Who pays the buyers agent commission – News Alert:
The question of “How Colorado buyers agents get paid” is going to change as of mid-August of 2024. A landmark settlement with home sellers and the National Association of Realtors® happened in March, 2024, and will go into effect in July. It will affect not just Colorado, but all US states.
See this article by the National Association of Realtors® for their explanation of the settlement. NAR states that they have “agreed to put in place a new MLS rule prohibiting offers of broker compensation on the MLS. This would mean that offers of broker compensation could not be communicated via the MLS, but they could continue to be an option consumers can pursue off-MLS through negotiation and consultation with real estate professionals. Offers of compensation help make professional representation more accessible, decrease costs for home buyers to secure these services, increase fair housing opportunities, and increase the potential buyer pool for sellers. They are also consistent with the real estate laws in the many states that expressly authorize them.”
See how this settlement will affect you. You may also wish to get a free consultation from a local buyers agent in your area to get their take on the new rules and how it is being handled by their office.
Buyers agent Commissions and Fees
How do Colorado agents get paid? We believe these new regulations will actually make it easier for buyers to compare different buyer agency agreements when shopping for an agent. It is likely to still be based on a commission at closing. 
The process for getting a good buyers agent is basically the same that our association been advocating for the past 25 years. We have always suggested that you review their written agency agreement before getting into a car to go out to look for properties with them.
That written agreement starting in July will no longer be optional. The new regulations says that buyer agents will be required to enter into a written agreement to represent you as a buyer – something we have always advocated. This is a best practice that many of our top association member buyer agents have been doing for years! In many states, this written agreement has always been necessary to confirm the buyer agency relationship. Feel free to check out the home buying guides from our top Colorado buyers agents.
This makes it easy to see the commission your buyer agent is getting paid, and when, and under what conditions it will be paid. The easiest way for buyers agents to get paid is out of the transaction at closing (like it has been for decades). So, what is different?
Do you pay a real estate agent if you are the buyer?
According to the new ruling, local multiple listing services (MLSs) are no longer going to indicate in the MLS description what they will offer a buyer’s agent to bring a buyer to the deal, and they are no longer obligated to include that fee under their seller agreement. So your buyer’s agent cannot just say “our commission will be covered in the seller’s agreement and I’ll get that at closing”. Your buyer’s agent will have to demonstrate to you that their services are worth what they put in the buyer agency agreement. And we know that…
No one works for free…
We also hear that most buyers do NOT want to go it alone when making the biggest financial transaction of their lives. They do want their buyers agent to get fairly paid, but they typically don’t want to pay an hourly or flat fee amount. They want an agent to get paid after they have found and closed on a house for them. Agent commissions and fees have always been negotiable and now it is easier to have them justify that fee when discussing the buyer agency agreement. You may wish to take a look at videos done by an blogger, Krista Mashore, who discusses the benefits of using a buyer’s agent in light of the new regulations.
Ultimately the buyer will be responsible to interview potential agents and study the language in their buyer agency agreement about how their agent gets paid. In the language of the buyer agency agreement, the buyers agent may have to deal with different scenarios, keeping in mind that ALL buyer and seller agent fees are negotiable. They might run into the following sample scenarios:
Listing agents may say, for example:
Example #1. Their listing has X % compensation to the buyer’s agent in the listing price, payable out of the transaction at closing. In the past, the MLS would typically put in ranges of compensation from 2-4% of the sales price of the property to the buyers agent and 1-4% of the sales price of the property for themselves to represent the buyer. The sellers in the NAR lawsuit were concerned that even though it is illegal to “price fix”, that they have seen a total of around 6% built into seller agreements for decades throughout the United States.
Most buyer agents we have spoken with in 2024 believe sellers and seller agents will be still be open to looking at offers where the buyer’s agent gets compensated at closing.
Example #2. Their seller wants $0 compensation to the buyer’s agent out of the transaction. If the listing has this agreement with the seller, the buyer’s agent will have to work out an arrangement with their buyer on how they will be compensated, perhaps outside of the transaction.
