be a lot of work and those agents do deserve to be paid, but as the consumer you owe it to yourself to  understand how they are paid and the service level they will provide in return.