As of August 17, 2024, the way a buyer’s agent is compensated in real estate transactions has changed. This evolution comes in response to legal settlements and efforts to increase transparency in the real estate industry. These changes open up new possibilities and strategies for negotiation allowing more customization and transparency for both buyers, sellers, and real estate professionals.
Here are the three primary ways a buyer’s agent can be compensated in 2024:
1. Seller Payment (as Negotiated)
Traditionally, the seller has been the party responsible for paying both the listing agent and the buyer’s agent. This model has not disappeared, but now, transparency and negotiation play a bigger role.
Under this approach, the seller may still offer to pay a portion or ALL of the buyer agent’s compensation as part of a successful transaction.
Benefits:
- Buyers don’t have to come out of pocket for agent fees.
- Sellers may use this as an incentive to attract more buyers.
- The process is more transparent, giving both parties room to negotiate fair compensation.
Considerations:
- If the seller is not offering to pay the full buyer’s agent fee, the buyer may need to cover the remainder.
- Buyers will need to review the seller’s offer carefully to ensure they understand the terms of the contract as well as how agent compensation is structured.
2. Direct Buyer Payment
One of the most straightforward ways for a buyer’s agent to be compensated is through direct payment from the buyer. This method works similarly to how you would hire and pay any other professional, like an attorney or a contractor.
With this model, the buyer pays their agent directly, either through a flat fee or a percentage of the transaction amount.
Benefits:
- Full transparency—buyers know exactly what they are paying their agent for.
- Buyers may have more control and customization of the scope of services provided by their agent.
Considerations:
- Additional Costs: Buyers must plan for the agent’s fee as an extra expense, in addition to other major costs like the down payment, closing costs, and any inspections or appraisals. This can add financial pressure, particularly for first-time buyers.
- Potential Impact on Affordability: Since the buyer is directly responsible for paying the agent, this may affect the overall affordability of the home.
- Negotiating Power: In a competitive market, offering to directly pay the agent may strengthen the buyer’s negotiating position, but it also means buyers need to be mindful of how this influences their overall budget.
3. Seller Concessions
Seller concessions are another option that can indirectly help cover a buyer’s agent fees or other closing costs. In this arrangement, the seller agrees to pay a portion of the buyer’s closing costs, which can include fees like appraisals, inspections, or even a portion of the agent’s commission. These concessions are often negotiated during the offer process.
Benefits:
- Reduces the buyer’s out-of-pocket expenses at closing.
- Allows buyers to allocate more funds toward their down payment or other costs.
Considerations:
- Negotiation Dependent: Sellers may be less willing to offer concessions in a competitive market, particularly if they have multiple offers.
- Limits on Concessions: There are often limits to how much a seller can contribute based on loan type or local regulations. Buyers should ensure they understand these limits to avoid complications during financing.
- Higher Purchase Price: While seller concessions can help with closing costs, they may lead to a higher final purchase price if the seller increases the price to offset the concessions.
Navigating the New Landscape
These changes to buyer’s agent compensation reflect broader trends toward transparency and flexibility in the real estate industry. Whether the seller is paying the commission, the buyer is covering it directly, or concessions are involved, today’s market gives both parties more options to structure deals in a way that works for them.
Understanding these compensation methods helps buyers better navigate the home-buying process, empowering them to make informed decisions when choosing an agent and negotiating terms.
Sources:
- National Association of Realtors (NAR), Changes to Real Estate Agent Compensation Structures (2024).
- Department of Justice Settlement with NAR, Real Estate Transparency and Buyer-Seller Negotiations (2023).
- Real Estate Professionals’ Association, Trends in Buyer Agent Compensation Models (2024).