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How Do Buyer Agents’ Commissions Work?

Photo: Miya Interiors

If you’re shopping for a home, you may have heard buyer agents tout their services as available “at no cost” to their clients.

This is based in large part on the traditional real estate commission structure, where the buyer agent is typically paid from a portion of the total commission provided by the seller of a property at closing.

For this reason, buyers generally haven’t discussed the commission amount with their agents, let alone bothered to negotiate it. Similarly, agents generally haven’t brought it up with their buyers since their compensation primarily came from sellers. But with the recent shifts in the real estate landscape, that may soon be changing. If you’re looking to buy a home in the near future, here’s what you need to know about buyer agents’ commissions, what types there are, and how to discuss them with your agent.

Person receiving keys to house

The way buyer agents get paid is changing

Under the traditional real estate commission model, when a seller listed a home on a multiple listing service (MLS), they were required to offer some compensation to the buyer’s agent. That amount could be as little as $1, but in most cases, there was a more-or-less customary number specified in the listing.

Now, however, thanks to an ongoing series of lawsuits, settlements, and renewed scrutiny from the Department of Justice, sellers are no longer obligated to offer buyer agent compensation as a portion of their listing agent’s commission. As a homebuyer, this means that you could now be responsible for paying your agent, making it vital to discuss with them the way their commission will be handled on your home purchase and how much it will be.

Another change you may feel the impact of has to do with representation agreements, which are contracts formalizing the working relationship between a buyer and an agent. Early in your homebuying process, your agent may ask you to sign one, and if they are a member of the National Association of Realtors (NAR), beginning in July 2024, you’ll be required to do so before they are allowed to show you any properties. This is to help ensure transparency on what services the agent will provide and how much they expect to be paid in return.

Some buyer agreements are exclusive, meaning that you agree to work with only one buyer agent and that they are entitled to a commission when you successfully purchase a home. Other nonexclusive agreements allow you to work with more than one agent, providing a commission only to the agent who helps you find the right home. If you’re already working with an agent with whom you have a signed agreement, it’s important to disclose that to any other agents you may talk to about real estate, such as if you go to an open house and discuss the property with the agent there.

If and when your buyer agent asks you to sign a representation agreement, that’s a great opportunity for you to discuss commissions to make sure that their preferred method and amount works for you before you officially enter into a relationship with them.

Couple speaking with realtor

Types of buyer agent compensation structures

Seller-paid commission
This is the traditional model that you’re probably familiar with. In this structure, the seller would specify a buyer agent commission percentage or amount in their listing and the buyer agent would be paid from the proceeds of the home sale after closing. The win for sellers was that buyer agents were motivated to show that seller’s property, and the win for buyers was that they did not have to pay for their agent’s representation out of pocket. While sellers are no longer allowed to advertise commission on their listings, they may still offer to pay it as a concession during the sale price negotiating process.

Buyer-paid commission
Under this model, you as the buyer agree to pay your agent’s commission out of pocket. Make sure to negotiate the fee structure, amount, and agent exclusivity up front before entering into a buyer representation agreement, which should also have each clearly spelled out in it.

Flat or transaction fee
Instead of a commission based on the sale price of the property, the buyer agent may charge a flat fee for their services. This fee can be negotiated between you and the agent and may be higher or lower depending on the complexity of the transaction or the services provided.

Hourly rate
Some buyer agents charge an hourly rate for their time spent working on your behalf. This can be advantageous for buyers who require minimal assistance and guidance throughout the homebuying process.

Retainer fee
Similar to attorneys or consultants, buyer agents can charge an up-front retainer fee for their services. This fee ensures that the agent is compensated for their time and expertise, regardless of whether a transaction is completed.

Performance-based compensation
Buyer agents may choose to tie their compensation to specific performance metrics, such as finding a property within a certain price range or negotiating a discount on the purchase price.

Hybrid models
Some buyer agents may offer a combination of different compensation models. For instance, they may charge a reduced commission and a flat fee or retainer fee. This allows for flexibility in how they are compensated and can be tailored to the needs of the buyer.

Couple talking with realtor

How to talk to your agent about their commission

With the burden of compensation now likely falling on you as the buyer, it’s important to discuss with your real estate agent how they expect to be paid. Here are some questions you may want to bring up when you first meet with your agent:

  • What is your commission rate for representing buyers?
  • Are there any additional fees or charges I should be aware of beyond the commission?
  • Do you offer any incentives or discounts for first-time homebuyers or repeat clients?
  • Can you provide a breakdown of the services included in your commission?
  • What happens if I decide not to purchase a property after you have already started working on my behalf? Will I still owe you a commission?
  • Do you offer alternative compensation models, such as flat fees or hourly rates, that suit my budget better?
  • Can we ask the seller to pay your commission during the negotiation process? What will happen if they decline but I still decide to buy the house?

As a buyer, you deserve transparency around the services that are included in the purchase process and the way that your agent will be compensated. Reach out to schedule a buyer consultation so you can get your questions answered, make more informed decisions, and effectively navigate the financial aspects of buying a home.

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Kimmer Plunk

Based in Memphis and serving clients in West Tennessee and Northwest Mississippi. Serving others is a reward of its own and part of what makes me happy, and I've been doing that for 30 years through various activities including Girl Scouts, PTO, various board positions, unhoused ministry, and professional, award-winning teaching. I treat others the way that I want to be treated including being readily available, listening to your desires, answering your questions thoroughly, and walking you through the home purchase process. My ultimate goal is to see that you find the home of your dreams and experience the least amount of stress during the process.

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