Do Buyers Pay for a Real Estate Agent?

August 10, 2021
TL/DR - Yes. You may have heard from others that "buyers don't pay real estate agent fees." This is misleading and real estate agents are no longer allowed make this statement under a recent settlement between the National Association of Realtors (NAR) and the Department of Justice. In reality, because you're financing the entire price of the home, you're also financing the real estate agent fees. If you represent yourself in a purchase, you should be able to negotiate ~3% reduction in the price of the home and the seller would end up with the same cash as a represented buyer making a full priced offer.

How are real estate agents paid?

When a seller signs a listing agreement with a brokerage to sell their house, they agree to a commission rate with the listing agent. Historically, this is 6% of the purchase price of the home. This commission rate is often split evenly between the seller’s agent (3%) and the buyer’s agent (3%).

So, the seller negotiates the commission for the buyer's agent?

Yes.  Even though the seller has never met the buyer (or buyer's agent), they already agreed how much to pay the buyer's agent. In reality, the buyer's agent could be terrible, and they would still get the 3% commission.

Is this typical for other developed countries?

No. In certain countries buyers aren't even represented by an agent at all. In others, the buyer negotiates the agent commissions on their own. This has resulted in a massive reduction in buyer agent commissions outside of the US. The US now has 2-3X the buyer agent commissions/fees as other developed countries. It can be argued that due to the seller being responsible for setting the buyer agent commissions, the buyer agent commissions are artificially inflated and will never change.

Who pays the real estate agent's commission?

There is often a misconception that the seller pays the full 6% commission and that hiring a buying agent is free. However, it can be argued that the buyer commission of 3% is part of the selling price of the home, which should be lower if a homebuyer doesn't have an agent representing them. It can be a great strategy to represent yourself (if you're experienced) and make an offer 3%+ less than the purchase price. However, many listing agreements have a clause for unrepresented buyers, where the listing agent will end up pocketing the full 6% rather than have the buyer or seller save on commissions. Since the listing agreement is a contract between the listing agent and the seller, you aren't privy to it and can't negotiate the reduction or removal of a buyer agent fee. It's terrible, we know.

What about discount real estate agents?

Discount real estate agents are legal in 41 states. These brokerages will go ahead and charge a smaller percentage commission and then refund you back any excess commission collected. However, it's important to look at the fine print here. Most of these discount brokerages are focused on providing a discount to the seller and not the buyer. Homie only provides a discount of $2500 for the buyer. Redfin will only refund you on the buy side if you sell your existing house with them.

What is Homsby's view of buyer agent commissions?

At the end of the day, a buyers agent shouldn't pay compensated on a commission based structure. After all, the process to purchase a $100k home is the same as purchasing a $1M home. So, why do you end up paying 10X more commission for the $1M property? It makes no sense, but no one is willing to change it because the business models of the existing brokerages structurally don't support change or efficiency. Collecting less commission could have detrimental impacts to existing revenue streams for these brokerages. This is why we've built Homsby from the ground up, to better support innovation and drive efficiency for future homebuyers.

How does Homsby's flat rate work with the existing commission based structure?

Because of the current paradigm, Homsby will collect the full buyer agent commission as agreed upon in the listing agreement. However, we will subtract our flat fee from the collected commission and send you a refund check for the remaining balance after close. This ends up putting thousands more in your pocket than any other brokerage out there. It also forces us to be as efficient as possible in the transaction and provide a seamless and modern experience for the homebuyer.