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Who Pays the Real Estate Commission and Closing Costs: The Homebuyer or Seller?

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How much is a real estate agent commission—and who actually pays it? These are common questions among homebuyers and sellers navigating a real estate transaction, and the answers have changed recently.

In most cases, real estate agents are paid through commission fees based on the home’s final sale price. But following new guidelines from the National Association of Realtors®—which took effect on Aug. 17, 2024—new rules are now 9in place for how these commissions are disclosed, negotiated, and paid. The goal: more transparency and flexibility for both buyers and sellers.

Whether you’re planning to list your home or buy one, here’s what to know about real estate agent fees, how much they typically cost, who pays them, and how the process works under the new rules.

Who pays the real estate agent commissions?

Traditionally, home sellers paid the commission for both their own listing agent and the buyer’s agent. However, under the 2024 NAR settlement, that has changed: Buyers are now responsible for compensating their own agent—unless otherwise negotiated.

That said, sellers can still choose to offer compensation to the buyer’s agent. Here’s how it works now:

Your agent must conspicuously disclose to you and obtain your approval for any payment or offer of payment that a listing broker will make to another broker acting for buyers.

This disclosure must be made to you in writing in advance of any payment or agreement to pay another broker acting for buyers, and must specify the amount or rate of such payment.

If you choose to approve an offer of compensation, there are changes to how this can happen.

You as the seller can still make an offer of compensation, but your agent cannot include it on a multiple listing service. An MLS is a local marketplace used by both buyer brokers and listing brokers to share information about properties for sale.

You as the seller can still offer buyer concessions on an MLS (for example, concessions for buyer closing costs).

If you choose to compensate a buyer’s agent

When the sellers set a listing price for the home, they usually take the real estate agent’s commission into account—and consider it the cost of doing business. (Here’s how to find a real estate agent in your area.)

Do you have to pay a real estate agent’s commission?

No—you’re not required to use a real estate agent when buying or selling a home. But going it alone means taking on all the responsibilities yourself.

Real estate agents bring experience in the following:

Pricing and market strategy

Listing and promotion (via the MLS and marketing channels)

Negotiating offers and terms

Managing paperwork and ensuring a smooth closing

Also, keep in mind: Agents are typically paid only when the sale closes, so their incentives are aligned with your success.

Can you negotiate real estate agent commission fees?

Yes. Real estate commission rates are negotiable. There are no federal or state laws that mandate a fixed rate.

While the standard commission is often between 5% and 6% of the sale price (split between buyer’s and seller’s agents), the actual rate depends on the following:

Local market conditions

Agent experience

Scope of services

You can also consider alternative models:

Transactional agreements: Limited service from a licensed agent for a flat fee or reduced commission

Discount brokerages: Online platforms or firms offering reduced rates in exchange for scaled-back service

What is dual agency in real estate?

It’s not a common situation in real estate, but if the agent you’ve hired to represent you also represents the seller of the house you’re buying, it’s called dual agency. Also known as transaction brokers, dual agents represent the interests of both the buyer and the seller.

Some states have made dual agency illegal in a real estate transaction to outright eliminate any question that the agent was neutral in representing the seller and the buyer. But in the states that allow dual agency, agents are required by law to disclose that they’ll be representing both sides to their clients.

Critics who advise against dual agency worry about potential conflicts of interest—the chance that the interests of both the buyer and seller will not be met.

What do closing costs cover?

Closing costs are the additional fees paid at the end of a real estate transaction—separate from the agent commission.

Loan processing and origination fees

Title company charges

Appraisal and survey fees

Recording fees

Homeowners insurance and property taxes (prorated)

HOA dues (if applicable)

The amount of the real estate closing costs will vary with each home sale/purchase and can range widely from 2% to 7% of the home’s purchase price. Typically, though, closing costs amount to about 3.5% of the sale price of a home, according to Leah Layman, a real estate agent in Augusta, GA.

