Who pays Realtor commissions and closing costs?
Paying closing costs and commissions
- Realtor commissions are based on the sale price of the home.
- Both the seller's and buyer's agents are generally paid out of funds disbursed to the seller.
- Buyers can contract with a buyer's agent to have an advocate at the closing table.
- Buyers may need extra funds at the closing table to pay closing costs.
- All closing costs should be detailed in a Closing Disclosure the buyer receives from the lender.
Many first-time homebuyers and even first-time home sellers wonder who is responsible for paying the real estate agents' commissions and the loan's closing costs. The basic answer to this question is: the seller pays the commissions and the buyer pays the closing costs.
Although it is the buyer who brings money to the closing table, normally through finding a lender and securing a mortgage, the real estate agents are paid out of the funds disbursed to the seller. So, buyers pay the closing costs required to complete the transaction, but sellers pay the real estate agents.
Agent commissions typically are taken out of the funds paid to the seller, which is based on the sale price of the house. So, the seller pays both agents. In general, sellers sign a contract with a listing agent to list the house. This contract specifies the fee that will be paid to the listing agent's real estate broker, and the fee is typically 6 percent of the selling price. This broker then pays the listing agent and the selling agent from this fee.
The real estate agent fees come out of the settlement given to the seller after paying off any liens on the property. So, if you sell your house for $100,000 and owe $80,000 on your mortgage, you would clear $20,000 on the sale. If the agents split a 6 percent fee, however, you would owe them $6,000, leaving you with $14,000 at closing.
It is important to remember that because both agents — seller's and buyer's — are getting paid by the seller, the buyer's agent has some incentive to make sure the closing goes off without a hitch, which can leave the buyer without an impartial advocate at the table. Because of this, some buyers opt to contract with an "exclusive buyer's agent," who solely represents the buyer's interests and not the seller's. An exclusive buyer's agent's commission is still generally paid out of the seller's settlement, however, so it is best to read your buyer's agent contract and ask questions about anything you don't understand.
Buyers may need to pay closing costs in addition to the down payment at that time. For standard loans, these will be spelled out by the lender in a Closing Disclosure that the buyer will receive several days before the closing.
Closing costs can include the origination fee (the loan originator's commission) property taxes, plus fees for a title search, credit report, home appraisal, notary, county recording of the deed and other items. In addition, buyers may incur other fees during the process of purchasing a home, including various inspections (property, termite, radon, etc.), insurance premiums and homeowner association dues. All of these fees can add up to as much as 3 to 6 percent (or more) of the purchase price ($3,000 to $6,000 on a $100,000 home purchase).
Many of these fees can be negotiated down and/or added to the principal of the mortgage, which will lower the closing costs but increase the borrower's monthly payments as well as the total amount paid over the life of the loan because of accruing interest on those fees.
In some markets, buyers can get sellers to help pay these closing costs. A certain amount even can be tax deductible for the seller. This is an incentive that some homeowners will offer when they need to sell quickly in a buyer's market. When housing supplies are tight and buyer demand is high, however, sellers are unlikely to make any concessions because they know another buyer will come along shortly.