Who Pays a Buyer's Agent Commissions when Buying  a Home

Who Pays a Buyer's Agent Commissions when Buying a Home

For decades, the answer to this question has been "the seller."  But in reality the seller's agent and the buyer's agent commissions have always been included in the price of the home.  So technically, the buyer has been paying real estate commissions for both sides of a real estate transaction - for decades.   

When a home sale closes, commissions for the buyer and seller agents , seller closing costs,  prepaid taxes, insurance and HOA fees are deducted from the seller's proceeds.   So in essence the buyer paid a higher price, but the costs were deducted frm the seller proceeds.

With the recent lawsuits, there have been many misleading headlines.  Some have said that there has always been a standard commission.  It's understandable because everyone thinks we earn a certain percentage, but nothing could be further from the truth.   Real estate commissions have always been negotiable.   Some agents have used the word "free" to describe buyer's agents commission, which isn't accurate either.  

Other headlines have stated that real estate prices will drop.    How?  A home seller isn't interested in dropping their prices just because a lawsuit took place. They may decide not to pay a buyer broker, but that doesn't necessarily mean they want to sell for a lower price than their neighbor.   A home seller wants the most they can get when they sell their home.   

Eighteen states have already passed laws that will make it illegal for a real estate agent to show a home without a buyer signing a Buyer Broker form.  The form stipulates how much a real estate agent will charge a buyer should the seller decline paying a buyer broker commission.  Arizona has a Senate Bill pending on this same topic.  When passed into law, it won't matter if an agent is a member of the National Association of REALTORS® (and thereby use the title "REALTOR®) as the law applies to every real estate agent or REALTOR® showing a home.  

August 17, 2024 is the effective date changes will take place.  Buyer Broker Agreements must be signed by Buyers; MLS's will stop sharing the % or fee a buyer broker may earn on residential real estate listings.  

So how will a buyer's agent know if a seller is paying a commission?  Since one of the stipulations of the lawsuit is to stop sharing buyer broker commissions in MLS's, a buyer's agent must contact each listing agent prior to showing a home and ask if they are paying "seller concessions, which might include commissions."  Heck, an agent has to set up appointments anyway to see homes so just add that one more step and you're good to show homes.  

Buyer Broker Agreement to be Revised

What happens if a seller doesn't want to pay a commission and a buyer wants to see that home?   An agent is obligated to show the home regardless of who is paying a commission.   The buyer is made aware that a seller will not pay for the buyer broker commission and the buyer can decide if they want to see that particular house since the buyer would be paying their own agent the agreed upon commission stipulated on the Buyer Broker Agreement.

What happens if a seller is paying a higher amount/percentage than the agreed amount or percentage on a buyer broker agreement?  The buyer receives the extra commission at closing!   

What happens if a seller is paying less than the percentage/amount that the buyer agreed to on the Buyer Broker Agreement?  The buyer will pay the difference between what the seller is offering and the amount agreed to on the Buyer Broker Agreement.  The buyer will be made aware of that difference before even seeing the home.  

It might seem likely that if a seller doesn't pay a commission, a buyer might move on to another home that is similar and is paying a commission, so the buyer can save that commission fee.  Then doesn't it seem plausible that sellers might continue to pay buyer broker concessions/commissions?   

If a seller is not receiving showings, they might consider if paying a concession that includes commissions might be a good idea and increase their showings and likely a real estate sale.   

But remember, a real estate agent is duty bound to show any home that a buyer wants to see, commission or not.  So ultimately, the buyer will decide if they want to see a home, not paying a commission, but must pay it themselves.  

Bottom line, a buyer MUST sign a Buyer Broker Agreement to know what a Buyer's Agent will charge and the buyer will decide if they want to see a home not paying a commission.  The buyer is made aware of the commission charge up front and they will ultimately decide if they will select a house that is or is not offering seller concessions that also include commissions paid for by the seller.  MLS's will no longer show commissions payable to a Buyer's Agent.  

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