Fist step is understanding how real estate agents representing buyer's get paid:

Real estate agents play a crucial role in the home buying process, acting as intermediaries between buyers and sellers. Understanding how these agents are compensated is essential for anyone looking to purchase property.

In 2024, the National Association of Realtors (NAR) reached a significant $418 million settlement regarding antitrust lawsuits that claimed inflated commissions. This landmark agreement will fundamentally alter real estate regulations, with new policies took effect on August 17, 2024. These changes will mandate written agreements between buyers and agents, along with upfront disclosures of commissions. This marks the end of the traditional practice where sellers compensated buyer agents through the Multiple Listing Service (MLS), paving the way for negotiable and transparent fees.

Commission-Based Compensation

The primary way real estate agents representing buyers get paid is through a commission. This commission is typically a percentage of the property's sale price and is agreed upon before the property is listed. There is no standard commission rate, but in the end after everything is said and done, it often ranges between 5% and 6% of the sale price, though this can vary based on location, market conditions, and the specific agreement between the seller, the buyer, the buyer's agent, and the listing agent. 

Real estate agents representing buyers are often paid through the listing agent, who is representing the seller.  However, since the lawsuit settlement and new contract paperwork from Texas Real Estate Commission (TREC), they may also get paid directly from the seller, which often confuses most buyers in the payment process.

Payment Process

Seller's Agreement: When a homeowner decides to sell their property, they enter into a listing agreement with a real estate agent or broker. This agreement outlines the commission rate that the seller will pay upon the successful sale of the property.  

The seller will choose a real estate broker who typically operates in one of these two methods:

1.  First Method:  Seller pays a typically higher % of the sales price or $, to the listing broker, who then offers and eventually splits a portion of the total amount paid with the buyer's real estate broker.  Once the broker is paid, they would then pay their agent.

Splitting the Commission: The commission paid by the seller is typically split between the seller's agent (also known as the listing agent) and the buyer's agent. This split is usually equal, but it can vary depending on the agreement between the seller and even the agents.

Closing the Sale: Once the sale is finalized and the transaction is completed at closing, the seller’s agent receives the entire commission from the seller. The listing brokerage then distributes the agreed-upon portion to the buyer’s agent’s brokerage.

1. 1. If the buyer goes directly to the listing agent and chooses to not be represented by their own buyer's agent, this is known as intermediary without appointments.  This concept is specific to Texas real estate law and allows a single agent to facilitate a transaction, representing both the buyer and the seller in a limited capacity AND typically get paid for both sides for doing so.

      1. What is Intermediary Without Appointments?  An "Intermediary Without Appointments" occurs when a single agent, usually the listing agent, represents both parties in a transaction. Unlike the "Intermediary With Appointments," where different agents from the same brokerage represent each party, in this scenario, no specific agents are appointed to either side. The listing agent must act impartially and cannot provide advice or guidance that favors one party over the other.

         1. Key Features

            1. Neutral Role: The agent must maintain a neutral stance, providing only factual information and facilitating the transaction without influencing either party's decisions.

            2. Disclosure: The agent must disclose this intermediary status to both the buyer and the seller, ensuring that both parties understand the limitations of the agent’s role and the lack of fiduciary duties typically owed to clients.

            3. Written Consent: Both the buyer and seller need to provide written consent to the intermediary relationship, acknowledging that the agent will not be able to advocate for either side.

            4. Limited Assistance: The agent can assist with paperwork, explain general real estate processes, and show the property, but cannot offer specific advice on price negotiations or contract terms.

Considerations for Buyers

• Lack of Representation: Buyers should be aware that they are not receiving dedicated advocacy or advice that a buyer’s agent would typically provide.

• Negotiation Challenges: Without a buyer's agent, the buyer may have to rely on their own knowledge or seek external counsel for advice on negotiating terms or understanding the complexities of the transaction.

• Potential Conflicts: Since the listing agent originally represents the seller, there may be inherent biases, despite the agent's legal obligation to remain neutral.

2. Second Method Example B: Seller pays a % of the sales price or $ fee, directly to the buyer's broker, who then pays their agent.   

This is a TREC contract change that was not previously available to agents, prior to the settlement.  

