Many buyers enlist the assistance of a buyer’s agent when purchasing a home.
Buyer’s agents play a crucial role in helping buyers navigate the complex real estate market and secure the best possible deal.
However, it’s essential to understand the concept of buyer’s agent fees before agreeing. It should be noted that changes in the real estate industry could change how consumers pay a real estate commission.
Following a real estate commission lawsuit, the industry is bracing for changes that could alter the traditional commission structure.
The Justice Department has decided to decouple real estate commissions. In increasing circumstances, a seller may compensate the listing agent, and a buyer will pay the buyer’s agent if they choose to have one. A real estate agent must also have a buyer’s agency contract signed with a buyer before showing them homes.
Over the past three decades I have been selling real estate, agent commission have almost always been paid by the seller. Home sellers paid commissions as part of a lasting model that worked with efficiency. That is about to change shortly. If you are planning on buying or selling, ensure you have agents explain what is happening and how you could be affected.
I will examine the details of buyer’s agent fees, explaining what they are, how they work, and why they are worth considering.
Essential Facts and Figures to Know
1. A buyer’s agent fee is a commission paid to the real estate agent representing the buyer during a property purchase.
2. The fee is typically a percentage of the final sale price and is negotiated between the buyer and their agent.
3. It is customary for the seller of a property to pay both the listing agent’s commission and the buyer’s agent fee.
4. The buyer’s agent fee is often included in the overall closing costs of the transaction.
5. Hiring a buyer’s agent can provide valuable expertise, guidance, and negotiation skills throughout home-buying.
6. The average buyer’s agent fee ranges from 2.5% to 3.0% of the property purchase price.
7. Approximately 78% of homebuyers in the United States choose to work with a buyer’s agent.
8. Buyer’s agents negotiate an average of $10,000 off the listing price for their clients.
9. Over 90% of homebuyers who use a buyer’s agent report a smoother and more efficient buying process.
10. Studies show that using a buyer’s agent can increase the chances of finding a desired property by 45%.
What is a Buyer’s Agent?
Before explaining buyer agent fees, you should understand what a buyer’s agent is and what they do. A buyer’s agent works with home buyers as their fiduciary. They are the buyers as their trusted advisor and confidant. They become fiduciary in every respect throughout a transaction.
A buyer’s agent functions as someone who is in your corner throughout a real estate transaction. They protect your interests and work towards getting the best terms and conditions in an offer.
A buyer’s agent is the exact opposite of a listing agent who works as a seller’s agent. There is also a difference between a Realtor and a real estate agent.
If you’re looking for someone with the highest ethical standards, your best bet is to work with a Realtor. A Realtor is a National Association of Realtors member and pledges to follow the real estate code of ethics.
What Are Buyer’s Agent Fees?
Buyer’s agent fees, also known as buyers agents fees, buyer agent fees, buying agent fees, buyer agency fees, or buyers agent commission, are the charges paid to the real estate agent who represents the buyer in a real estate transaction.
While there is no fixed industry standard for buyer’s agent fees, they typically range from 2% to 3% of the home’s purchase price.
Buyer’s agent fees are typically split between the listing and buyer agency. The seller usually pays the buyer’s agent’s commission, although this could change substantially.
For example, if the total commission on a home sale is 5 percent, the listing and selling agencies would each receive 2.5 percent.
A buyer’s agent fee will then be split with the real estate brokerage they work for. The exact split amount is predetermined between agents and real estate brokers.
Sometimes, a buyer agent fee is referred to as buyer agency compensation.
How Do Buyer’s Agent Fees Work?
The seller generally pays the buyer’s agent fees as part of the commission structure. In most real estate transactions, the seller agrees to pay a total commission fee, split between the listing agent (representing the seller) and the buyer’s agent.
As a buyer, you don’t have to pay your agent’s fees out of pocket directly in most circumstances.
Why Does a Seller Pay A Buyer’s Agent Fees?
For many years, it has been customary for sellers to cover the buyer’s agent commission as per the NAR rule. This rule, outlined in the Participation Agreement, requires listing brokers to compensate buyer brokers. as a condition for listing on Realtor-affiliated MLS platforms. This practice has become widespread since most properties are sold via the MLS.
Proponents of this method contend that compensating the buyer’s agent commission incentivizes agents to present properties, resulting in faster and more lucrative sales. If sellers provide a reduced (or zero) buyer agent commission, the property will likely remain on the market for an extended period.
However, sellers frequently criticize this model as antiquated and costly. This leads to total agent fees exceeding 5-6% of the home’s sale price, exceeding those in other nations.
When selling a property, the seller typically offers the buyer’s agent a commission to encourage them to show the property to potential buyers. The more showings a property has, the more likely it is to sell quickly and at a higher price.
If a seller offers the buyer’s agent a lower commission, the property may stay on the market longer.
Real estate agents call these the days on the market. There is a direct correlation between DOM and the final sales price. The longer a house sits on the market, the greater the spread between the asking and sale prices.
When Does a Buyer Have to Pay Their Agent?
The timing of when a buyer has to pay their agent varies depending on the specific agreement made between the buyer and their agent.
The buyer’s agent is usually compensated at the real estate transaction’s closing. The commission is typically deducted from the seller’s proceeds and disbursed to the buyer’s agent as part of the overall commission structure.
However, it’s essential to note that the payment terms should be discussed and agreed upon before engaging the services of a buyer’s agent. This includes clarifying when and how the agent will be compensated for their services.
Sometimes, the buyer and the agent may agree on an alternative payment arrangement. For example, if a buyer’s agent finds an off-market property not listed for sale, they may need to compensate the agent out of their pocket.
