Who Pays Realtor Fees? A Complete Breakdown of Real Estate Costs

For new homebuyers and sellers, realtor fees are an often misunderstood part of the home-buying process. Because they can represent a significant expense during the process, it’s essential to understand what they are and how they work.

So, who pays realtor fees?

In this guide, we’ll discuss who pays realtor fees, the buyer or seller, why they’re so important to understand for both parties, their impact on the cost of a real estate transaction, and how a recent August 2024 settlement changed how they work in the real world.

Finally, we’ll look at how property management software (like TurboTenant) can help you along the way.

Who pays realtor fees in a real estate transaction?

So, who pays the realtor fees in a typical real estate transaction? For the most part, the seller has historically paid the commission for both the selling agent and the buyer’s agent. The commission was then usually split between both agents. But even though the seller was paying the fees for the most part, that cost was often folded into the price of the home.

However, due to a recent settlement with the National Association of Realtors, sellers are no longer required to pay the buyer’s agent commission due to commission collusion between large brokerages. Buyers must now negotiate and pay the realtor fees of their own agent for representation in the process. Buyers must sign written agreements with their agents after this landmark ruling and clearly outline the compensation and services provided.

This shift means buyers must now budget for their agent’s commission, which could impact how much they can spend on a home. On the other hand, sellers will likely see lower overall transaction costs but may need to lower their listing price or offer different incentives to entice buyers.

Regardless of how the fees are structured, rental accounting software can help investors track those expenses. When integrated with mid-term rental software, investors have the ability to advertise their rentals, create legally compliant lease agreements, and collect rent online — all within a single system.

How are realtor fees calculated?

Now that we know who pays realtor fees, we’ll examine their typical cost. Realtor fees are usually calculated as a percentage of the home’s sale price and divided between the seller and the buyer’s agent.

Historically, the standard commission breakdown was as follows:

• Standard commission rates: Generally, real estate agents charge between 5% and 6% of the home’s sale price.
• Selling/buying agent splits: The commission was split between the agents, often 50/50.
• Brokerage fees: Each agent’s brokerage took a percentage of the commission before the agent received their share, which can vary from office to office.

Now, each party will negotiate their own fees with their agent, with rates varying between 2-3% depending on the market and listing price of the home, among other factors.

When do buyers pay realtor’s fees?

Before the settlement, it was rare for buyers to pay their agent’s fees directly, but there were instances where it happened. These include:

• Buyer representation agreements. Sometimes, a buyer’s agent would require the buyer to sign a contract to ensure they receive a commission, even if the seller refuses to pay. Now, however, this is a standard part of the process.
• FSBO (for sale by owner) transactions: If a seller isn’t offering a commission and handling the transaction themselves without a listing agent, the buyer will need to compensate their agent.
• New construction. Some builders do not include commissions for buyers’ agents, leaving compensation to the buyer.

Alternatives to Paying Traditional Realtor Fees

Instead of wondering who pays realtor fees, how about paying no fees? The truth is, realtor fees are standard in most real estate transactions, but there are a few ways you can avoid (or reduce) paying them altogether.

Can you avoid paying realtor fees?

A buyer or seller can avoid paying realtor fees entirely in a couple of ways.

• Purchasing without an agent: This is a potentially risky course of action since real estate agents are a critical part of the process. They help navigate contracts and coordinate between multiple parties.
• Negotiation: Buyers can sometimes request that the seller cover part, or all, of the agent’s commission as part of the purchase negotiation. However, it is important to note that the NAR settlement eliminated the requirement for the seller to pay the buyer’s agent’s commission.
• Commission rebate: Some agents offer rebates that return a part of the commission to the buyer in competitive markets.

Flat-Fee MLS Services: A Low-Cost Alternative

Instead of paying a full commission to a real estate agent, sellers can opt for a flat-fee multiple listing service (MLS) that allows them to list their property on the MLS without hiring a traditional agent.

Pros

• Lower overall selling costs
• More control over the sale

Cons

• Requires the seller to handle negotiations and showings
• Buyer’s agents may be less motivated to show the property
• Real estate contracts often require the expertise of an experienced agent

Negotiating Realtor Commission Fees

Can you negotiate realtor fees?

Negotiation can determine who pays realtor fees or how much is paid.

• Buyers must now negotiate their agent’s fees upfront, just as sellers have historically done. The answer to the question of who pays buyer agent commission is now firmly the buyer.
• The state of the market could have an impact. In a seller’s market, buyers may not have much leverage to negotiate a lower commission, but a buyer’s market gives them more flexibility.
• High-value properties: Agents may reduce their fees for expensive homes since their total commission remains substantial, and they could compete for the listing with other agents.
• Dual agency scenario: If one agent represents both the seller and the buyer (a dual agent), they may agree to lower the overall commission.

How to Approach Commission Negotiations with a Realtor

Approaching commission negotiations over who pays realtor fees, if any, should be handled thoughtfully and tactfully.

