Who pays the brokerage commission and closing costs?

Do you know how much an average real estate commission is? Or who pays it Feesknown as closing costs?

If you’re scratching your head, you’re not alone. Many buyers and sellers aren’t fully aware of commissions and closing costs.

Although most home buyers and sellers may not be able to tell you these fees, they are quite important to the real estate agent working for you. These fees are paid by most real estate agents – both seller and buyer agents – after the purchase of a property or home.

Additionally, a recent settlement by the National Association of Realtors® (NAR), effective August 17, has resulted in changes to real estate agent commissions. This settlement includes changes to how real estate agent commissions are disclosed and negotiated to increase transparency and fairness for home buyers and sellers.

Here you will find out what you need to know about commissions and fees and what other fees you will have to pay when concluding the purchase agreement.

Who pays the brokerage fees?

In the past, sellers typically paid the fees for both the buyer and seller’s agent. As of August 17, buyers are responsible for compensating their agent.

However, as a seller, you have the option to offer compensation to the buyer’s agents. Why should you do this? To make your offer more attractive to buyers and stand out from others.

However, it is important to follow these NAR guidelines.

Your agent must clearly inform you of, and obtain your consent to, any payments or offers of payment made by an agent to another agent acting on behalf of buyers.
This disclosure must be provided to you in writing prior to any payment or agreement to make a payment to another broker acting on behalf of a buyer and must specify the amount or rate of such payment.
If you accept an offer of compensation, there are changes to how this can happen.
While you, as the seller, can still make a compensation offer, your agent cannot include it in a Multiple Listing Service (MLS). An MLS is a local marketplace used by both buyer’s agents and brokers to share information about properties for sale.
Your agent can promote your listing through off-MLS platforms such as social media, flyers and websites.
You as a seller can still make concessions to the buyer in an MLS (for example, concessions on the buyer’s closing costs).

If you choose to compensate a buyer’s agent

When sellers set a list price for the home, they usually factor in the real estate agent’s commission – and consider it a cost of doing business. (Here’s how to do it Find a real estate agent near you.)

Once the commission has been received, broker shares part of it with the Buyer’s agent who brought the buyer to the negotiating table, explains Adam Relianta real estate agent in West Toluca Lake, CA.

Do I have to pay a broker’s commission?

You can waive the fee by selling or buying a home without an agent. However, it is important to note that in this scenario, agents are the experts who work on your behalf while ensuring that the process is as stress-free as possible. For example, the agent will first help you price your home and then market it (on the Multiple listing servicesocial media and other channels), negotiate with home buyers and accompany the home sale until completion.

Also keep in mind that real estate deals often take weeks or even months – but most agents don’t see a dollar of it until the sale of the property is complete.

Can real estate agent commission fees be negotiated?

Commission standards can vary from state to state and broker to broker. There are no federal or state laws that set commission rates – that is, the Commission is negotiable.

Another option you may consider is a transaction agreement, where the agent will help you set an asking price, facilitate communication between you and the buyer, write the contract, and move the process forward to closing for a flat fee or lower commission — but you won’t get anywhere near the full services of the agent. Not all agents offer transaction agreements, so you may have to shop around to find one.

Dual representation: When an agent represents two parties

It is not a common situation in real estate, but when the agent you hired to represent you also represents the seller of the home you are buying, it is called Dual representationDual brokers, also called transaction brokers, represent the interests of both the buyer and the seller.

Some states have made dual agency in real estate transactions illegal to avoid any doubt that the agent is neutrally representing both the seller and the buyer. However, in states that allow dual agency, agents are required by law to disclose to their clients that they are representing both sides.

Critics who advise against dual representation fear possible conflicts of interest – that is, the possibility that the interests of both the buyer and the seller are not taken into account.

What do the closing costs cover?

Closing costs are the other fees that are separate from the brokerage fees and must be paid when the contract is signed. They cover the following things:

Credit processing
Title company fees
Expert fees (if necessary)
Notarization of the real estate purchase contract
Insurance
Any homeowners association taxes or fees that may need to be prorated if they have already been paid

The amount of real estate closing costs varies with each home sale/purchase and can range from 2% to 7% of the purchase price of the home. Typically, however, closing costs are about 3.5% of the sales price of a home, according to Leah Laymana real estate agent in Augusta, GA.

Your agent will give you a buyer’s sheet with closing costs. Federal law requires you to obtain a “good faith” estimate of your closing costs from each lender you use to purchase your home.

Your negotiating skills (or those of your agent) come into play when it comes to who pays closing costs. There’s no hard and fast rule about who pays closing costs—the seller or the buyer—but buyers typically pay the majority of the costs (3% to 4% of the home price) compared to sellers (1% to 3%).

“Most closing costs are negotiable,” says Reliantra. “Don’t let agents or salespeople convince you otherwise.”

Attorney fees, commissions, recording costs and courier fees may negotiated down.

Sometimes the buyer has specified in the contract that the seller will pay the buyer’s closing costs up to a certain percentage or amount.

“That’s why you need a good real estate agent to negotiate a contract for you,” says Layman.

If closing costs are too high and sellers are unwilling to contribute as much as buyers would like, buyers may request that the property’s closing costs be included in the mortgage.

How to find the fees and commissions you will pay

Bottom line: All the details of a real estate agent’s commission should be outlined in the contract you sign when you hire an agent. This is usually called a brokerage agreement and also specifies how long the agent will represent you. (Generally, brokerage agreements last 90 to 120 days.)

Also note that there are some exceptions. For example, letting agents work differently than buying agents. Usually it is the landlord’s responsibility to pay the agent’s fee, but this is not set in stone.

In addition, the commission is usually higher when selling a vacant lot because land often takes longer to sell and requires more marketing budget. Some auctions charge home buyers a 5% “premium” or commission.

As a seller, you want a real estate agent who can negotiate the best selling price and terms for you.

Remember, buying and selling a home can be the biggest financial transactions of your life, which is why you should have an expert on your side, even if it comes at a cost. Whether you’re a buyer or a seller, the list price isn’t the only number you should be focusing on. These fees on top of the home price can add up, and you don’t want to be caught off guard by surprises late in the game.