Example #3. The listing doesn’t say anything about how the buyers agent will get paid–only how the seller’s agent will be compensated at closing for marketing the property.
In this case, it may be up to the buyer’s agent to present their client’s offer inclusive of a clause that describes how they will get paid. This arrangement has already been worked out in the buyer agency agreement. Most likely, the offer price will include some sort of compensation to the agent as part of the total closing costs, payable at closing.
With the new ruling, it is expected that buyer agents will more clearly outline what they are willing to do for their commission, and how they will get it. They must justify that their compensation is fair and reasonable for the amount of work they will put in and the kinds of skills they bring to the table. Traditionally this first consultation meeting is free to the buyer.
Agent commissions vary across the country and between agencies, so consumers are encouraged to ask the simple question, “How do you get paid?” when interviewing agents.
Is There A Standard Buyers Agent Commission?
Due to US price-fixing laws, real estate companies cannot suggest or dictate to other companies what they should charge. In the past however, a buyer’s agent would usually get half of the commission built into the listing and the obligation to pay it fell onto the seller’s side. That obligation will no longer exist in July 2024.
For Sale by Owner (FSBO) properties oftentimes do not have agent commissions built into the price of the home for sale, but FSBO owners are usually receptive to having offers presented whereby the buyer agent commission is built into the offer.
How Do Colorado Buyers Agents Get Paid within their firms?
Brokers will split the commission between themselves and the buyer’s agent. A common commission split may give 60% to the agent and 40% to the broker, but the split could be 50/50 or whatever ratio the agent and broker have agreed upon. Usually the longer the agent has successfully worked at the company, the higher their portion grows.
Let’s say, it’s a 60/40 split, the brokerage receives $12,000. The agent might receive $7,200 ($12,000 X 0.6) and the brokerage would keep $4,8000 ($12,000 X 0.4).
Unrepresented Buyers
Sometimes, the listing company runs into an unrepresented buyer. The listing firm may wish to designate an agent within the firm who is NOT the listing agent so the buyer feels they have someone on their side. There are commission rules in designated agency situations that are suppose to protect the buyer’s interests.
Or, they may offer to just make it a transactional agreement, so neither party is advocating for their client. As you can see, this can get very messy.
Can You Negotiate Agent Commissions?
Yes, you can. There’s no law that says you can’t. However, many agents and companies have predetermined what they think their services are worth. Their job is to convince their clients of that, but most are willing to be open to contingencies or alternatives their client wishes to discuss, especially with the new 2024 regulations.
Agent commissions can be a significant amount. So we highly encourage both buyers and sellers to carefully look at what the agent will do for them. This is why anyone buying or selling real estate should interview at least two agents.
The image below shows the agent fiduciary duties:
Is Having A Buyer’s Agent Worth It?
Yes. No amount of money can equal the benefits of having an buyer’s agent. For one, they are able to handle overwhelming things with ease during a negotiation. Below is just a summary of the key roles an agent plays in the home-buying process:
- Protector. You need an agent who will be able to anticipate and keep you from a never-ending list of potential risks and deadlines. Hiring experts who will know how to best counter the seller’s requirements is the best protection there is.
- Negotiator. A good buyers agent is an excellent negotiator and is never complacent. Look for an agent who knows about the current trends in the market and all other important matters in a real estate negotiation.
- Advocate. Your agent should always be clear about which position to take at all times, especially during a negotiation. You want an agent whose primary goal is to make sure that the property is worthy of investment. And someone who will negotiate with the best price and terms acceptable to you.
- Representative. Depending on the state you’re in, you can choose the best type of representation according to your needs. Make sure that the agent is fully aware of your preferences regarding the property you’re looking for.
Check out the standards in our about us section. In the end, no matter how much commission a buyers agent gets from closing a property, buyers know it’s what the agent can do for them that will make a big difference. So take your time and be sure to hire the best agent who can best represent you and protect your best interests.
