You may have heard that home sellers usually pay realtor fees, but the truth is a little more complicated. Even though sellers pay commission from their sale proceeds, realtor fees affect the buyer’s bottom line, too.
Traditionally, realtor fees are baked into the price of a home. When the sale is finalized, agent commissions are deducted from the final proceeds. This way, your agent gets paid and no one pays out of pocket.
However, like many things in real estate, agent commissions are not set in stone. Who pays realtor fees could change depending on the type of home you buy or the contracts you sign.
If you’re worried about expensive realtor fees, our friends at Clever Real Estate can help! They pre-negotiate low rates with full-service agents, so you can save on commission without compromising on service.
Or, keep reading to learn more about how realtor fees work, why the seller usually covers buyer agent commission, and when buyers might end up paying their agent out of pocket!
How do realtor fees usually work?
For most home sales, the seller deducts realtor commissions from their proceeds at closing.
Here’s what the process looks like for a typical home sale.
Sellers set the commission for both agents in their listing agreement. This legal document is signed by the seller, their agent, and their agent’s broker. The listing agreement also outlines how the seller’s agent and buyer’s agent will split the fee.
Most often, commission fees will total about 6%, split evenly between both agents. For example, if a home sells for $500,000, the total commission would come out to $30,000 with $15,000 going to each agent.
At closing, the title company deducts the total commission fee from the sale proceeds and sends it to the listing agent’s brokerage. Then, the listing brokerage distributes half to the buyer’s agent brokerage, and both brokerages pay their agents.
Why does the seller pay the buyer’s realtor fees?
It might seem strange, but sellers bake the buyer’s agent fee into their sale price because it benefits everyone.
Historically, buyer’s agent commissions were a “marketing cost” for sellers. Before the internet, buyers relied almost exclusively on their agents to find homes for sale. Sellers knew that offering a buyer’s agent commission would incentivize those agents to bring them willing and able buyers.
This arrangement is still beneficial for sellers today.
In addition to marketing, realtors usually require buyers to get prequalified before they start searching for homes. In this sense, sellers are effectively paying commission for the extra security that the sale won’t fall through due to financing complications.
Lenders usually don’t help buyers pay their closing costs, either, so buyers are already paying out of pocket for their down payment and other expenses. Baking the buyer’s agent fee into the sale price allows buyers to roll it into their mortgage, and put their cash towards closing on the home.
Buyers who are able to afford their closing costs are buyers who are able to buy your house. And the more buyers who can afford your home, the better chance you have of selling it for a competitive price.
Do buyers ever pay agent fees out of pocket?
It’s rare for buyers to pay their agent’s fee out of pocket, but it can happen.
The National Association of Realtors reported that, while 77% of sellers paid realtor fees in 2020, 16% of sales ended with buyers paying some or all of their agent’s commission out of pocket.
If you’re a buyer, you’ll most likely have to pay your agent if the seller doesn’t offer one in their listing.
In general, for sale by owner (FSBO) sellers are the least likely to offer a buyer’s agent commission. Or they might offer a commission rate that covers some, but not all, of your agent’s fee.
Whether you’re responsible for paying your agent ultimately depends on the details of the buyer agency agreement you sign. For example, an exclusive agency agreement might specifically state that you’re on the hook for your agent’s fee if the seller doesn’t cover commission.
Always read your real estate contracts carefully and ask if something isn’t clear before you sign. Knowing exactly what your contract says can help you avoid paying out of pocket costs unexpectedly (along with other issues!).
What to do if the seller won’t pay your realtor’s fee
If you want to buy a home that isn’t offering a buyer’s agent commission and you already have an agent, talk to them about it. Most agents will work with you to find a solution so that you can buy your dream home, even if you can’t afford their full commission fee out of pocket.
Real estate agents are experienced negotiators, and will think of solutions that would work best for you and the seller. For example, this could involve negotiating with the seller to have them cover some of your closing costs — fees that you would otherwise pay with cash.
In some cases, your agent may also be willing to lower their rate to avoid losing out on a sale, so be proactive! You’ll have a lot more options if you raise the issue with your agent sooner rather than later.
