If you’re shopping for a home, you may have heard buyer agents tout their services as available “at no cost” to their clients.

This phrasing reflects the compensation model where the buyer agent is paid with a portion of the total commission provided by the seller of a property at closing. However, that’s not the only way to do it. If you’re looking to buy a home in the near future, here’s what you need to know about buyer agents’ commissions, the various types that exist, and how to discuss a payment arrangement with yours.

How it works

Under the former traditional real estate commission structure, when a seller listed a home on a multiple listing service (MLS), they were required to offer some compensation to the buyer’s agent. That amount could be as little as $1, but in most cases, there was a customary number specified in the listing.

But following new guidelines, sellers are no longer obligated to do this. As a homebuyer, this means that you could be responsible for paying your agent, making it vital to discuss with anyone you’re considering working with how their commission will be handled on your home purchase and how much it will be.

In addition, you will likely have to sign a representation agreement upon selecting a professional. These contracts formalize the relationship between a buyer and agent, and if the latter is a member of the National Association of Realtors® (NAR), one must be signed before they are allowed to show you any properties. This is to help ensure transparency on what services they will provide and how much they expect to be paid in return.

Some buyer agreements are exclusive, meaning that you agree to work with one buyer agent and that they are entitled to a commission when you successfully purchase a home. Other nonexclusive agreements allow you to work with more than a single agent, providing a commission only to the one who helps you find the right home. If you’re already working with someone with whom you have a signed agreement, it’s important to disclose that to any other agents you may talk to about real estate, such as if you go to an open house and discuss the property with the agent there.

If and when your buyer agent asks you to sign a representation agreement, that’s a great opportunity for you to discuss their commission to make sure that their preferred method and amount work for you before you officially enter into a relationship with them.

Types of compensation structures

Here are some of the most common types of arrangements you should expect to encounter as you begin the homebuying process.

Seller-paid commission
This is the traditional model that you’re probably familiar with. In this structure, the seller would specify a buyer agent commission percentage or amount in their listing and the buyer agent would be paid from the proceeds of the home sale after closing. The win for sellers was that buyer agents were motivated to show their property, and the win for buyers was that they did not have to pay for their agent’s fees out of pocket. While sellers are no longer allowed to advertise commission on their listings, they may still offer to pay it as a concession during the sale price negotiating process.

Buyer-paid commission
Under this model, you as the buyer agree to pay your agent’s commission out of pocket. Make sure to negotiate the fee structure, amount, and exclusivity up front before entering into a buyer representation agreement, which should also have each clearly spelled out in it.

Flat or transaction fee
Instead of a commission based on the property’s sale price, the buyer agent may charge a flat fee for their services. This fee can be negotiated and may be higher or lower depending on the complexity of the transaction or the services provided.

Hourly rate
Some buyer agents charge an hourly rate for their time spent working on your behalf. This setup can benefit those who require minimal assistance and guidance throughout the homebuying process.

Retainer fee
Similar to attorneys or consultants, buyer agents can charge an up-front retainer fee for their services. This fee ensures that the agent is compensated for their time and expertise, regardless of whether a transaction is completed.

Performance-based compensation
Buyer agents may choose to tie their compensation to specific performance metrics, such as finding a property within a certain price range or negotiating a discount on the purchase price.

Hybrid models
Some buyer agents may offer a combination of different compensation models. For instance, they may charge a reduced commission and a flat fee or retainer fee. This allows for flexibility in how they are compensated and can be tailored to the needs of the buyer.

Retainer fee
Similar to attorney or consultant arrangements, buyer agents can charge an up-front retainer fee for their services. This ensures that they are reasonably paid for the time and expertise they provide buyers, whether or not a transaction is completed.

Performance-based compensation
Buyer agents may choose to tie their compensation to specific performance metrics, such as finding a property within a certain price range or negotiating a discount on the purchase price.

Hybrid models
Some buyer agents may offer a combination of different compensation models. For instance, they may charge a reduced commission and a flat fee or retainer fee. This allows for flexibility in how they are compensated and customization to suit the buyer’s needs.

How to talk to your agent about their commission

With the burden of compensation likely falling on you as the buyer, it’s important that you discuss with your real estate agent how they expect to be paid. Here are some questions you may want to bring up when you first meet with them:

• What is your commission rate?
• Are there any additional fees or charges I should be aware of beyond the commission?
• Do you offer any incentives or discounts for first-time homebuyers or repeat clients?
• Can you provide a breakdown of the services included in your payment?
• Will I still owe you a commission if I ultimately decide not to purchase a property, even after you have already started working on my behalf?
• Do you offer alternative compensation models, such as flat fees or hourly rates, that better suit my budget?
• • Can we ask the seller to pay your commission during the negotiation process? What happens if they decline but I still decide to buy the house?

As a buyer, you deserve transparency around the house-hunting process. Reach out to schedule a buyer consultation so you can get your questions answered about their compensation, make more informed decisions, and effectively navigate the financial aspects of homebuying.