How Buyer's Agents are Paid

It probably appears that agents make the big bucks — and some do — but it's the select few who are really making it big. Most agents average a modest income after years in the business or are working part-time for the occasional sale. It's worth understanding, however, how the agent gets paid.

Does the Buyer Pay Anything?

No — and yes. Here’s how it all nets out.  A lot of deals fall apart and the agent gets nothing. Reputable, trustworthy agents put your best interests ahead of the sale because that ends up being better business in the long run. In general, payday arrives only when the deal closes.

Commissions generally range from 5 to 7 percent based on the sale price of the home. (These percentages vary throughout the country.) The seller pays the commission to the listing agent who then splits it with the buyer's agent.  Since this amount is figured into the sales price and the buyer is the one providing the cash at closing, it’s really paid by the buyer, but the seller writes the check.

Having said that, all commissions are negotiable, and listing and purchasing agreements state this clearly. Commissions are not set legally and may be negotiated between buyers, sellers, and agents.  

The Agent's Bottom Line

So how much of that fee is going to the agent who has spent months looking at properties with you?

If you pay $300,000 for your dream home and the joint commission is 6 percent ($18,000), half (or $9,000) goes to the listing agent and the other half goes to the buyer's agent. Of the $9,000 that is going to your agent’s office, he or she will typically get anywhere from 50 to 80 percent (or $4,500 to $7,200), depending on the deal they have with their broker.

Other agents have higher commission splits, but the point is that the amount can be a lot or a little, depending on how much time the agent worked with you. Agents also pay out-of-pocket expenses for advertising, signs, brochures, and other expenses.

And the Exceptions ...

In the dual agent relationship, the listing agent and the buying agent are the same. In that case, it is suitable to ask for a reduction of the total commission since the agent and broker are collecting a “double-bubble.”

There are some other exceptions. The new discount brokerage houses typically charge a modest monthly fee (less than $100 per month) and a transaction charge of a few hundred dollars per deal to the real estate agent.  The agents who typically sign up with these firms already have enough experience to act on their own and don’t need the support systems of the bigger firms. They pay for all marketing and office expenses themselves.  You can negotiate commissions with these agents because they have more room in their bottom line. Ask for a reduced commission up front or money back at closing.

An exclusive buyer agency agreement should set all terms in writing. This agreement is a binding contract. Make sure you understand all the provisions of the contract before you sign.  If you buy from another agent you may still owe the buyer agent the commission designated previously.  Be sure the contract covers:

• Time period
• Geographic area
• Compensation

How a buyer’s agent gets paid varies from state to state and by agreement. Buyer’s agents are usually paid out of the seller’s commission, but can be on a flat-fee basis, or retainer or commission plus bonus, or any combination thereof. It is not wise to pay any fees upfront.

Next article: Real Estate Agent Contracts for Buyers

Previous article: Choosing a Good Agent

Related Links

• What a Buyer's Real Estate Agent Does
• Real Estate Agent Contracts for Buyers