Does the Buyer Owe Sales Commissions to a Realtor?
Real estate agents make money by helping people buy or sell homes and property. They must pass a state-issued exam to become licensed, and they might work independently or work as part of a real estate firm. Most agents are not paid a salary; they make money based on how many home sales they are a part of. They provide advice to buyers and sellers about the entire home sale process, from listings to showings to price negotiations. It is not necessary to use a real estate agent to buy or sell a home, but if you do, generally agents make money through commissions from both the buyer and seller, though this is not always the case.
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Typical Process
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Typically, when a home is sold, the buyer pays a commission to the real estate agent that helped him buy a house, and the seller pays a commission to the agent that helped him sell the house. This commission is paid when the house is officially sold, called the "closing." Real estate agents then must share part of that commission with the agency they work for, unless they work independently. In that case, they usually get to keep the entire commission.
Commission Amount
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The commission amount real estate agents are paid varies. According to Martha's Vineyard Real Estate, commission amounts for agents can be a flat fee or a percentage of the home sale price. Flat fees start at around $600, as of 2011, and can reach tens of thousands of dollars in high-end real estate markets. Percentages can reach as high as 7 percent of the sale price, or sometimes more for rural property. Thus, real estate agents are motivated to sell a house for as much as possible, especially if they are paid a percentage; the higher the sale price, the higher their commission. Buyers pay similar commission rates to their agents. If a real estate agent represents both the buyer and seller, that agent typically gets commission from both parties.
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Exceptions
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There are exceptions to the commission payment breakdown on a home sale. Some buyers can negotiate a deal with the seller for the seller to pay the real estate agent fees as part of the home sale agreement. On the other hand, some people might argue that the buyer always pays the agent commission because a savvy seller will include the commission amount in the sale price of the home, so even if the buyer technically pays no commission, the seller has already added the commission cost into the sale price so he doesn't have to spend extra money on it. A lot of this depends on the current market. In a seller's market, the seller can charge a higher price and remain firm since demand is up. In a buyer's market, the seller might have to be more flexible and accept a lower offer, and thus, spend more of his own money on agent commission costs.
Other Costs
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There are a number of other costs and fees associated with a home sale besides real estate agent commission. Closing costs also include fees to the title company, lender fees, title insurance, government fees and escrow and interest charges. Closing costs usually cost 3 to 5 percent of the loan amount, so the higher the down payment, the lower the closing costs. Usually, buyers and sellers each pay part of the closing costs, but these can also be negotiated in the home sale price. A motivated seller might offer to cover all closing costs as an incentive for a buyer to accept an offer and buy the home. Typical costs for a buyer include home inspection, transfer taxes, homeowners' insurance, attorney fees (if necessary), mortgage fees and title fees.
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References
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