Your agent will provide you with a buyer’s sheet outlining the closing costs. By federal law, you must receive a “good-faith” estimate of your closing costs from any lender you use in your real estate purchase.

Your negotiating skills (or your agent’s) come into play when it comes to who pays the closing costs. There is no cut-and-dried rule about who pays the closing costs—the seller or the buyer—but buyers usually cover the brunt of the costs (3% to 4% of the home’s price) compared with sellers (1% to 3%).

“Most closing costs are negotiable,” Layman says. “Do not let the agents or vendors convince you otherwise.”

Attorney fees, commission rates, recording costs, and messenger fees can all be negotiated down.

Sometimes, the buyer will have written into the contract that the seller will pay the buyer’s closing costs up to a certain percentage or amount.

“That’s why you need a good real estate agent to negotiate a contract for you,” Layman says.

If the closing costs are too steep and the sellers won’t chip in as much as buyers would like, the buyers can request that real estate closing costs be rolled into the mortgage.

How to know what you’ll pay in commissions and fees

All of the details about a real estate agent’s commission should be outlined in the contract that you sign when you hire an agent. This is typically referred to as a listing agreement, and it also specifies how long the agent will represent you. (Generally, listing agreements last 90 to 120 days.)

Also, keep in mind that there are some exceptions. For instance, rental agents work differently from purchase agents. It’s usually the landlord’s job to pay the rental agent’s fee, but that’s not set in stone.

Furthermore, the commission is usually higher when selling a vacant lot, since selling land often takes longer and requires more marketing dollars. Meanwhile, some auctions charge homebuyers a 5% “premium,” or commission.

As a seller, you want a real estate agent who can broker the best sales price and terms for you.

Remember, buying and selling a home might be the biggest financial transaction of your life, which is why you’ll want an expert on your side, even if that comes at an expense. Whether you’re the buyer or the seller, the listing price isn’t the only number you should focus on. Those fees outside the price of the house can add up, and you don’t want to be hit with any surprises late in the game.

To learn more, check out our Guide to Real Estate Commissions, which covers everything homebuyers and sellers need to know.

Allaire Conte contributed to this report.



This article was originally published by a www.realtor.com . Read the Original article here. .

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Maryland real estate agents, homebuyers navigate changes under new rules – Maryland Matters

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For more than a century, when someone wanted to buy a home all they had to do was walk into a real estate office and ask the agent to start showing them properties. That agent was typically paid by the seller if a deal ever went through.

All that changed Saturday.

As part of the settlement of an antitrust lawsuit brought by home sellers, the National Association of Realtors (NAR) agreed that sellers’ agents can no longer include an upfront offer of compensation to the buyer’s agent in order to list a property on the Multiple Listing Service.

As a result, buyers may find themselves having to strike a deal with their agents to pay them for work that used to be covered automatically by the seller, negotiating a price with their agent before even looking at a property.

It’s a change that agents said they have spent months preparing for. But that doesn’t mean they’re crazy about it.

“The buyer and the tenant are the ones at … risk of losing the most, due to the fact that they may not be able to obtain or afford proper representation,” said Gregory Gray, a real estate agent based in Howard County. “It tilts the scale in favor of the seller.”

But the change was defended by NAR President Kevin Sears, who said in a written statement last week that the changes “help to further empower consumers with clarity and choice when buying and selling a home.”

“As the August 17 practice change implementation date approaches, I am confident in our members’ abilities to prepare for and embrace this evolution of our industry,” his statement said.

The lawsuit against NAR claimed that its previous rules were anticompetitive. Under those rules, sellers had to include an offer of compensation for buyers’ agents if they wanted their home to show up in the MLS, the association’s listing of properties for sale.

Under the settlement announced in March, NAR now prohibits such offers in an MLS listing. While buyers and sellers could later negotiate some payment, it’s not set in advance, leaving buyers to pay their agents’ fee.

