Who Pays Real Estate Agent Commissions?
For generations, the average real estate agent commission rate has been around 5% to 6%, with the seller typically paying both the listing agent and the buyer’s agent. However, a landmark court settlement is forcing buyers and sellers to revisit the question: “Who pays real estate agent commission?”
New real estate commission rules, effective August 17, 2024, changed the way Realtor® fees are handled. The new model is part of a court settlement by the National Association of Realtors (NAR) that decouples seller and buyer agent compensation.
With insights from a top real estate agent, we’ll explore different scenarios when the seller pays the commission, when it falls on the buyer, and what activities the commission covers.
A look back at the traditional commission model
The average seller-funded commission rate mentioned above includes the fees for both the listing agent and the buyer’s agent, who split the total commission payment. This has been the traditional way of including agent commissions in the final sale price of the property.
This model is still an option if the sellers agree to pay both agent commissions, and in some cases, can be used as a strategic concession to attract buyers and speed up a home sale.
Shawn Hartmann, a top Minnesota agent with nearly 20 years of experience, explains the original commission structure. “Sellers typically pay a 6% commission. Roughly half of that payment will go to their own agent, and the rest will go to the buyer’s agent. That’s how it worked 99% of the time.”
To illustrate, let’s say you want to sell your house for $350,000 and are offering to pay both the seller and buyer agent commissions because your home is in a slower housing market.
With a 6% commission amounting to $21,000, a traditional 50/50 split would break down like this:
Listing agent: $10,500 (3% commission) paid for by the seller
Buyer’s agent: $10,500 (3% commission) paid for by the seller
This commission, which most sellers used to pay, would have been included in the Multiple Listing Services (MLS) listing for the property. That meant the buyer’s agent knew upfront what commission to expect by bringing a buyer to the transaction.
As part of the NAR lawsuit settlement terms, compensation offers are no longer allowed on MLS systems to avoid what is known as “steering,” where buyers’ agents show their clients only properties that would make them more money. Commission and compensation offers may instead be shared from agent to agent through discussions, phone calls, emails, private social media groups, and other forms of advertising outside of the MLS.
Despite these mandated changes, the commission rate remains negotiable, along with many other parts of the home sale.
This emphasizes the importance of negotiation and opens up different scenarios that will determine who pays the real estate agent commission — and how much. Let’s explore some of them below.
