Buyer or Seller: Who Pays Real Estate Commissions?
How are real estate commissions set and who is responsible for paying them? We find these are common questions among both buyers and sellers which is why we’re answering them for readers.
Who Pays Real Estate Agent Fees?
Here’s the short answer: In California and Texas, as in most states across the country, the seller is typically responsible for both the selling agent and listing agent commissions. This is negotiable, but these commissions are usually paid at closing, out of the proceeds of the sale.
Real estate agents are typically paid via a commission structure. This means that the buying and selling agents are paid based on a percentage of the sales price of each transaction they are involved in. With that being said, there are some innovative flat-fee real estate services that go against this traditional commission structure.
The commission rates for real estate agents are not set by law. The government does not have a set rate that agents must adhere to; instead, these rates are set by customs and industry norms. In a typical transaction, the standard is a 6% commission, split between the buying and selling agent.
To summarize the question of who pays real estate agent commissions? Usually the sellers.
While there are variations in this structure, it will ultimately be based on the terms in your contract. In a typical transaction, the seller will be covering the agent commission from the proceeds of their sale at closing.
It’s Written Into the Paperwork
As mentioned in the section above, these terms are negotiable. When sellers sign their listing agreement, they will typically agree to their agent’s commission rate. Likewise, buyers will usually sign a similar agreement with their agent, setting their terms with their agent.
Aside from the commission rates themselves, the contract terms can also negotiate who is responsible for paying the commissions. This is negotiated in the purchase agreement (also known as your contract), signed by the buyer and seller.
What Do Buyer and Seller Agents Do for Their Clients?
This section will dive into the most common services provided by real estate professionals in California and Texas. Of course, specific services vary slightly from transaction to transaction and are based on individual agents and clients.
The Listing Agent
The term “listing agent” is used interchangeably with “seller’s agent.” A seller’s agent is the person listing the home for sale and advertising it on the market.
Common services include:
- Establishing a list price and advice based on local market conditions
- Listing the home on public websites and MLS.
- Reviewing and receiving offers from buyers and coaching the sellers in evaluating offers.
- Negotiating terms of the offers with the buyer.
- Attending the home inspection and/or appraisal as a representative of the seller.
- Ensuring that all paperwork is completed for the closing process.
The Buyer’s Agent
More goes into the role of the buyer’s agent than meets the eye! Most know the buyer’s agent as the party that sends buyers potential homes and spends time touring properties with their clients. But that’s not all they do.
Here are some common tasks of a buyers agent:
- Coaching clients on current market conditions.
- Helping the buyer narrow down the type of home, price range, neighborhood, etc.
- Providing buyers with listings to review that meet their criteria.
- Coordinating to tour listings and educating their buyer on the home and surrounding neighborhood.
- Understanding the market conditions and comparable local sales and advising their buyer on offer terms.
- Putting together and presenting an offer to the listing agent and seller.
- Negotiating with the seller and/or listing agent to determine a mutually agreeable sale price.
- Attending the home inspection and (sometimes) the appraisal as a buyer representative.
- Ensuring all deadlines are met, and the loan remains on track for closing.
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