Who Pays the Buyer's Agent Commission?
Dec 23, 2022
Isn't using an agent free when you buy? Well, this is one of the most common questions we get from new homebuyers:
"My Realtor friend told me that it's free to use their services. Is that true?"
In this article, we'll debunk this homebuying myth and explore who actually pays the buyer's agent commission.
Who pays the buyer's agent commission?
(spoiler alert: it’s you - the homebuyer)
As a buyer, your agent and the seller’s agent split a commission fee – typically 5-6% of the purchase price of the home. And while this fee is technically paid by the seller, it’s factored in to how much sellers list their home for.
Since these fees get baked into a home’s listing price, and you’re the only one who has to pay money at closing, the buyer's agent commission gets passed onto you when you buy a home. In other words, it comes from your mortgage/loan on the home.
Here’s what honest real estate agents had to say in articles on Realtor.com, HGTV, and The Balance about who pays the seller's and buyer's agent commissions:
Standard practice is that the seller pays the real estate commission of both the listing agent and the buyer's agent, according to Ruth Johnson, a Realtor® in Austin, TX. But she also points out that "while sellers pay the fees, they usually wrap them into the price of the home. In that sense, you could say the buyer pays the fees."
Source: Realtor.com - "Who Pays The Real Estate Agent When You Buy A Home?"
Sellers factor in the cost of commissions when they price their homes. Typically, the listing agent and the buyer's agent split the commission from the transaction. ‘The funds come off the seller’s side, creating the illusion that the seller pays,’ says Fred McGill of SimpleShowing. "But you are the only one bringing money to the closing table."
It can be argued and, quite rightfully so, that the buyer always pays the commission. Why? Because it's typically part of the sales price. If the seller did not sign an agreement to pay a commission, the sales price might have been lowered. - Elizabeth Weintraub, Broker-Associate at Lyon Real Estate
Source: The Balance - "Who Pays The Commission To The Real Estate Agent?"
Agent fees are your single largest expense when buying a home
Sure, you'll have to make a downpayment of 3% - 20% of the home price, but have you considered the embedded cost of your agent? Since real estate agent commissions are rolled into a home’s asking price, as a buyer, you’re essentially footing the bill when it comes time to close on your home.
A consumer could theoretically purchase a home for 3% less than the advertised price if the homebuyer negotiated directly with the seller and their listing agent, instead of hiring a buyer's agent. For example, you could make an offer of $291,000 on a $300,000 home and this would be equivalent to a $300,000 offer from a consumer who is using an agent.
This is because a $291,000 offer with no buyer agent commission is equal to a $300,000 with a 3% buyer agent commission. In other words, the net proceeds would be the same to the seller in either case.
Is it worth using buying agent?
Before the internet, buyer's agents had to manually filter and pull home listings for their clients, drive them around on home tours, price every home based on comps, and handle all of the offer and closing paperwork manually.
Many of today’s homebuyers often prefer to house hunt on their own and as a result, much of the legwork in terms of "searching" is done by the consumer - not necessarily the agent. Meanwhile, most traditional real estate agents at least 50% of their time marketing themselves to find new clients. In other words, most of their time is spent finding new customers, not finding you houses. Rarely does an agent find a "pocket listing" or off-market property like in the old days.
The 2.5 - 3% buyer's agent commission you pay mostly helps to cover these sunk costs rather than the time they spend actually helping get your offer accepted and getting you into your new home. All that being said, agents do serve a purpose. It may still be worth using an agent even if you're comfortable shopping on your own.
If you want to benefits of shopping on your own, yet still need help with showings or offer paperwork, your best bet may be able to leverage broker rebate programs in order to "pay yourself" for time spent shopping.
The evolution of buyer agent fees
Buyer's agent work has evolved, but their fees haven’t. And it's not just the internet that has made the process easier for the agent and the consumer, more specifically, it's the advancements in mobile technology.
Here are a few examples of how the mobile revolution (circa 2008 - 2012) has drastically changed home buying in ways that benefit both agents and consumers: virtual tours, bluetooth lockbox access, online home valuation models, real estate search apps, aerial maps (google), street view maps, property boundary apps, online booking of home showings, mobile notaries, and electronically signed mortgage docs.
How to save on buyer agent commission
In 2020-2022, many US markets saw over-asking price and multiple offer scenarios, leading to buyers losing out on homes. Many savvy buyers decided to write offers directly with the listing agent, which in effect increased their offer by 3%. While this approach takes some finesse, it's an effective strategy when a home has more than one offer on the table.
For novice investors or first-time buyers, communicating directly with the listing agent (thereby eliminating buyer agent commission), can be challenging. In response, many brokerages, like SimpleShowing, have developed programs for rebating the buyer agent commission back to the homebuyer - a practice that is approved by the US Government and is also tax-free.
Commission refund/rebate programs
There are many brokerages and agents that acknowledge homebuyers are doing a ton of the legwork to find the home of their dreams. That's why brokerages like SimpleShowing reward their clients by letting them keep up half of our commission in Florida, Texas and Georgia. In addition to our commission refund for buyers, we also help homeowner list for a flat 1% listing commission in the same states.
How can agents afford to give back 1%?
SimpleShowing agents refund 1% - 1.5% of the purchase price of the home to our buyer clients in Florida, Georgia and Texas. We can refund part of the commission because we’ve focused on making the homebuying process more efficient, which means we can pass the savings onto the homebuyer.
Consumers can still attempt to contact the seller or the listing agent directly, but most consumers (and especially first time homebuyers) need a bit of guidance when negotiating the terms and getting you to the closing table. These are the parts we help with. There truly are very few hard costs in shopping for a home, which is why it's silly to pay an agent thousands of dollars to simply unlock a few doors and write a offer.
How we’re different:
- Our agents are employed by SimpleShowing and focus primarily on showing homes and writing offers. They spend less time prospecting for new clients.
- We only pair you with one of our top-rated local buying agents once you’re ready to see a home or make an offer. Because our buying agents only work with you once you’re ready to buy, they’re able to provide their expertise during the most important part of the buying process: getting your offer accepted and guiding you through negotiations, closing, and escrow.
- And, because you're buying agent hasn’t spent most of his or her time driving you around or looking for new clients, we can give you full support and serious savings when you need them the most. So, you keep 1% of the purchase price or $5,000 on average towards closing costs.
Your dream home shouldn't have a gatekeeper
We’ve invented the modern way to buy. So far, we’ve helped hundreds of folks buy and sell homes in Georgia, Florida and Texas and saved homebuyers over $1 million in unnecessary agent fees.
Have questions about buyer's agent commission or how our commission refund works? Shoot us an email or contact us to speak with one of our home buying experts. If you're ready to stop shopping right away, get started by getting pre-approved at a low, preferred mortgage rate with our partner lenders.