Another example would be when a buyer’s agent finds a for-sale-by-owner (FSBO) property. Sometimes, an owner selling without an agent will not agree to pay a buyer’s agent fee, in which case the buyer would need to compensate their agent.
Buyers must converse with their agent upfront to establish clear payment expectations to avoid confusion or misunderstandings. The buyer’s agent should be transparent about their fees, including when and how they expect to be paid.
What is a Buyer’s Agent Fee Agreement?
Many buyer’s agents will have a buyer’s agency contract executed by the buyer. A buyer’s agency agreement will spell out the fee a buyer’s agent will be paid.
Specific circumstances will be discussed, such as when a buyer will pay the fee. A buyer’s agent fee agreement protects agents by being a legally binding contract that prevents buyers from using another agent on a whim.
Imagine for a moment working with a buyer for months, showing them numerous houses. You could be working long hours, nights, and weekends to find a buyer a home.
One day, they visit an open house and write an offer with the listing agent. Months could go by without compensation, but a buyer’s agent fee agreement usually prevents that.
Why Are Buyer’s Agent Fees Worth Considering?
Buyer’s agent fees are an essential aspect to consider when engaging the services of a real estate professional. These fees cover the expertise, guidance, and valuable services a buyer’s agent provides throughout home buying.
Many consumers ask what a real estate agent does. Have a look at this detailed summary of services.
Understanding when and how buyers are expected to pay their agent is crucial for a transparent and successful transaction.
Here are reasons for considering a buyer’s agent fee:
Expert Guidance
Buyer’s agents bring valuable expertise and experience. They possess in-depth knowledge of the local market, can identify suitable properties, and help negotiate favorable terms on your behalf. Their expertise can save you time, money, and potential pitfalls in the home-buying process.
Research and Due Diligence
Perhaps one of the most vital things a buyer’s agent does for buyers is research before making an offer. An agent representing a buyer should carefully research anything that could impact a buyer’s decision to purchase.
Is there something a buyer should know about down the street that could impact the value? Maybe a sex offender is living near the property?
If work were done to the property, an outstanding buyer’s agent would research whether proper building permits were pulled.
These are examples of real estate due diligence. It is how the best buyer’s agents earn their commission.
Access to Listings
Buyer’s agents have access to a vast network of listings, including those that may not be readily available to the general public. They can provide exclusive opportunities and arrange private showings, ensuring you get all potential dream homes.
Many buyer’s agents offer access to the Multiple Listing Services to notify you of new listings.
Negotiation Power
Negotiating the best price and terms is critical to any real estate transaction. Buyer’s agents are skilled negotiators who advocate for your interests to secure a fair deal. They know how to navigate counteroffers, contingencies, and other complexities that may be discussed during negotiations.
Market Analysis and Evaluation
Understanding the current market conditions, including pricing trends, comparable sales, and neighborhood insights, is vital when making informed decisions.
Buyer’s agents perform detailed market analyses to help you make confident choices and ensure you pay a fair price for the property.
Transaction Management
Home-buying involves multiple steps, paperwork, and deadlines. Buyer’s agents excel in managing these aspects, ensuring all necessary documentation is completed accurately and on time. They coordinate with lenders, home inspectors, and other parties to ensure a smooth transaction.
For buyers who don’t have relationships with these professionals, they will offer referrals.
Cost Savings
While buyer’s agent fees may seem like an additional expense, they can save you money in the long run. With their expertise, they can help you avoid costly mistakes, identify any hidden issues with properties, and negotiate favorable terms, ultimately maximizing the value of your investment.
Buying a house without a Realtor is impossible, so always have your agent.
In the long run, a buyer's agent can save money by not overpaying for a property and avoiding problems.Click To TweetThe Changing Landscape of Buyer’s Agent Fees
As I mentioned, The real estate industry is on the cusp of significant changes that could reshape the traditional buyer’s agent fees model. A landmark decision in October 2023 by a Missouri jury and subsequent agreements by the National Association of Realtors (NAR) has sparked a nationwide conversation about the fairness and transparency of real estate agent commissions.
These developments suggest a shift towards more autonomy for buyers and sellers in negotiating agent fees. It could potentially lead to a more competitive and flexible fee structure. This evolution in the industry underscores the importance of staying informed and adaptable in the face of change.
For buyers, this could mean more direct involvement in negotiating agent fees and, possibly, more favorable terms. Sellers, on the other hand, might find themselves in a position to negotiate lower commissions, thereby retaining a more significant portion of their home’s selling price.
As these changes take effect in July 2024, buyers, sellers, and agents should prepare for a new era in real estate transactions that provides greater transparency and potential cost savings.
Can I Negotiate a Buyer Agent Fee?
Maybe. There is nothing that says you can’t negotiate a lower commission. Some real estate agents will do so, and others will not.
If you want a commission rebate, you should discuss it upfront. It is inappropriate to ask an agent to discount their fee once a home has gone under contract.
Also, consider how much work has gone into the transaction before requesting a commission reduction. You will likely strike a nerve when discussing a Realtor’s commission during a transaction.
Buyer agency compensation is how an agent makes a living. If they do an excellent job, they should be paid appropriately.
Final Thoughts on Buyer Agent Commission
Buyer’s agent fees are essential when hiring a real estate professional to represent you in the home-buying process.
By paying a fee typically covered by the seller, you gain access to invaluable expertise, exclusive listings, negotiation skills, market analysis, transaction management, and potential cost savings.
Working with a buyer’s agent can ultimately streamline your home purchase and increase the likelihood of a successful and satisfying real estate experience.
About the Author: Bill Gassett, a nationally recognized leader in his field, provided the above real estate information on what are buyer agent fees. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications in which he has been featured. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. For the past 38+ years, Bill has helped people move in and out of Metrowest towns.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
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