W
ho pays the real estate commission and closing costs: The Homebuyer or Seller?

    Real estate commissions and closing costs are critical to the real estate agent's payment after a property or home purchase. Recent changes in settlement by the National Association of Realtors® (NAR) have led to increased transparency and fairness for homebuyers and sellers in relation to broker commissions.

    In the past, sellers usually paid both buyer's and seller's agent fees. However, as of Aug. 17, buyers are now responsible for compensating their agent. As a seller, you have the choice to offer compensation to the buyer's brokers to make your listing more attractive to buyers.

    It is important to note these NAR guidelines. Your agent must disclose in writing to you any payment or offer of payment that a listing broker will make to another broker acting for buyers before making the payment. If you choose to approve an offer of compensation, changes have occurred in how this can happen. You as the seller can still make an offer of compensation but your agent cannot include it on a multiple listing service (MLS). Your agent can advertise your listing via off-MLS platforms such as social media, flyers, and websites. You can still offer buyer concessions on an MLS (for example, concessions for buyer closing costs).

    You do not have to pay a real estate agent commission if you sell or buy a home without an agent. However, agents are experts who work on your behalf to ensure the process is as stress-free as possible. They will help you price your home, market it on multiple listing service, social media, and other venues, negotiate with homebuyers, and see the home sale through closing.

    Commission standards can vary from state to state and among brokerages. There are no federal or state laws setting commission rates—meaning the commission is negotiable. Another option you can explore is a transactional agreement, in which the listing agent will help you set an asking price, facilitate communication between you and the buyer, write the contract, and move the process along to closing for a flat fee or lower commission—but you won't receive anywhere close to the agent's full services. Not all agents offer transactional agreements, so you might have to shop around to find one.

    Dual agency: When one agent represents two parties is not a common situation in real estate but is allowed in some states where agents are required by law to disclose that they'll be representing both sides to their clients. Critics who advise against dual agency worry about potential conflicts of interest—the chance that the interests of both the buyer and seller will not be met.

    Closing costs cover miscellaneous fees separate from real estate agent fees that must be paid at closing. They cover loan processing, title company fees, surveyor costs (if needed), recording of the real estate deed, insurance, any taxes or homeowners association fees (which might need to be prorated if they're already paid), and the amount of the real estate closing costs will vary with each home sale/purchase and can range widely from 2% to 7% of the home's purchase price. Your agent will provide you with a buyer's sheet outlining the closing costs. By federal law, you must receive a "good-faith" estimate of your closing costs from any lender you use in your real estate purchase.

    Negotiating skills (or your agent's) come into play when it comes to who pays the closing costs. There is no cut-and-dried rule about who pays the closing costs—the seller or the buyer—but buyers usually cover the brunt of the costs (3% to 4% of the home's price) compared with sellers (1% to 3%). Most closing costs are negotiable. Do not let agents or vendors convince you otherwise. Attorney fees, commission rates, recording costs, and messenger fees can all be negotiated down. Sometimes, the buyer will have written into the contract that the seller will pay the buyer's closing costs up to a certain percentage or amount. That's why you need a good real estate agent to negotiate a contract for you.

    The details about a real estate agent's commission should be outlined in the contract you sign when you hire an agent. This is typically referred to as a listing agreement, and it also specifies how long the agent will represent you. Exceptions include rental agents working differently from purchase agents, and the commission is usually higher when selling a vacant lot since selling land often takes longer and requires more marketing dollars. As a seller, you want a real estate agent who can broker the best sales price and terms for you. Remember, buying and selling a home might be the biggest financial transactions of your life, which is why you'll want an expert on your side, even if that comes at an expense. Those fees outside the price of the house can add up, and you don't want to be hit with any surprises late in the game.