Let's Talk About Compensation

Buyers and sellers should know when, how, and what their agent is paid, so let’s get into the weeds on agent compensation.

Compensation varies.

There is no set, custom, or standard fee for real estate services. Each agent sets their own fee structure and creates their own service list, and service fees are negotiable. However, agents may or may not be willing or able to negotiate their individual fees or services. When considering their fees, an agent takes into account the services offered, overhead and expenses, and the time involved in moving a client through the entire process, from prep to closed.

When are agents paid?

Real estate agents are most commonly paid at the close of a sale. A great agent doesn’t use that fact to push clients into a sale. A great agent will, however, be judicious with their time and commitments and careful with their client load. They may require clients to work with them in an exclusive listing or exclusive buyer brokerage service agreement.

How are agents paid?

Wether they are paid directly by the buyer or seller or they are taken out of the proceeds of a sale, the funds used to pay agents are handled by the escrow company. The escrow company or attorney sends each brokerage the negotiated fee, and each brokerage pays the agent from their office that represented either the buyer or seller after subtracting any brokerage or insurance fees.

If the real estate brokerage fees are paid out of the proceeds of the sale, they are listed as a fee on the seller’s settlement statement. The seller is the party receiving the proceeds from the sale, so brokerage fees are subtracted from the seller’s proceeds.

Does this mean that the seller pays the fees for both real estate agents and the buyer pays nothing?

No, but it’s an easy mixup that a lack of transparency feeds. Fees for both agents are typically negotiated by the seller and their agent in the listing agreement and included in the purchase price of the house. The buyer brings the money that pays the full purchase price, the buyer funds the proceeds and shares the expense of paying the agent fees.

A buyer’s agent does not work for free, and their services are not free to the buyer. The buyer is simply paying for their services as a part of the purchase price of the property instead of paying the fee separately. Doing so helps to increase the buyer’s purchasing power and decrease the amount of cash that they need to pay out of pocket.

The Northwest MLS does a fantastic job of sharing information by publishing the amount of the Buyer Broker compensation included in the purchase price of the home. That provides all buyers the opportunity to review the Buyer Broker compensation included in the purchase price to ensure that it covers the minimum fee that their agent charges OR provide notice that their agent’s full fee is not included in the purchase price. That transparency helps buyers plan and budget.

Are sellers required to include buyer agent compensation in the purchase price?

No, sellers are not required to include buyer agent compensation in the purchase price, but leaving it out may limit the pool of potential buyers. Buyers needing to save cash for a down payment, closing costs, the home inspection, the appraisal, and their agent’s fee will see a reduction in their purchasing power, and that will translate into fewer buyers for some properties.

Buyers using a VA loan are not permitted to pay their agent’s fee out of pocket. The VA requires buyer agent fees to be included in the purchase price of the home, so insisting that buyers pay their agents fee out of pocket may have an impact on the number of buyers willing and able to purchase a property.

Can a buyer negotiate to include their agent’s compensation in the purchase price?

Yes, if the agent’s minimum fee is not already included in the purchase price of a property, the buyer and their agent can negotiate to include it. However, in the current market, doing so may be challenging, and buyers may be put off or discouraged by the need to negotiate for agent fees.

You get what you pay for. There are options for everyone.

With any professional service, the level of service, professionalism, and quality often relates closely to the fee charged. I’m not recommending that folks hire the priciest professionals available, but I am encouraging all buyers and sellers to research the services offered by each of the agents that they interview and have a conversation about compensation. Everyone should know what they’re paying and what that fee covers and provides for them. There are options and price ranges for everyone.

Talking about money can be uncomfortable, but it shouldn’t be avoided or questions deflected. And, while I’m at it, read up on The Agent Interview and, for the love, interview agents prior to hiring one.