Most buyers don’t pay much attention to how their buyer agents get paid like I did when I bought my first house. I remember being busy looking for the right location and how much it would cost to buy the said property. I knew that the agent would get a commission but I never dared to ask how. Would it have mattered had I known? Maybe. For prospective buyers who want to understand how this works, this topic might just come in handy for your future home-buying transaction.
While there are other ways, a typical buyer agent’s fee is paid “out of the transaction at closing”. It’s a commission based on the sales price of the home. This setup allows home buyers and sellers to have their agents working for them for no up-front or hourly costs.
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 Percentage?
Real estate commissions are typically suggested within individual real estate companies, and the “default commission” in a buyer agency agreement can sometimes be negotiated by the consumer. Due to US price-fixing laws, real estate companies cannot suggest or dictate to other companies what they should charge. A buyer’s agent will get half of the commission, and the other half goes to the listing agent.
To visually illustrate, let’s assume an agent takes a listing on a $400,000 house at a 6% commission rate. If the property sells for the asking price, the commission will be as follows:
$400,000 x 0.06% = $24,000
$24,000 / 2 = $12,000
$12,000 may be reserved out of the proceeds of the sale at closing for the seller’s agent, and $12,000 may be reserved out of the proceeds of the sale at closing for the buyer’s agent. Commission splits are usually set up in the listing agreement by the listing agent.
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?
The brokers will split the commission with the agents. A common commission split gives 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.
Let’s say, it’s a 60/40 split, each agent in our example would receive $12,000. Each agent would receive $7,200 ($12,000 X 0.6) and each broker (agent company) would keep $4,8000 ($12,000 X 0.4). The final commission breakdown would be:
Buyer’s agent’s broker—$4,800
So, a $400,000 sale will net out as $376,000 to the seller.
Sometimes, the commission is split among fewer parties. For example, if a broker lists a property and then directly finds a buyer who is not represented by a buyer’s agent, the broker would keep the full 6% (or other agreed-upon rates) commission.
Another scenario would be if a listing agent also sells the property (acting as both listing agent and buyer’s agent), he or she would split the commission only with his or her sponsoring broker. With $24,000 as the commission given in the above example, the broker would keep $9,600 and the agent would receive $14,400, assuming the same 60/40 split.
Who Pays The Buyer’s Real Estate Agent?
As illustrated above, it’s derived that the commission fees are already built-in into the sale price of the property, and many agents argue that it is “covered by the seller”. The VALUE of property typically takes into account both commissions, and the seller is obligated to split out these costs in their listing agreement.
However, In the scenario above, the buyer is indeed bringing $400,000 to the table. So technically speaking, the buyer’s purchase money is covering both the seller and the buyer agent’s commissions. The bottom line is that there is no additional cost to the buyer to use a buyer’s agent.
Can You Negotiate Commission Fees?
Yes, you can. There’s no law that says you can’t. Although some might consider it, not all agents would agree to reduce the fees.
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 instead. This is why anyone buying or selling real estate should interview at least two agents.
Learning how commission fees work is also a form of protection. This way, you won’t be easily swayed in choosing a property sold at a higher price. If anything, buyers must demand fiduciary duties from a buyers agent where negotiating for the best price on your behalf as a buyer is a top priority.
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.
In the end, no matter how much commission a buyers agent gets from closing a property, buyers need to understand that more than the money, 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.