If there are two agents involved in the transaction, the end sum of the commission paid out is typically the same as in the first model, but not always.  However, there is often a big difference if there is no buyer's agent involved.

1. 1. If the buyer chooses to not be represented in this model, the listing agent representing the seller will often get paid an additional % or $ for taking on the additional work of working the transaction for the unrepresented buyer, however in this model there are a few critical differences from the first model above:

      1. The listing agent fully represents the seller and is the seller's advocate, which is not the case if intermediary without appointments are created, like in the above model in the first example.

      2. To be clear, the listing agent is not an intermediary in this model.

      3. The listing agent will 100% NOT give any advice to the buyer.

      4. The listing agent will 100% give advice to the seller.

      5. The listing agent will make the buyer sign a document that explains that they do not represent the buyer and that they do represent the seller.

The biggest difference, is the Listing agent fully represents  the seller 100%, which isn't the case in example A.  So the listing agent is able to give advice and direction to the seller, but not the buyer.

*If a unrepresented buyer comes along and decides to buy the home, Orchard charges an additional 1%, which is not the case for brokers operating in example A, which is the majority of how most brokers in our area operate. 

Agent's Share: 

Within the brokerage, the buyer’s agent receives a portion of the commission. The exact percentage depends on the agent's agreement with their brokerage, which can be a wide range from a 50/50 split to a higher percentage for the agent or to the broker as well.

Alternative Compensation Models

While commission-based compensation is the norm, there are alternative models that some agents might use:

Flat Fee: Some agents might offer their services for a flat fee, regardless of the property's sale price. This fee is agreed upon in advance and can be appealing in certain market conditions.

Hourly Rate: Though less common, some agents might charge an hourly rate for their services, especially for consulting or providing specific expertise.

Conclusion

Understanding how real estate agents representing buyers get paid can help buyers enter the home purchasing process with clarity. It ensures that buyers are aware of the financial dynamics and can make informed decisions when selecting an agent. Whether through traditional commission structures or alternative payment models, these agents provide valuable services that can make navigating the real estate market much smoother.

NAR Settlement

On March 15, 2024, the National Association of REALTORS® (NAR) reached a settlement with plaintiffs, which conclude litigation related to home seller claims concerning broker commissions. This settlement introduces several modifications to real estate transactions, while ensuring that consumers retain choices regarding real estate services. The following changes have taken place since August 17, 2024:

• Real estate agents listing properties on a Multiple Listing Service (MLS) must establish written agreements with buyers prior to home tours. These agreements must include:

  • A clear disclosure of the compensation amount or rate the agent will receive, or how this amount will be determined.

  • Objective compensation terms (e.g., $0, a flat fee, a percentage, or an hourly rate) that are not open-ended (e.g., agents cannot state “buyer broker compensation shall be whatever the amount the seller is offering to the buyer”).

  • A clause that prevents the agent from receiving compensation for brokerage services from any source exceeding the agreed amount or rate in the buyer's agreement.

  • A clear statement indicating that broker fees and commissions are fully negotiable and not mandated by law.

NAR has long advocated for written agreements with buyers to help consumers understand the services provided, roles, responsibilities, and costs involved. Consequently, several states already require buyer agreements, however now they are mandatory.

Additionally, there are modifications regarding how real estate professionals communicate offers of compensation to one another. Such offers are no longer permitted on MLS platforms, although sellers can still provide compensation outside of MLS listings. Sellers can also propose buyer concessions on an MLS, such as assistance with closing costs, but not offer how much, if any, commissions are offered.

Important Information for Home Buyers and Sellers:

• If you are a buyer and your agent is using an MLS, a written agreement must be signed before touring a home to clarify the services provided and their costs.

• Written agreements are necessary for both in-person and live virtual home tours.

• No written agreement is required if you are simply speaking with an agent at an open house or inquiring about their services.

• Agent compensation for both home buyers and sellers remains fully negotiable.

• When selecting an agent, be sure to ask questions about their services, compensation, and these written agreements.

• Offerings of $ or % of commissions paid to buyers brokers and agents are no longer allowed in the Multiple Listing Service (MLS).