• Compare multiple agents. Shop around for commission quotes from multiple realtors to find the most friendly fee structure.
• Ask about discounts. Some agents offer reduced fees for repeat clients or certain types of transactions.
• Offer a competitive selling price. If your home is likely to sell quickly and requires little work from the agent, they could be willing to lower their typical rates.

Dual Agency: When One Realtor Represents Both Buyer and Seller

What is a dual agency, and who pays the fees?

A dual agency is where one real estate agent represents both buyer and seller in a sale. In this case, the agent collects both sides of the commission instead of splitting it with someone else besides the broker of their agency.

While dual agency can be a good thing for you as a buyer or seller, having one person as the agent on both sides of the transaction can naturally lead to some conflict of interest concerns since they are in charge of the negotiation (apart from the seller themselves) from all angles.

Is dual agency beneficial for buyers or sellers?

While dual agency situations can save you money on commissions, this scenario may not be in the best interest of the buyer or the seller, even if you don’t have to worry about who pays realtor fees or who pays real estate commissions.

There are pros and cons to this kind of arrangement:

Pros

• Possible commission discounts: Since one agent handles both sides, they may agree to an overall lowered commission.
• Streamlined communication: Buyers and sellers work with a single point of contact, which can speed up negotiations and allow the property to close quicker than it would otherwise.
• Simplified process: With only one agent to work with, there may be fewer complications and delays without coordinating between additional parties.

Cons

• Conflict of interest concerns: Since the agent represents both parties, they may not be able to navigate between the needs of each side properly.
• Limited negotiation options: During a typical negotiation, the agent of the buyer and the agent for the seller each have the client’s best interest in mind. However, in this scenario, the agent must remain neutral, which could limit either party from getting a good deal.
• Legal considerations: Some states have banned dual agencies due to ethical concerns.

While dual agency could be beneficial in some situations and even save money regarding who pays realtor fees, buyers and sellers should carefully consider whether they’re comfortable with this kind of transaction based on the potential risk factors.

What do closing costs cover?

Closing costs are another significant expense in a real estate transaction and encapsulate various fees incurred by both the seller and the buyer.

Who pays closing costs in a real estate transaction?

A question that usually closely follows “Who pays realtor fees?” is “Who pays closing costs?” The answer is generally straightforward. Buyers have to pay fees related to their new mortgage and fees associated with the transfer of ownership. Conversely, sellers and buyers split realtor fees and commissions, as well as taxes and fees related to the transfer of title.

Common Closing Costs for Buyers

Buyers are typically responsible for:

• Buyer’s agent commission
• Loan origination fees
• Title insurance
• Escrow fees
• Property taxes and homeowners insurance (prepaid expenses)

Common Closing Costs for Sellers

Sellers are typically responsible for:

• Realtor commission and fees
• Transfer taxes
• Title fees

How to Estimate Realtor Fees and Closing Costs

Who pays realtor fees? Well, now, everyone. Here is a breakdown of how those costs are typically calculated:

How to Determine What Fees You’ll Pay

• Review your agent agreement. Understanding the commission details before committing to an agent gives you power over the process and upfront knowledge about what you’ll be expected to pay.
• Break down costs before making the deal. Request a detailed cost estimate from your agent before making an offer or signing a contract. It should include details about the commission, brokerage fees, and other service fees that may apply.
• Review the full details of the transaction. Analyze the full breakdown of the closing costs as the transaction nears the closing date. Fully understanding the transaction breakdown as early as possible can help you prepare.

Using Online Tools to Estimate Realtor Fees

Several online tools help buyers and sellers estimate their closing costs. After inputting a home price, real estate fee calculators can provide quick insights into potential commission expenses, realtor fees, and other closing costs. With a complete breakdown, you can view an estimate of the entire list of fees, empowering buyers and sellers with knowledge before even chatting with an agent.

While these tools are invaluable, they can only operate with the information provided. Thus, accurately inputting all relevant factors is key to getting a realistic picture of the full fee breakdown.

Additionally, mid-term rental accounting software like TurboTenant can help new property investors account for closing costs and realtor fees once they make the deal. Software like this can even provide you with mid-term lease agreements, allowing you to collect rent online, help with rental advertising, and provide tenant applications and tenant screening when you’re ready for that stage.

Final Tips for Managing Realtor Fees and Closing Costs

As you can see, the question of who pays realtor fees has significantly changed in the last year. But even with the recent settlement, realtor fees and closing costs aren’t going away, so preparing for them as early as possible will help the process move smoothly and reduce the risk of surprises.

• Plan ahead. Buyers should budget for their agent’s commission early in the process.
• Negotiate when possible. Buyers and sellers can discuss commission rates with their agents to attempt to reduce their fees.
• Explore alternatives. FSBO, commission rebates, or flat-fee services could help reduce costs

FAQ: Who Pays Realtor Fees?