How Real Estate Commissions Are Paid

If you’re planning to buy a home, one of the questions that may come up is: Who pays the real estate agent, and when? The answer isn’t always straightforward, as commission payments can vary depending on the terms of the deal and the parties involved. This article will help clarify how real estate commissions are typically handled when you’re buying a property.

Real Estate Agents Are Paid at Closing

One important thing to understand is that your real estate agent doesn’t get paid until the deal closes. That means your agent is working on your behalf—scheduling showings, guiding you through negotiations, reviewing documents, coordinating inspections, and more—without upfront payment. They are only compensated if the transaction is successfully completed and the property changes ownership.

Buyers Pay Closing Costs—Some Before, Some at Closing Through Escrow

In addition to the purchase price of a home, buyers are responsible for various closing costs. Some of these costs must be paid directly before the closing day:

• Home Inspection: Paid soon after going under contract to ensure the property’s condition.
• Appraisal Fee: Typically required by lenders and paid prior to final loan approval.

Other costs are settled at closing through escrow, a neutral third party that holds and distributes funds for both the buyer and the seller.

What Is Escrow? 

Escrow ensures that no funds are released until all conditions of the sale are met. On closing day, escrow collects payments from the buyer and lender, pays the necessary parties—including the title company, lender, and agents—and finalizes the transfer of ownership.

The buyer’s agent’s commission is also typically paid through escrow as part of the closing process.

Commission Amounts Are Negotiable and Vary by Property

Real estate commissions are not fixed and may vary from one property to another. In many cases, the seller offers to pay the buyer’s agent a commission as an incentive to attract buyers. However, the amount offered is not guaranteed and can depend on factors such as the type of property, the seller’s preferences, and the market conditions.

Because of this, it’s important for buyers to understand how their agent will be compensated before making an offer on a property.

Buyer Brokerage Agreements Define Compensation Terms

To avoid confusion, most buyers and agents sign a Buyer Brokerage Agreement at the beginning of their working relationship. This agreement outlines the services the agent will provide and specifies how the agent will be compensated.

If the seller offers a commission that matches or exceeds the amount agreed upon in the brokerage contract, the buyer typically has no additional out-of-pocket commission costs. However, if the seller offers less than the amount in the agreement—or no commission at all—the buyer may be responsible for paying the difference or covering the full amount.

Different Scenarios: Who Pays the Commission? 

Let’s look at a couple of examples:

Scenario A: Seller Does Not Offer Commission
A buyer finds a property that is being sold without any commission offered to buyer’s agents. The Buyer Brokerage Agreement outlines that the agent is to be compensated. In this case, the buyer may need to pay the agent directly at closing through escrow.

Scenario B: Seller Offers Higher Commission Than Expected
In another case, a seller may offer a commission that exceeds what was agreed upon in the Buyer Brokerage Agreement. Depending on the arrangement with the agent, the excess may either be retained by the agent or result in a credit back to the buyer—each agreement may handle this differently.

Final Thoughts 

The best way to approach commissions as a buyer is with clarity and transparency. Know that your agent works without pay until closing, and be sure you understand what you’ve agreed to in your Buyer Brokerage Agreement. Since commission offers can vary by property, it’s always wise to discuss each home’s terms with your agent before making an offer. With good communication and a solid understanding of the process, you’ll be better prepared to make confident decisions on your path to homeownership.