Who Pays the Real Estate Commission and Closing Costs: The Homebuyer or Seller? 

Do you know how much an average real estate commission is? Or who pays these fees, known as closing costs?

If you're scratching your head, you're not alone. Many buyers and sellers are not quite clear on commission and closing costs.

Though most homebuyers and sellers might not be able to tell you what these fees are, they're fairly critical to the real estate agent working for you. These fees are how most real estate agents—both seller's agents and buyer's agents—are paid after a property or home purchase.

Additionally, a recent settlement by the National Association of Realtors® (NAR) that goes into effect on Aug. 17 has led to changes related to broker commissions. This settlement includes changes to how real estate commissions are disclosed and negotiated, aiming to increase transparency and fairness for homebuyers and sellers.

Here's what you need to know about commissions and fees and what other fees you are responsible for during the closing process.

Who pays the real estate fees?

In the past, sellers usually paid the buyer and seller's agent fees. As of Aug. 17, buyers are responsible for compensating their agent.

However, as a seller, you have the choice of offering compensation to the buyer's brokers. Why would you do this? As a way to make your listing stand out by making it more attractive to buyers.

However, it is important to note these NAR guidelines.

• Your agent must conspicuously disclose to you and obtain your approval for any payment or offer of payment that a listing broker will make to another broker acting for buyers.

• This disclosure must be made to you in writing in advance of any payment or agreement to pay another broker acting for buyers, and must specify the amount or rate of such payment.

• If you choose to approve an offer of compensation, there are changes to 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). An MLS is a local marketplace used by both buyer brokers and listing brokers to share information about properties for sale.

• Your agent can advertise your listing via off-MLS platforms such as social media, flyers, and websites.

• You as the seller can still offer buyer concessions on an MLS (for example, concessions for buyer closing costs).

If you choose to compensate a buyer's agent

When the sellers set a listing price for the home, they usually take the real estate agent's commission into account—and consider it the cost of doing business. (Here's how to find a real estate agent in your area.)

Do you have to pay a real estate agent commission?

You can forgo the fee by selling or buying a home without an agent, but it's important to note that agents are the experts in this scenario, working on your behalf while ensuring the process is as stress-free as possible. For example, the agent will start by helping you price your home, then market it (on the multiple listing service, social media, and other venues), negotiate with homebuyers, and see the home sale through closing.

Also keep in mind that real estate deals often take weeks, if not months—though most agents won't see a dollar of it until a property closes.

Can you negotiate real estate agent commission fees?

Commission standards can vary from state to state and among brokerages. There are no federal or state laws that set 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

It's not a common situation in real estate, but if the agent you've hired to represent you also represents the seller of the house you're buying, it's called dual agency. Also known as transaction brokers, dual agents represent the interests of both the buyer and the seller.

Some states have made dual agency illegal in a real estate transaction to outright eliminate any question that the agent was neutral in representing the seller and the buyer. But in the states that allow dual agency, 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. 

What do closing costs cover?

Closing costs are the miscellaneous fees separate from the real estate agent fees that must be paid at closing. They cover the following things:

• 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

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. Typically, though, closing costs amount to about 3.5% of the sale price of a home, according to Leah Layman, a real estate agent in Augusta, GA.

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.

Your 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," Reliantra says. "Do not let the 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," Layman says.

If the closing costs are too steep and the sellers won't chip in as much as buyers would like, the buyers can request that real estate closing costs be rolled into the mortgage.

How to find the fees and commission you'll pay

The bottom line: All of the details about a real estate agent's commission should be outlined in the contract that 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. (Generally, listing agreements last 90 to 120 days.)

Also, keep in mind that there are some exceptions. For instance, rental agents work differently from purchase agents. It's usually the landlord's job to pay the rental agent's fee, but that's not set in stone. 

Furthermore, the commission is usually higher when selling a vacant lot, since selling land often takes longer and requires more marketing dollars. Meanwhile, some auctions charge homebuyers a 5% "premium," or commission.

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. Whether you're the buyer or the seller, the listing price isn't the only number you should focus on. 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.