The shift could be less painful in Maryland, which has required written buyer agreements since 2016, said Maryland Association of Realtors CEO Chuck Kasky. But the new written agreements must disclose the amount or rate of compensation of a buyer agent, Kasky said in a resource video explaining the change.

“Real estate licensees will be required to enter into written agreements with buyers before touring a home. This applies to houses listed on a multiple listing service,” Kasky explained. 

Judith Egbarin, the owner of Blue Ribbon Realty, said that under the new arrangement will hit buyers the hardest. 

“They want the buyers to pay commission to their own agents, so who’s going to lose out the most?” Egbarin asked. She answered her own question by noting that “the buyer now has to come out of pocket even more.”

She said this will add to the fees that the buyer traditionally has to pay, like down payments and closing costs. 

Jennifer Young, from Jennifer Young Realty, agreed with Egbarin. Young said the new settlement would most negatively affect first-time home buyers. 

“I don’t think it’s a good thing. So I think it’s going to hurt buyers who are no-money-down, low-money-down buyers, first-time buyers, grant program buyers,” Young said. “So there’s potentially more cost to have proper representation.” 

But none of the agents felt defeated by the settlement and, in fact, all were looking ahead. Young said her firm had been preparing its agents for months before Saturday’s shift and Gray said that the settlement will leave a competitive landscape for buyers’ agents. 

“It’s going to be very competitive, and they’re going to have to show their value if they want to obtain the commission,” Gray said. “They’re not getting it from the seller or the landlord, they’re going to have to get it from their client, and they’re going to have to be able to negotiate.”

Egbarin said that real estate will just have to adapt and adjust.

“It’s just, we need to get used to it. And we will adjust,” she said. “I’m not frustrated yet, I am very optimistic, I want to see what happens.”

– This story was updated on Monday, Aug. 19, to correct Chuck Kasky’s title in the 10th paragraph and to clarify the effect of the NAR settlement throughout.



This article was originally published by a marylandmatters.org . Read the Original article here. .

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What Is Dual Agency, And Is It Risky? | Bankrate

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Key takeaways

In a dual agency situation, the same real estate agent represents both the buyer and the seller of a home.

This arrangement can be risky for buyers, since agents are paid based on how much the home sells for.

However, dual agency can also be beneficial in helping to simplify a complex transaction and ensuring a smooth and efficient close.

In most real estate transactions, the buyer and seller are each represented by their own separate agents: one buyer’s agent and one listing agent. Each agent protects their individual client’s interests. It’s also possible, however, for both the buyer and seller to work with the same real estate agent in an arrangement called dual agency.

Having only one agent involved in a transaction can simplify the process. But it also presents the risk that the agent may favor one party over the other — specifically the seller, as their commission fee hinges on the final sale price of the house. In fact, in several states, acting as a dual agent is actually illegal. Still, if it’s permitted in your state, it can be worth considering. Here’s what you should know about dual agency, whether you’re a buyer or seller.

What is dual agency, and how does it work?

Typically, when a buyer searches for and purchases a home, they do so with the help of a buyer’s agent — an agent who works specifically for them, helping them find and buy the right property. The seller of a home, meanwhile, works with their own dedicated agent, whose job is specifically to market and sell their home (usually referred to as the listing agent, as they manage the listing). Each agent in the transaction works on behalf of their respective party under a principle known as fiduciary duty, which means each must act in their own client’s best interests. But in a dual agency situation, the same real estate agent represents both the buyer and the seller of the home.

Dual agency often occurs when the buyer and seller of a home use the same brokerage. It can also happen when a buyer approaches the listing agent directly, such as through a for-sale sign or online listing, without being represented by their own buyer’s agent.

Here’s an example: Say you’re a buyer who’s just starting to look at homes, and you are not yet working with an agent. You attend an open house, love it, and chat with the agent hosting it, who is representing the seller. You hit it off with that agent and decide to work directly with them to submit an offer and purchase the home. If that agent agrees, they are now a dual agent, representing both parties in the transaction.

