Who Pays the Real Estate Agent?

who pays real estate agent

As you gather together your financial information and apply for a mortgage, you might be curious about who is paying the real estate commission. Because you’re borrowing the money, you might wonder: Is it me?

How Is the Real Estate Agent Paid?

Despite the fact that you’re applying for the home loan, the seller is the one who pays both real estate agents. The seller’s agent will earn 5% to 6% of the house price as a commission, and the seller’s agent then pays the buyer’s agent half of that percentage for bringing the buyer to the table. 

6% of the house price might seem like a lot, but remember: real estate agents don’t earn a salary and their earnings are entirely commission-based. Don’t forget that buyer’s and seller’s agents also have to pay their brokerage fees, marketing costs, and other business expenses, so they will end up pocketing much less than the actual 6%.

Of course, if the seller has negotiated a lower commission rate, the real estate agents might be splitting an even smaller commission. As the buyer, you’ll be able to see the commission split detailed in the contract. 

Even if a seller goes the For Sale By Owner (FSBO) route to avoid paying a seller’s agent commission, they’ll still have to pay at least 3% to the buyer’s agent.

What Services Does the Seller Receive?

In return for a commission, the seller’s agent will:

  • Help stage the home
  • Take professional pictures
  • Market the home through various channels
  • Post to the MLS (Multiple Listing Service)
  • Conduct a Comparative Market Analysis (CMA)
  • Schedule viewings and open houses
  • Keep the loan process on track
  • Arrange the appraisal
  • Prepare closing documents

As a buyer, you’ll also receive services from your agent. However, in the real estate world, your agent’s services are considered a service to the seller’s agent. That’s why the seller’s agent pays your agent a portion of their commission. 

Who Pays the Other Real Estate Expenses?

Beyond the Realtors®’ or agents’ commissions, there are other real estate expenses that you should be aware of. Some of these will be paid by you (the buyer), while others are negotiable.

House Appraisal- Your real estate agent will order the appraisal, but typically you will cover its cost. You can typically include the cost of the appraisal in your closing costs.

Home Inspection- You’ll pay for and receive a detailed inspection report that lets you know everything that’s wrong with the house. This cost also can be rolled into your closing costs.

Closing Costs- This amount includes transfer taxes, escrow expenses, homeowners association (HOA) fees (if applicable), and notary fees. You might pay for these, or you can negotiate for the seller to cover them.

Homeowners Insurance- To protect your new property, you’ll need to pay for a homeowners insurance policy at closing. 

You Can Negotiate Anything in Real Estate

No, really, you can negotiate anything in real estate

If negotiating makes you incredibly uncomfortable, you can break the ice with some of these opening offers:

  • “Would the seller consider leaving all of the appliances?”
  • “Since the seller is interested in an expedited closing date, would they be willing to cover my closing costs?”
  • “Because the HVAC system is on its last legs, would the seller purchase a home warranty as a guarantee?”
  • “The inspection report uncovered a lot of unexpected house repairs. Could the seller fix the three most urgent repairs?”

Even though the seller is already paying the real estate agents, they may still be willing to negotiate with the seller. If it’s a buyer’s market and the seller is very motivated, they may be happy to negotiate because another buyer might not come along. However, you may find that a seller is more reluctant to negotiate if they already have numerous offers over the asking price and if they’re in no hurry to sell.

And as with any negotiation, the other party can always say no, but they can’t say yes if you never ask in the first place.

The Bottom Line

Your real estate agent works for you, even if they are paid by the seller. As you choose an agent, find one who’s compatible with you. Ask them about their experience, their area of expertise, and their recommendations for your favorite neighborhoods. Best of all, find a real estate agent who can help you negotiate confidently with the seller.

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