Who Pays the buyer’s agent in a real estate transaction?

One of the most common questions I receive from prospective homebuyers, both new and experienced, is “Who pays the buyer's agent?”. Or, “Who pays your fee?”. This is a great question to ask, and I’m pleased when our customers and clients ask this question because there should always be some clarity when it comes to Realtor commissions. So, forget what you’ve heard in the past. Forget what you hear on social media from folks that may or may not know. I’m gonna break it down for you in simple terms right now as it applies in North Carolina at least.

When a homeowner hires a real estate company to sell their home, they agree to pay the listing firm X%, period (I'm using 6% as an example but commissions are flexible and negotiable). This amount includes any compensation paid BY THE FIRM to any other real estate firm in exchange for procuring the buyer (which is you)

(taken from page 3 of the NC Exclusive Right To Sell Listing Agreement:)

When the listing company advertises the home on the multiple listing service (the MLS), it is a requirement that the listing firm offer ‘some’ form of compensation to buyers' agents or whichever agent procures the buyer (often roughly half of their own fee). This fee or percentage is dictated by the listing firm and agreed to by the homeowner via the listing agreement. 

(taken from page 4 of the NC Exclusive Right To Sell Listing Agreement:)

Here are a few hypothetical examples (and please note that all commissions are negotiable. There is no set commission in the real estate industry):

• The homeowner and listing firm agree to 6% with the listing firm offering 3% to any agent bringing the buyer. (Listing firm keeps 3%, buyer agent’s firm receives 3%.)
• The homeowner and listing firm agree to a 5% commission with the listing firm offering 2.5% to any agent bringing the buyer. (Listing firm keeps 2.5%, buyer agent’s firm receives 2.5%.)
• The homeowner and listing firm agree to a 4% commission with the listing firm offering 2.225% to any agent bringing the buyer. (Listing firm keeps 1.775%, buyer agent’s firm receives 2.225%.)

Here’s the important part:

When you sign a buyer’s agency agreement with your buyer's agent, you are, in a nutshell, agreeing to make sure that your agent’s firm gets paid an agreed-upon amount. The Buyer Agency Agreement will clearly state that the buyer's agent will seek compensation from the listing firm first. But, if the listing firm on a property you want to purchase is offering less compensation than is agreed to on the buyer agency agreement you signed, then the buyer (you) ‘may’ need to pay the difference. 

(taken from page 1 of NC Exclusive Buyer Agency Agreement:)

So, let’s say that you have agreed that your buyer's agent’s firm will receive 3% in exchange for representing you. But, you end up purchasing a home for which the listing firm was only offering 2.5% to buyers' agents. Since you’ve agreed to make sure that your buyer's agent’s company receives 3% but the listing firm was only agreeing to offer 2.5%, you ‘may’ be required to compensate your agent's firm for the remaining .5% out of your own pocket. It could be that your agent opts to waive this remaining difference. It could be that they negotiate with the listing firm for a higher commission prior to making the actual Offer to Purchase (with your consent). It could be that all parties agree to build that difference into the sales price. Either way, make sure you discuss this with your agent up front and go over the ‘what ifs’.

So, going back to the original question “Who pays the buyer’s agent?”, it’s typically the listing firm UNLESS what they’re offering is a smaller amount than the buyer’s agent has agreed to with the buyer-client in exchange for their services/representation. 

I hope this clears up a few things for you. We could certainly go much, much deeper but for now, I really just wanted to give you the gist of how buyer agent commissions typically work and how they’re paid. Regardless, trust me when I tell you that a great buyer’s agent can be worth well beyond what they actually earn. They can impact what you actually end up paying for the home, whether or not a seller accepts your offer over others, whether or not you get past any difficult obstacles along the way (such as major inspection issues), and on and on.