Whether you’re the buyer or the home’s seller, it’s important to understand how you’re being represented. Both parties must formally agree to a dual agency arrangement, notes Than Merrill, a real estate investor and founder of FortuneBuilders. “For an agent to represent both sides in a real estate transaction, they must receive informed consent from the buyer and the seller,” he says. “If either the buyer or seller isn’t comfortable with the idea, they reserve the right to opt out of the deal.”

Risks of dual agency

By its nature, dual agency can present very real conflicts of interest.

A real estate agent’s commission is based on a percentage of how much the home sells for — in other words, the higher the sale price, the more money they earn. So they “are incentivized to bid up the sale price,” Merrill says. “That’s not to say that all dual agents don’t have their customers’ best interests in mind, but rather that the incentives inherently work in favor of sellers.”

It also raises potential ethical questions. “Dual agency in and of itself is not unethical, but there are actions and tactics that could be sneaky,” says Farid Yaghoubtil, an attorney with Downtown LA Law Group in Los Angeles. He notes that “both the buyer and seller may be under the impression that the agent is biased toward or favoring the other party, which can result in suspicion, mistrust and anger.”

Overall though, buyers and sellers can usually count on getting fair, if not full, representation in a dual agency transaction, says Deb Tomaro of Bloomington, Indiana’s Deb Tomaro Real Estate. “For example, if I am the agent in a dual agency arrangement, I cannot make suggestions to a buyer about how much to offer, because that’s not fairly representing the seller,” she says. “If a buyer tells me he wants to see a list of all homes with 2,000 square feet that sold in the past year in the same neighborhood, I can run that report. But I can’t help him interpret it or point out differences. I can only provide the facts.”

Is dual agency illegal?

For these and other reasons, some U.S. states actually prohibit the practice of dual agency. “The fact that it is illegal in several states should be enough to give some parties pause and elicit further consideration,” says Yaghoubtil. Real estate dual agency is illegal in these eight states:

Alaska
Colorado
Florida
Kansas
Maryland
Texas
Vermont
Wyoming

Advantages of dual agency

While dual agency can be inherently problematic, it can also offer advantages — namely, a smoother transaction.

“Since both the seller and buyer are working with the same agent, documents can be prepared and signed more quickly,” says Raj Dosanjh, founder of Rentround, a rental agent-matching platform. “There will be one person who knows everything about the property. This can eliminate excessive back-and-forth questions.”

Another plus? The seller has more leverage to request a reduced commission fee, since there’s only one agent. “You can use the single point of payment to your advantage,” Merrill says. “You may be able to negotiate lower commission fees when the dual agent doesn’t have to split profits with anyone else.” (Read more on this below.)

Who pays commission in dual agency?

In a traditional two-agent transaction, each agent earns a portion of the overall commission. In contrast, a dual agent will receive the entire commission on the transaction, since there’s no second agent to split it with. Thus, the amount can often be open to negotiation. For example, a dual agent may agree to a 5 percent commission instead of 5.5 or 6 percent, or maybe even less, since they do not have to split the fee with anyone else.

As for who pays that commission, buyer or seller, it used to be that the seller paid the commission for both agents out of their sale proceeds. But that is changing thanks to new commission rules going into effect after a federal lawsuit, which are due to kick in this August. Be sure to hammer out the details of who is paying what percentage of a dual agent’s commission beforehand, and have it clearly spelled out in the purchase and sale agreement.

Bottom line

Dual agency is legal in most states and can make for a more convenient transaction, provided you understand the risks. But it isn’t often recommended. “I believe buyers should have their own representation and enlist their own agent before they start looking for homes,” Tomaro says. “Having representation with a Realtor you trust and develop a relationship with will always end better than just calling a random name on a sign and having them represent you.”



This article was originally published by a www.bankrate.com . Read the Original article here. .

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