Who Pays the Real Estate Commissions?
Your contract with a buyer’s agent will usually stipulate that the agent’s commissions – typically about 3 percent – be paid out of the seller’s proceeds at closing. Does that mean the seller pays? Well it does and it doesn’t. Since you, the buyer are the one taking the cash to the table and the seller is taking the cash away from the table, there’s a convincing argument to be made that you are paying for both real estate agents. Of course sellers usually don’t see it that way.
In practice, the real estate commission comes off the top of the sales price. On a $300,000 home, that’s a commission of $15,000 to $21,000 which is 5 to 7 percent of the price, right off the top. That sum will be split among the sellers’ and buyers’ agents and their respective brokers. Legally, real estate agents must work under the umbrella of a licensed broker. The split is not necessarily fifty/fifty depending on your market. Some sellers’ agents will agree to discount their commission to 5 from 6 percent. But they will offer buyers’ agents the same split which is 3 percent of the sales price that they would get if they had not agreed to discount their own fee. If you decide to buy a home that’s FSBO without an agent then you may be on the hook for paying the buyer’s agent commission yourself, unless you can convince the seller to pick it up as a condition of the sale. When signing a contract with a buyer’s agent, keep your sights on the short term. A three-month agreement should be long enough. You can always extend it if you haven’t found a home by the end of three months.