If you believe you will save a significant amount of money by not using a buyer’s agent in your home-buying transaction, it’s crucial to fully understand agency relationships in your state. Different states have different rules regarding agency relationships, and not all types are allowed everywhere.
Here's a breakdown of how commissions have traditionally been paid, although this may change with the recent NAR settlement. Historically, a seller hires a listing agent, offering them a percentage of the sale price from the proceeds. The listing agent then offers half of that commission to the buyer’s agent who brings in a buyer. For simplicity, we will use X to represent the total commission.
Here's how it typically works:
- The seller offers X to the listing agent.
- The listing agent offers 1/2X to the buyer’s agent, though this 1/2X is often reduced by various fees.
Sometimes, the listing agent offers a discount if the brokerage sells the property in-house (known as dual agency). This discount can be up to 20% of the listing agent’s commission. In such cases, the commission distribution is:
- The listing agent takes 1/2X - 20% for the in-house transaction.
- The buyer’s agent receives 1/2X minus fees.
If the listing agent finds a buyer themselves, the commission structure might be:
- The listing agent earns 1/2X - 20% as the listing agent and 1/2X minus fees as the buyer’s agent.
- Even if you represent yourself, the listing agent still collects the full commission, as the real estate commission (a governmental agency) considers this a dual agency transaction.
For example, if X is 100:
- The listing agent agrees to a 100 commission from the seller.
- The listing agent keeps 50 and gives 50 minus fees to the buyer’s agent at the transaction close.
Alternatively:
- In a dual agency scenario, the listing agent keeps 90 (reflecting a 20% discount on their side of the commission) and pays their own fees. This discount might also apply if another in-house agent represents you, provided you fully understand the real estate relationship.
Be sure to ask for full disclosure of the commission structure before making your offer to ensure you receive the full reduction of the buyer agent's commission, if that is your intention.