Commissions - Do Sellers or Buyers Pay? It Depends.

Whether you are Selling or Buying, if you agree to work with an agent by signing a listing agreement or a Buyer’s Broker agreement, you have agreed to pay a commission.

What?  But aren’t the Sellers suppose to pay the commission?

Usually.  This is how it works.

When a Seller lists their home for sale with a brokerage firm, they have agreed to pay that brokerage firm a commission.  That commission can either be a set dollar amount or a percentage of the final sales price.  The Seller’s agent, when the property is listed in the multiple listing service, agrees to split the agreed upon commission with any other brokerage firm that brings a contract to purchase and the Seller accepts.

If the listing agent or another agent working for the listing brokerage brings a Buyer, the listing firm receives the entire commission.  That commission is then divided between the listing agent, selling agent, listing brokerage and if there is a separate selling brokerage, the selling brokerage receives part of the commission.

Let me clarify:

Sellers list their home for $300,000 with Brokerage A for a commission of 6% totaling $18,000

Agent from Brokerage B brings an acceptable contract for the sale of the property.
Sellers pay, at settlement, to Brokerage A the commission of $9,000.

At settlement, Brokerage B, if the agreement was 3% to the selling brokerage also receive $9,000
The listing agent receives a percentage of the $9,000 from their brokerage.  The percentage is determined by an agreement between the listing agent and their brokerage.
The selling agent receives a percentage of the $9,000 from their brokerage.  The percentage is determined by an agreement between the selling agent and their brokerage.
None of the brokerage firms deduct taxes from the agent’s commission, so, if the agent is smart they will set aside 33% of that commission to pay taxes at the end of the year.  Some agents pay quarterly income taxes.

Now, let’s talk about the Buyers.

When a Buyer signs a Buyer Broker Agreement they too agree to pay their agent a commission, either a set amount or a percentage of the sales price.  The agreement states that if the Buyer’s agent receives compensation from the Listing brokerage, that compensation will offset the amount of commission the Buyer must pay.

Let me clarify:

Sellers list their home for $300,000 with Brokerage A for a commission of 6% totaling $18,000

The Listing Brokerage agrees to pay the Selling Brokerage 3% commission or half of the $18,000

The Buyer Brokerage agreement states the Buyer’s will pay the Selling Brokerage 3% of the sales price.
In this scenario the Buyer does not owe anything to the Selling Brokerage.

But let’s say the Listing Brokerage agrees to only pay the Selling Brokerage 2.5% commission.

By signing the Brokerage Agreement and agreeing to pay the Brokerage firm 3%, the brokerage firm could require that you pay the difference which would be .5% or $1,500.

Most firms don’t normally pursue their clients for the difference but, they could be in their legal right to do so.

Now, let's address "For Sale By Owners" (FSBOs)
Some will agree to work with real estate agents, some won't.  If you are working with an agent you need to discuss who will pay the commission if you decide to purchase a "For Sale By Owner".  Usually, before the agent shows a FSBO they will approach the Seller and come to an agreement prior to the showing.  That agreement will be in writing...or at least should be.