Who pays the buyers agent commission – News Alert:
The question of “How Colorado buyers agents get paid” has already changed as of mid-August 2024. A landmark settlement with home sellers and the National Association of Realtors® in March 2024 went into effect in July. This change impacts not only Colorado but all U.S. states.
See this article by the National Association of Realtors® for their explanation of the settlement. NAR states that they will implement a new MLS rule prohibiting broker compensation offers through the MLS. However, buyers can still negotiate compensation off-MLS with real estate professionals. These offers help make professional representation more accessible, lower costs for buyers, increase fair housing opportunities, and expand the buyer pool for sellers. They also align with real estate laws in states that 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. This will give you their take on the new rules and how they are 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 finding a good buyers agent remains consistent with our association’s advice over the past 25 years—review the written agency agreement before viewing properties.
Since July 2024, this agreement is mandatory. New regulations require buyer agents to formalize representation, a practice we’ve long supported. Many of our top agents have followed this for years, and several states have always required such agreements. For more insights, check out the home-buying guides from our top Colorado buyer 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. They are also 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…
Most buyers do NOT want to make the biggest financial transaction of their lives alone. They want their buyer’s agent to receive fair compensation but typically avoid paying an hourly or flat fee. Instead, they prefer agents to earn their commission after finding and closing on a house. Commissions and fees have always been negotiable, and now agents must justify their fees when discussing the buyer agency agreement. You may also want to check out videos by blogger Krista Mashore, who explains the benefits of using a buyer’s agent under 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.
The listing includes X% compensation to the buyer’s agent in the listing price, payable from the transaction at closing. In the past, the MLS typically listed compensation ranges of 2-4% of the sales price for the buyer’s agent and 1-4% for the listing agent. The sellers in the NAR lawsuit raised concerns about illegal “price fixing,” noting that seller agreements across the United States had consistently included about 6% for decades.
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 includes this agreement with the seller, the buyer’s agent must arrange compensation directly with the buyer. They may handle this arrangement outside 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, the buyer’s agent may present their client’s offer with a clause describing how they will get paid. This arrangement should already be outlined in the buyer agency agreement. The offer price will likely include compensation to the agent as part of the total closing costs, payable at closing.
The new ruling expects buyer agents to clearly outline their services for the commission. They will also explain how they plan to receive 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 U.S. price-fixing laws, real estate companies cannot suggest or dictate what others should charge. In the past, a buyer’s agent typically received half of the commission built into the listing, with the seller responsible for paying it. However, as of July 2024, that obligation no longer exists, shifting the dynamics of how buyer agents are compensated.
For Sale by Owner (FSBO) properties often exclude agent commissions in the home’s sale price. However, FSBO owners usually welcome offers that include the buyer agent’s commission.
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 gives 60% to the agent and 40% to the broker. However, the split can be 50/50 or any other ratio the agent and broker agree on. 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 designate an agent who is not the listing agent. This helps the buyer feel 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. No law prevents it. However, many agents and companies determine what they believe their services are worth. They aim to convince their clients of that value but often stay open to contingencies or alternatives their clients want to discuss, especially with the new 2024 regulations.
Agent commissions often represent a significant amount. Therefore, we strongly encourage both buyers and sellers to carefully evaluate 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 buyer’s agent receives from closing a property, buyers know that the agent’s actions will make a big difference. Take your time and make sure to hire the best agent who can represent you and protect your best interests.
