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Who really pays the real estate commission?

In almost all cases, the real estate commissions for the buyer’s and seller’s agents are listed on the seller’s closing statement; commissions typically do not appear on the buyer’s closing statement; so the common belief is that the seller pays.

As an exclusive buyer’s agent, I have a different perspective, I contend that the commission is built into the price, so the buyer actually pays the commissions indirectly.

In the early to mid-1900s, the process, customs, rules and laws relating to how real estate agents cooperated in the sale of real estate and how commissions were shared were developed. The process involved a broker negotiating the terms of an agreement to sell a person’s real estate including the total commission; the seller’s agent would then decide what a cooperating broker representing a buyer would be paid. By accepting the commission offered by the seller’s agent, the buyer’s broker became a sub-agent of the seller and buyers were not represented until the mid-1970s.

Because of increasing public awareness of the inequity of the traditional arrangement, the states one by one passed legislation that allowed buyers to be fully represented in certain instances by eliminating automatic sub-agency. However, the custom of the seller and the broker negotiating the total commission and the seller’s broker determining what the buyer’s broker should be paid continues to this day.

Most homes have a customary commission built-into the selling price; even though it’s illegal for commission percentages to be set by brokerages or individual brokers. If the seller decides that a lower commission will be paid to the buyer’s agent, the seller is essentially putting the buyer’s money in their pocket in my view, unless the price is reduced by the unpaid amount; I’ve never seen this happen. A fair arrangement would be for the buyer and seller to negotiate an acceptable commission with their individual brokers, with both included in the price of the home, but old customs and traditions die slowly.

A competent buyer’s agent will make sure that you are getting the lowest price, maximum concessions and that the commission you and your broker determine is fair and equitable is paid at closing from the proceeds of the transaction.

It’s possible for buyers to be represented regardless of the home they decide to buy, but it’s not automatic. If you decide to work with the broker who has a home listed for sale, you will not be represented. Some agents do not provide buyer representation; they always act in a neutral capacity. If you choose to work with an exclusive buyer’s agent, you will have the peace of mind that you will have 100% representation and your agent will never have a conflict of interest with the seller of the home. Prudent buyers interview more than one agent before making a commitment.

Steve Setka is an exclusive buyer’s agent with Keller Williams Realty in Durango and a licensed mortgage originator. He can be reached at 903-7782 or Steve@DurangoRE.net.