The real estate industry is one of the most popular in the country. With so many transactions completed each day, it is no surprise that all the money being transferred entices many folks. But have you ever wondered exactly who's paying agent fees? Read on.
Buyers
Generally, homebuyers are not paying agents directly. The agent that represents them in a real estate transaction takes a commission from the final sale price. Buyers' down or principal payments for property are the funds from which all parties involved (both buy and sell sides) are compensated. There may be rare situations in which a buyer may pay their agent a flat finders fee, but this is unusual; why pay for something that you usually don't have to?
Ultimately, a property's listing terms stipulating the details of the transaction; think of it as a "paying agent agreement." It sets how much a buyer's agent will gross if their client purchases the property.
Sellers
Homesellers are almost always are responsible for paying agents. Usually, both their own agent and the buyer's agent take a commission out of the final sale price being paid to the seller.
Technically, an escrow company accepts payments from buyers then handles disbursing agent payments. So neither buyer nor seller pay agent fees directly. But this money would otherwise eventually end up in the seller's pocket.
In some circumstances, a seller may negotiate so they only pay agent fees up front, for a predetermined amount regardless of the final sale price. This is more common for ultra luxury real estate where the price will be so vast, agents are happy to provide related services for advance money without being contingent on the price. Also, institutional entities (REITs, private equity firms, and investment banks) that have entered the residential real estate market often try to maximize their proceeds by negotating down paying agent fees in full.
Landlords
Landlords may pay real estate agents to find them tenants. Similar to a property sale, in a property lease the owners pays a commission to their own agent and any agent representing the tenant. This money usually comes out of the principal amount paid for the first period (usually month) of the lease.
Renters
It is not common for renters to pay a realtor to help them find a rental property. In most cases, the landlord or property management company will pay the realtor's fee for finding a tenant. This is because the landlord or property management company is the one who will be entering into a rental agreement with the tenant, and they are the ones who will benefit from the services of the realtor.
However, there may be some situations in which a renter might choose to pay a realtor to help them find a rental property. For example, if the renter is having extreme difficulty finding a property on their own, they may decide to hire a realtor to assist them. In this case, the renter would be responsible for paying the realtor's fee.
DISCLAIMER: At TrueParity, we do NOT recommend this idea. We don't believe in making buyers, sellers, or renters pay up front for help. Top agents who perform their duty ought to receive compensation once a transaction has been successfully completed and all parties are satisfied.
Final Thoughts
Usually homesellers and landlords are the ones paying agent commissions. Buyers and renters may pay agents in certain scenarios, but it is extremely uncommon.
One additional wrinkle is that very junior agents who join a larger team or assist an established broker may receive a salary. The reason behind this is that newcomers don't have any existing clients and need a stipend to cover their cost of living expenses as they begin their careers. However, potential agents beware! While the high home values of the major metros may entice you to practice your craft there, it can be a difficult environment to gain traction. There is no federal salary council setting locality pay areas; in the private sector you'll be saving much less money at the outset of your real estate career.
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