Who pays realtor fees for…
There are a lot of moving parts in real estate transactions, and where your agent’s fee directly comes from will vary based on your unique circumstances.
It’s most common for sellers to distribute agent fees once they get the money from their home sale, but this isn’t always the case. You could end up paying realtor fees out of pocket based on a variety of factors, such as the contracts you sign with your agent or the type of home you purchase.
Let’s take a look at some common outliers when it comes to real estate transactions, and just who pays realtor fees in these situations.
Selling your home without a realtor is one of the leading ways that sellers save money on agent fees, but it can leave buyers in the lurch when it comes to fees.
If you’re buying a FSBO home, it’s possible that the seller isn’t offering any agent commission, or is only offering a fraction of your agent’s established rate. If this is the case, consult your agency agreement to determine if you need to pay your agent out of pocket.
Before you sign with an agent, ask them about FSBO home purchases and how they would expect to be compensated if the seller isn’t offering to cover their fee.
If you’re selling FSBO, we always recommend offering a buyer’s agent commission in your sale price. It’s a good way to ensure that agents will show your home to potential buyers, so you get multiple competitive offers.
When the buyer and seller use the same agent
In this situation — known as dual agency — one realtor works as both the buyer’s and seller’s agent. The agent’s fee will typically still come from the proceeds of the home sale in a dual agency transaction.
Since the agent makes two commissions from the same sale, there’s also room for negotiating a lower commission rate. Sometimes a dual agent will be willing to lower their rate to 4% instead of 6%, so don’t be afraid to ask!
Dual agency can present some conflicts of interest, though, and is actually illegal in some states.
Why? A listing agent’s job is to help their client get the highest possible price for their home. The buyer’s agent wants to negotiate the lowest possible price for their client. It can be difficult for a single agent to balance both of these obligations.
Because of this, it’s usually best to consider dual agency for specific situations, like if you already have a buyer or are comfortable negotiating with one on your own, and just need a professional to handle the paperwork.
New construction homes
If you’re buying a new construction home, the home builder acts as the seller and pays your agent upon closing.
Before you sign a purchase contract, you’ll meet with your builder and agent. That will be your opportunity to discuss commissions, and to ask your builder if they’ll cover your agent’s fee.
Home builders with more experience and developments under their belt usually expect to pay buyers’ agents. They often bake realtor fees into their marketing budgets just like regular sellers.
Likewise, smaller home builders (those that are more local or have less experience) might raise the price of a build if you bring on a buyer’s agent.
If a builder won’t cover your agent’s fee, talk to your agent. They’ll discuss your options or help you find another builder that can build your dream home and cover their fee.
Foreclosures and bank-owned homes
If you’re buying a foreclosed home, otherwise known as real estate owned (REO), who pays realtor fees is pretty similar to a traditional home sale.
Instead of a home seller, you’ll work with a bank or the U.S. Department of Housing and Urban Development (HUD).
Real estate owned (REO) homes were previously foreclosed and did not sell at an initial property auction. If a home doesn’t sell at auction, a bank or the HUD will sell it themselves.
Banks or the HUD will hire a listing broker to sell the REO properties they own, and the listing broker will split the commission with the buyer’s broker after the sale closes.
When a sale goes through an auction house, the auction firm or company will pay participating agents from the sale proceeds.
If you’re selling your home through an auction, your agent’s commission fee will be decided through a contract signed between you, the agent, and the auction company. This auction contract establishes elements like agent commission, which will supersede your listing agreement if you signed one.
If you’re buying a house on auction, your agent also earns commission established by the auction firm. However, you might be expected to pay a buyer’s premium, usually around 3-10% of the total sale price. The auctioneer will dictate this premium, and disclose it to you prior to bidding so that you can factor it into how much you’re willing to spend.
Every auction firm is different, though. Always ask if you’re not sure about an element in a contract or need to clarify certain details. Also consider hiring a real estate attorney for extra legal support.
Realtor fees for land sales are usually split between agents like a traditional home sale, and distributed by the seller after they close on the sale.
