Real Estate Commissions: What Buyers and Sellers Need to Know in 2024
When buying or selling a home, understanding the ins and outs of real estate commissions can be essential for navigating your transaction smoothly. Many people aren’t aware of how commissions work or who actually pays these fees, but they play a pivotal role in compensating the real estate agents who guide you through the buying or selling process.
And with new regulations on real estate commissions following a recent settlement by the National Association of Realtors® (NAR), there are significant updates you need to know.
Who Pays Real Estate Commissions?
Historically, sellers would cover the commissions for both their own agent and the buyer’s agent. However, since August 17, 2024, that’s changed—buyers are now responsible for compensating their agent. That said, sellers can still choose to offer compensation to a buyer’s agent if they wish, which can be a way to incentivize more interest in the property.
Here’s what’s new for sellers:
1. Any compensation offered to a buyer’s agent must be disclosed in writing and approved by you, the seller, before any payment or agreement is made.
2. These compensation offers can no longer be listed on a multiple listing service (MLS). However, you can still list buyer concessions on the MLS, such as contributions toward closing costs.
Negotiating Real Estate Commissions
Commission rates can vary widely and are typically negotiable. There’s no federal or state law setting commission rates, so you and your agent can discuss and agree on a rate that works best for your situation. Some sellers may also consider a transactional agreement—a flat fee where the agent helps set the price, communicates with buyers, and drafts contracts without offering full agent services. This can be a budget-friendly alternative, though it involves a more limited role for the agent.
Dual Agency: One Agent for Both Parties
In some cases, a real estate agent might represent both the buyer and seller in a transaction, a setup known as dual agency. This isn’t legal in all states, but where it’s allowed, the agent must disclose their dual representation to both parties. While this can streamline the process, it can also lead to potential conflicts of interest, as the agent is tasked with balancing the interests of both sides.
Understanding Closing Costs
In addition to agent commissions, there are a variety of closing costs that buyers and sellers need to consider. These cover:
- Loan processing fees
- Title company charges
- Survey costs (if necessary)
- Deed recording fees
- Homeowner's insurance
- Prorated taxes and association fees
Closing costs typically range between 2% and 7% of the home’s purchase price, with an average around 3.5%. Both buyers and sellers can negotiate who pays for these costs, and sometimes buyers can request that sellers cover a portion or roll the closing costs into the mortgage.
Get the Details Up Front
Whether you’re a buyer or a seller, your agent’s commission details should be laid out in the contract you sign with them, known as the listing agreement. This agreement will specify the commission rate and the duration of the agent’s representation, generally lasting between 90 and 120 days.
A few additional considerations:
- Selling a vacant lot often incurs higher commissions due to the increased marketing effort involved.
- Rental agents usually receive their fees from landlords, although this isn’t universal.
- Auctioned properties may include a “premium” commission fee for buyers.
The Bottom Line
Buying or selling a home is often the biggest financial move people make. With new commission regulations and options for negotiation, understanding these fees can help you make informed decisions, avoid last-minute surprises, and ensure you have the right agent to advocate for you. A knowledgeable agent can guide you through the financial details, helping you make the most of your investment and achieve your real estate goals confidently.
