In order to understand exactly who pays commission on real estate- be it the buyer, the seller, or both- we must first take a look at how the agents are paid, and how cooperating commissions are shared. If you don't know how the commission structure works, don't worry, because a lot of people do not. Here is a brief explanation of how real estate commissions work.
-The real estate agent works for a brokerage house
-All fees paid to the agent go through the broker first
-Only the broker can pay out a commission and sign a seller's listing agreement
Now that you know how commissions work, you may be wondering how the real estate agent gets their share. The division can vary- newer agents can get as little as 30% of the total received by the broker, and from that amount, other fees such as sign rental, advertising and office expenses are often deducted. The highest-producing agents can get up to 100% of the commission, paying only the broker's desk fee. Most agents fall in between.
Most listing agreements between agents and sellers give the agent's broker the exclusive right to market the property. In exchange for providing the buyer, the seller agrees to pay a percentage to the broker. Usually, the fee is a percentage of the sale price, and is shared between the broker who finds the buyer and the broker who lists the property. The division of fees is not always fair- for instance, a seller could sign an agreement for 10% with the condition that the listing broker will get 7% and the selling broker will get 3%. It's a buyer's market, and sellers may want to think about asking their broker to give more to the buyer's broker.
In a buyer's broker agreement, the brokerage and agent are the buyer's representatives. The broker's fee is usually paid by the seller, but some agreements contain sections that promise compensation for the broker if the listing commission is less than the standard operating fee. The seller is not obligated to compensate the broker for more than the listing portion of the commission, and in most cases, sale prices are lowered to reflect the amount paid by the buyer. A seller can also choose to credit the buyer for the commission amount, with the buyer in turn crediting the broker.
In practice, the buyer is the one that ends up paying the commission, because it is typically included in the sale price. If the seller of the property did not sign an agreement to pay a specific commission, the sale price may be lowered. That is part of the appeal of buying a home from an unrepresented seller- the sale price comes without an included commission.