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Who Pays Real Estate Commissions?

by | Jan 4, 2019 | Buying, Selling

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It’s a common myth that, as a buyer, you don’t pay your real estate agent because the seller pays all commissions. However, that’s not really the case. . .

Let’s take a look at an example on how real estate commissions work

Bob is buying a $400,000 home that Susan is selling. Susan, the seller, has a real estate agent called a listing agent. Bob has his own real estate agent called a buyers agent.

Susan has offered 6% commission on the sale of the home.

Usually the listing agent will make 3% of the purchase price as a commission, and the buyer’s agent will also make around 3%. In this situation this works out to $24,000 or $12,000 per agent. Remember, these percentages are always negotiable, and there is no legal statute defining how much commission real estate agents should be paid or must charge the consumer.

So now that we understand how much is being paid in commission, we can answer the bigger question that brought you here.

Who pays real estate commission?

The short answer is the seller pays the commission. The longer answer is that the buyer technically pays both commissions in the purchase price of the home. It’s like saying if you buy a car, the dealer pays for the tires on the car. The dealer doesn’t pay for it. It’s included in the purchase price, just like in this situation. Bob is actually paying the $24,000 for agent fees in his purchase price of $400,000. For most folks, when you amortize the commissions paid in the purchase price, a home owner like Bob will actually spend his first 2-3 years paying off agent commissions. That’s crazy.

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The information contained in this blog is for general information purposes only, and while believed to be accurate, Trelora assumes no legal responsibility for accuracy. Information provided within should not relied upon as legal advice. Please consult with your local advisors for independent information regarding availability and applicability in your market.