How Much Does a Realtor Cost When Buying a Home?

New changes coming to the real estate industry later this year may make homebuyers responsible for paying their real estate agent directly. That’s why it’s more important than ever that homebuyers know how much these professionals might cost.

Many know about the requirement for a down payment, but there are also closing costs and other fees that buyers will come across when buying a home, including their Realtor’s fee.

Traditionally, the buyer’s agent commission has been somewhat obscured from the buyer’s view as the seller has typically paid it. That meant a buyer could benefit by having the expertise and representation of a Realtor without paying out of pocket for those services. However, a lawsuit filed by the Department of Justice (DOJ) against the National Association of Realtors (NAR) means sellers could stop paying the buyer’s agent.

If you are planning on buying a home, here are several important things you need to keep in mind so that you are prepared if that happens.

Key Points:

• Potential Rule Change: New changes in the real estate industry may soon require homebuyers to pay their real estate agent directly, shifting the traditional cost burden from sellers to buyers.

• Varied Commission Rates: While the buyer's agent commission is often cited as 3%, actual rates vary based on market conditions, the Realtor’s experience, and the services provided. Buyers will need to negotiate these rates with their agents.

• Flat Fee and Limited Service Models: Realtors might adapt by offering flat fee services or limited service models, allowing buyers to choose the level of service they need and potentially reducing costs.

• Evaluating Realtor Services: It's crucial for buyers to assess their needs, negotiate rates, compare services and experience among different Realtors, and budget accordingly for potential commission fees.

• Preparation and Informed Decision-Making: Understanding the costs and exploring different service models will help buyers make informed decisions and navigate the homebuying process confidently, especially with the upcoming market changes.

The Average Cost: Is It Always 3%?

With the upcoming change, buyers will need to negotiate and agree upon a commission rate with their Realtor, just as sellers have done traditionally. While you may have heard that the standard buyer’s agent commission rate is 3% of the home’s price, there was never a set standard and there will not be moving forward.

In many markets, the median commission amount offered to buyer’s agents has been 2.5% for several years. However, what a realtor chooses to charge their buyer may vary depending on market conditions, the realtor’s experience, and the range of services provided.

If the market is slower and you’ll need to view more homes, they may charge more to accommodate the extra time spent. If the market is highly competitive and they know they will have to be available on short notice and submit several offers before you actually go under contract, they may also charge more. But if you come to them having already picked out a home, they may charge less.

Keep in mind, a half percent difference on a $400,000 home may cost you $2,000 more, but if you are hiring an experienced Realtor who can strongly negotiate on your behalf and properly guide you through the process, it may be worth it to cover the full fee they are asking for.

Your Realtor could also negotiate that the seller pay their fee or that the buyer receives a credit at closing from the seller that can cover their fee. So, it may not fall on the buyer to pay the full amount their Realtor is asking for, but you should plan on doing so, just to be safe.

Lower Cost Alternatives: Exploring Flat Fees and Limited Services

With the upcoming rule change, Realtors will likely adapt their fee structures to remain competitive and attractive to buyers. These new options can significantly reduce the cost for buyers willing to take on more of the homebuying process themselves.

One emerging trend is the flat fee service option. This model provides buyers with a more predictable cost structure and can be particularly appealing for buyers who want to know the exact amount they’ll have to pay at closing. For example, a Realtor might charge a flat fee of $5,000 for any home up to $300,000 and $7,000 for any home above $300,000.

The flat fee model can also be based on specific services provided. Your Realtor could assist with the paperwork and negotiations but leave the home search up to you.

This way, if you only need help submitting a contract and not everything from start to finish, you could save some money over paying a full-service agent. This tiered service model would allow buyers to choose different levels of service at varying price points. Keep in mind that a Realtor has their own liability to consider, so they may not be willing to skimp on certain things if they feel it could leave them or you open to a lawsuit.

An agent may also charge based on the number of homes shown, contracts submitted, or actual hours spent working with you. That’s why it’s important to have a detailed conversation with the Realtors you’re interviewing to ensure you understand their pricing structure.

Evaluating Your Options: Making an Informed Decision

As a homebuyer, understanding the cost of a Realtor and the services you will receive is crucial, so here are some key things to consider when interviewing agents and discussing their fees:

1. Assess Your Needs

Determine what aspects of the homebuying process you need the most help with. If you are confident in your ability to search for homes and only need assistance with negotiations and paperwork, a flat fee or limited service model might be ideal. But if you’re a first-time homebuyer, it may benefit you to have them help you through the entire transaction so you don’t miss anything important.

2. Negotiate Rates

Don’t be afraid to discuss and negotiate commission rates with your Realtor. Given the competitive nature of the real estate market, many agents are open to adjusting their fees to secure your business. But understand that, like anything in life, you get what you pay for. Don’t choose who you hire to help you make one of the biggest purchases of your life just based on their fees.

3. Compare Services and Experience

Different Realtors offer varying levels of service, even within the same commission structure. Ensure you understand what is included in the fee and choose a Realtor whose services and experience align with your needs and budget. For example, if you would prefer to purchase a new construction home, make sure your Realtor is well-versed in the local builders and new communities.

4. Budget Accordingly

You can hope for the best that the seller will cover your agent’s commission, but you should prepare for the worst and factor this cost into your overall homebuying budget. This will help you avoid surprises and ensure you are financially prepared for all aspects of the transaction.

Related: 5 Questions to Ask Your Realtor Now That You Might Be Paying Their Commission

Preparing for Realtor Costs in a Changing Market

The cost of a Realtor has traditionally been a behind-the-scenes factor for homebuyers, but with the upcoming rule change, it will become a more visible and impactful consideration. While it remains to be seen if sellers stop offering buyer agent commissions entirely, it’s important that anyone starting their homebuying journey now prepares for this additional cost.

By understanding the potential costs, negotiating effectively, and exploring alternative service models, buyers can make informed decisions and navigate the homebuying process more confidently. As we approach this new era in real estate, staying informed will be key to securing the best possible outcome in your home purchase.