Who pays your Buyer Agent Commission?

Sharing the Buyer Agent Commission

Agents share the commission pie

The short answer is: “it depends”.  But, in many, many cases, the Buyer does not pay his Buyer Agent commission.  So, if the Buyer doesn’t pay his own agent’s commission, who does?

In many cases, the Seller pays the commission. Let’s see how:

The Seller pays the Buyer Agent commission out of the sale proceeds

There is a bit of history behind this practice: back in the time, the only job of a Real Estate Agent was to sell a home (i.e. all agents were Listing Agents).  That is, when a homeowner wanted to sell her home, she would contact a Real Estate Agent, and the agent would do what she needed to do to sell the home.

But agents quickly found out that there was strength in numbers and, instead of trying to sell the home on their own, they reached out to other agents in the area to help them sell the home.

This is how Multiple Listing Services (MLS) came to exist

Through an MLS, many agents in the same general area collaborate to post their homes for sale on a list for all other agents to see (and to try to sell).

When Listing Agents participate in the MLS, they agree to split their overall sales commission with any other agent who procures a “willing and able buyer”.  This way, any cooperating agent who brings a buyer for a property shares in the commission specified in the MLS listing.

Fast forward a few years when Buyer Agency started

With Buyer Agency, the job of the Buyer Agent is not to sell a specific home, but rather to help the buyer purchase a home of the buyer’s choice.

To accomplish this, the Buyer Agent accesses the MLS to find homes for sale that meet the buyer’s criteria. When the buyer selects a home from the MLS to make an offer on it, and the seller accepts such offer, the Buyer Agent is entitled to the Buyer Agent commission amount specified in the MLS listing.

For example –

Mr. Seller wants to sell his home in Vienna, VA, so he hires a Listing Agent to promote the home, including posting it on the MLS. They specify the Listing Commission as a total, for example: $10,000.

So the Listing Agent gets the home into the MLS, and decides to share $6,000 of the $10,000 total to a cooperating agent who brings a “willing and able buyer” to purchase the home.

Meanwhile back at the ranch, Mr. & Mrs. Buyers are looking to buy a home and have hired a Buyer Agent to help them with the transaction.  After determining that they are “willing and able buyers”, the Buyer Agent points the Buyers to Mr. Seller’s home.  The Buyers visit the home, they fall in love with it, and they make an offer to purchase it.  When Mr. Seller accepts the offer, they do their due diligence with the help of their Buyer Agent to ensure they are buying the right home for their needs (and not a “lemon house”!).

The story ends happily with the Buyers buying Mr. Seller’s home and paying him for it at settlement.

Mr. Seller, from the sale proceeds, pays his Listing Agent the agreed-upon $10,000 in commission.  In turn, the Listing Agent pays the $6,000 Buyer Agent commission.

Can you see how in this example, the Buyer didn’t pay any more for hiring a Buyer Agent?

This is because the total commission was agreed-upon between the Seller and the Listing Agent.  And the commission split was determined within the MLS listing itself. In this case, the Buyer didn’t have to worry about the Buyer Agent getting paid.

But there are situations in which the Buyer must pay her Buyer Agent’s commission

For example:  Mr. and Mrs. Buyers signed an agreement with their Buyer Agent promising to pay her $6,000 for her services.  A few weeks later, they chose to buy a home which wasn’t listed on the MLS, but rather it was a “For Sale by Owner (FSBO)”.   Since there is no Listing Agent involved with a FSBO, it is quite possible that the Buyers would have to pay the $6,000 to their Buyer Agent if they purchased the house.

On the plus side, their Buyer Agent would help them figure out how much the home is truly worth and they could save even more than $6,000 in the price of the house.

If you think about it, the agents’ commissions are calculated on top of every home on the market.  In the case of buying an FSBO, the sales price would have to be lower by the amount of a customary commission in order for it not to be over-priced.

The Buyer is responsible for their Buyer Agent’s compensation

In the end, the Buyer is responsible for their Buyer Agent’s compensation through the Buyer Agency Agreement that they signed together (it’s good to read the Agreement carefully). However, the compensation could be covered by the Seller (via the Listing Agent) if the Buyer selects a home from the MLS with an equivalent commission split offered.

Let’s summarize who pays for your Buyer Agent’s commission:

  • The Listing Agent has a listing agreement with the Seller of a home where they agree on the total commission.
  • The Listing Agent shares the total commission with cooperating agents through the MLS rules of cooperation.
  • Buyer Agents who bring a “willing an able” buyer are entitled to the commission advertised on the MLS listing.
  • Sometimes, the Buyer pays their Buyer Agent’s commission, like in the case of buying an FSBO.
  • Most times, the Buyer Agent’s commission is covered by the Seller (via the Listing Agent) through the MLS.

Next Step

If you haven’t already, be sure to read this post which explains why it’s important to have a Buyer Agent on your side: How a Buyer Agent saves you from these 5 financial punches (especially when it doesn’t cost you any more to have someone watching your back).

Your turn, what do you think?

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