Introduction

One of the most common questions home buyers and sellers ask is: "How do real estate agents get paid?" The process can seem unclear, especially for buyers who don’t see a direct charge for their agent’s services.

Understanding the commission structure upfront helps set expectations and ensures buyers and sellers can make informed decisions. This guide will break down exactly how commissions work, who pays them, and why using a Realtor makes sense for both buyers and sellers.

1. Who Pays the Real Estate Commission?

In a typical real estate transaction, the seller is responsible for paying the commission. Here’s how it works:

• When a seller lists their home with a real estate agent, they sign an agreement to pay a commission to the listing brokerage upon the successful sale of the property.

• The listing brokerage offers a portion of that commission to any buyer’s brokerage that brings a qualified buyer.

• This means the buyer does not directly pay their agent’s commission—it is paid by the listing brokerage from the commission they’ve charged the seller.

2. Is the Commission Part of the Home Price?

This is a common point of confusion. The real estate commission is technically not part of the purchase price because it is paid by the seller from their proceeds after the sale. However, it often seems like one transaction because the lawyer handles all financial transfers at the same time. Rather than the seller receiving the full amount and then paying the brokerage separately, the commission is deducted directly at closing.

• Since the commission is paid by the seller and not the buyer, it is not included in the purchase price. This allows lenders to base mortgage approvals solely on the property’s price, meaning the buyer’s mortgage does not cover real estate commission costs.

• If commissions were included on the buyer’s side of the transaction, lenders would not finance them, requiring buyers to cover the cost in cash upfront.

• This structure reduces the upfront costs for the buyer, who only needs to cover the down payment and closing costs.

• In a way, the commission is "built into" the home price, but it does not increase the amount of cash the buyer needs to bring to the table.

3. The Commission Flow: How the Money Moves

To better understand the process, let’s break down the flow of money:

• The buyer pays the seller the agreed-upon purchase price, and all of that money is for the property itself—not for commissions.

• At closing, two separate transactions occur simultaneously: the buyer pays the seller for the property, and the seller pays the listing brokerage the agreed-upon commission. Rather than the seller receiving the full amount and paying the brokerage separately later, the lawyer deducts the commission from the sale proceeds before transferring the remaining funds to the seller.

• The lawyer transfers the commission to the listing brokerage.

• The listing brokerage then pays the buyer’s brokerage the portion of the commission agreed upon in the listing contract.

• Each brokerage takes its share and then distributes the remainder to the respective agents involved.

This structured process ensures that real estate professionals are compensated for their services while lowering the amount of upfront cash a buyer needs to complete the purchase.

4. Is It Fair That the Seller Pays All the Commissions?

Some sellers may feel it’s unfair that they are responsible for paying both their agent and the buyer’s agent. However, this structure benefits both parties and makes the transaction smoother:

For Sellers

• Offering a commission to buyer’s agents incentivizes them to bring qualified buyers, increasing the likelihood of a successful sale. This is one of the key reasons MLS-listed properties receive significantly more showings and generate far greater interest compared to private sales.

• By reducing the amount of upfront cash needed for a buyer to purchase the home, you are increasing the size of the pool of buyers, which ultimately increases the home price.

• Every seller was once a buyer. When they purchased their home, they did not have to pay a commission. Now that they are selling, they are, in a way, paying forward the benefit they received when they bought their home.

For Buyers

• Having commission factored into the sale means buyers don’t need to pay for professional representation out of pocket, making homeownership more accessible.

For Both Parties

• This structure ensures a well-supported transaction, reducing risks and helping both sides navigate negotiations, paperwork, and legal considerations.

5. What Happens If You Don’t Use a Buyer’s Agent?

Some buyers wonder if they can save money by purchasing a home without using their own agent. The reality is:

• The total commission amount is typically already set in the listing agreement between the seller and their agent.

• If a buyer does not use an agent, the listing agent typically keeps the full commission rather than the buyer getting a discount. This is because the total commission is determined in the listing agreement between the seller and their agent. Since the seller has already agreed to pay a set percentage upon sale, the absence of a buyer's agent does not alter the agreed-upon commission structure.

• This means the seller does not pay less, and the buyer does not receive any price reduction.

• Without a buyer’s agent, the buyer has no professional representation, which can put them at a disadvantage in negotiations, contract terms, and due diligence.

Since buyers don’t pay their agent’s commission out of pocket, using a Realtor provides significant advantages at no extra cost.

Conclusion

Real estate commissions are structured in a way that ensures agents are compensated while making transactions smoother for buyers and sellers. The seller pays the commission from the proceeds of the sale, the listing brokerage distributes a portion to the buyer’s brokerage, and the agents receive their share from their respective brokerages.

For buyers, this means professional representation without additional cost. For sellers, it means having skilled professionals working to sell their home and secure the best possible outcome.

If you’re thinking about buying or selling a home and have questions about commissions or the real estate process, reach out to a trusted Realtor who can guide you through every step.