However, commission on land sales can sometimes get a little pricier than the average 5-6% because the agent stands to make a lot less on these lower priced sales. In fact, 10% commission isn’t unheard of!
Like most things in real estate, realtor fees on land sales are negotiable. You can always negotiate with the landowner and your agent on fees.
How agents get paid on short sales is a little different than a traditional home sale.
When a short sale closes, all the proceeds go to the seller’s lender who pays out the realtor fees. Like traditional home sales, the going rate for commissions is typically 6%, split between the seller’s and buyer’s agents.
Short sale agent fees are confirmed during the negotiation process between the lender, seller, and the seller’s agent (if they have one). Real estate agents working on a short sale won’t usually know how much commission they can expect until negotiations are over and the lender has approved the short sale.
If you’re in a difficult financial situation and need to pursue a short sale to avoid foreclosure, having someone in your corner to negotiate with your lender can be a huge help. Real estate agents experienced with short selling, or even a real estate attorney, might be able to help you get better terms from your lender.
Ways to save on realtor fees
Realtor commissions are never set in stone, so reducing your agent’s fee is always an option when it comes to saving money.
These are a few ways you can save when it comes to realtor fees:
Flat-fee MLS companies
If you want to sell your home without an agent, you can use a flat-fee company to post your property on the MLS (multiple listing service) for a flat fee rather than a percentage of the sale price.
When you use a flat-fee company, the MLS listing is often all you get. Some companies offer additional a la carte options, but you won’t be getting the services a traditional agent offers.
Flat-fee MLS companies are a good option if you’re comfortable navigating a real estate transaction on your own. But using a flat-fee service is similar to selling for sale by owner (FSBO), and can come with more than a few hurdles if you’re not already familiar with the selling process.
Home buyer rebates
With a home buyer rebate — or commission rebate, an agent gives you some of the commission they earn from your home purchase.
Buyer rebates are only legal in certain states on specific types of purchases and must be approved by your mortgage lender. Often, rebates are issued as credits or can only be spent on certain fees or as points toward your mortgage.
While home buyer rebates can be helpful, we recommend finding a brokerage or real estate company that offers cash back refunds instead. Your cash back comes to you after the transaction, so it doesn’t require lender approval. Instead, it goes straight into your pocket so you can spend it on anything you’d like!
Negotiate lower fees
Good news: realtor fees are 100% negotiable! Most agents will only lower their rate so far, but it never hurts to ask.
If negotiating with your agent sounds a bit daunting, you can always work with a company with built-in low commission rates. That way, you get great savings without having to navigate difficult conversations with your agent.
Low commission agents
Agents from low commission brokerages usually provide traditional services for a lower commission rate, usually around 1% to 2%. This can be a good way to find a full-service agent and save on realtor fees.
For example, our friends at Clever Real Estate can help you save thousands on realtor commissions — no negotiating required! With Clever’s pre-negotiated rates, you’ll pay just a 1% listing fee or $3,000 for homes under $350,000.
If you want expert advice on your situation, Clever can also connect you with a local agent that can give you free advice on your selling or buying circumstances, and help you assess your options.
Frequently asked questions about realtor fees
Why does the seller pay the buyer's agent?
A buyer's agent commission is like a marketing expense. Sellers offer a financial incentive to agents who bring them qualified buyers. Because the buyer is ultimately financing the purchase, and the agent's fee is baked into the purchase price, buyers are technically paying their agent indirectly. Learn more about how it works.
How do I avoid paying realtor fees when I sell my house?
Realtor commissions are 100% negotiable, so you can always ask your agent if they're willing to lower their rate. You can also tell the buyer they'll need to pay their agent themselves. However, this could backfire — most buyers can't afford the added expense of their agent's fee on top of closing costs. A better option would be selling with a discount real estate company.
Do buyers ever pay real estate commission?
The short answer is yes. Sellers aren't obligated to include a buyer's agent fee in their sale price, even though most do. If a seller refuses to pay your agent, you might end up paying out of pocket if you signed an exclusive buyer's agency agreement.
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