In this video, real‑estate agent Sander Scott explains how commissions are determined in residential transactions and why the question of who actually pays the buyer’s agent is largely irrelevant to a buyer’s purchasing power. He walks through the two primary contracts that govern commissions – the seller’s listing agreement and the buyer’s broker agreement – and shows how they can specify separate rates for the listing agent and the buyer’s agent, or omit a buyer’s agent commission altogether. He discusses FSBO (for‑sale‑by‑owner) situations, where owners often still offer a buyer’s agent commission to attract representation, and explains dual‑agency scenarios where a single agent may capture both sides of the commission. Scott emphasizes the legal reality that there is no “standard” commission rate (price‑fixing is illegal) and notes that in the Traverse City market typical buyer’s agent commissions range from 2% to 3%, with lower rates on high‑price homes. He argues that offering a buyer’s agent commission aligns economic incentives and can help sellers achieve higher sale prices, but ultimately the allocation of the commission does not change the amount a buyer can afford; it merely shifts who calculates the net cost. Throughout, he stresses the importance of transparency in contracts so all parties understand who is paying what.
Chapters
That's right, any compensation. You can try to get a seller's agent to do it for a penny. There is no set rate. Everybody says, what's the standard rate? There is no standard rate. So you may have heard some of the news related to the class action lawsuit involving the National Association of Realtors, some really big box brokerages, and a group of sellers. About whose responsibility should it be and whether or not that responsibility was clearly articulated to pay the buyer's agent commission in a real estate transaction. So let's get into that. If you stick with me till the end of the video, I will explain why I think deciding whether the seller pays the buyer's agent or the buyer pays the buyer's agent or the listing agent representing the seller pays the buyer's agent. Regardless how the buyer's agent ultimately gets paid, I think that that's a moot point. And I'll explain that at the end of the video. What I don't think is a moot point is being really transparent about who is paying for what. That's really important. And that really comes down to how are things explained and articulated within the contracts. So who pays for the buyer's agent commission And how much should that be? It depends. What does it depend on? Well, it depends on the content of the contract, if there is a contract. So in the case of a FSBO owner or a for sale by owner, there won't be a listing agreement. There won't be a contract between an agent representing the seller and the seller, because in the case of a for sale by owner, they are acting alone and they are not working with an agent. Curiously though, almost every for sale by owner seller that I've encountered, they are offering buyer's agent commissions, 2.5 to 3%, and even more. For sale by owners, they're feeling like they don't need representation, but they also want to incentivize a buyer's agent to be out there advocating for their property. And I'll get more into that later in the video. So let's talk about sellers using a listing agent to represent them. When you get ready to sell your home and you've chosen a realtor to represent you, they're acting as your seller's agent or a listing agent. And you'll typically sign what's called a listing agreement. Now, there are a lot in these listing agreements, including obviously the asking price, how long the listing agreement lasts, and of course, the subject of this video, who pays what in terms of commissions. To both the listing agent, the agent representing the seller, and the buyer's agent. And then of course, how much are those commissions? If you choose to offer any compensation to a buyer's agent— that's right, you do not have to as a seller offer a commission to a buyer's agent. You don't have to offer a commission to a seller's agent. Like I said earlier, you can go out and sell it on your own. You can try to get a seller's agent to do it for a penny. It's all what is in the contract and whether or not a listing agent is going to agree to take on all of the expense of marketing your property, all of the responsibility, all of the liability, all the things that are involved and the responsibilities that are involved in a listing agent. Uh, there is no set rate. So how is the commission rate decided for both the seller's agent and the buyer's agent. It's articulated and agreed upon in the listing agreement. In my case, I have a listing agreement that clearly separates the two different commission rates being offered. To see more about the particular listing agreement that I use and its accompanying easy exit guarantee that I offer all my sellers, check out my other YouTube video where I dive deep into that. But back to how it's decided. In the seller's listing agreement with the seller's agent, there are several things that need to be decided. Number 1, what the commission rate will be to the seller's agent or the listing agent. Number 2, what if any commission rates will be offered by the seller to a buyer's agent. Again, what if any. And number 3, whether in the case of no buyer's agent being involved and the seller's agent deals directly with the buyer, either bringing them to the sale, representing them as a buyer's agent also— that's called dual agency— or just working with them directly, whether or not that listing agent gets to capture part or all of the commission that was being offered to a buyer's agent. So that also needs to be articulated in that listing agreement. I run what's called seller net sheets for my clients. The seller's net sheet helps them determine what they will net after the sale of their home, after they paid all the closing costs, all the commissions. I am a big proponent in offering a good buyer's agent commission, by the way, because I believe in the laws of economics, and one of those laws is that people respond to incentives. And so if you're considering selling your home and you want to maximize the value on your in other words, get the best deal for you, the best price and the best terms, I highly recommend offering a buyer's agent commission. Now, the next question is, how much should that be? Well, it's really important for you to understand there are no set rates. Everybody says, what's the standard rate? There is no standard rate. Okay, that would be price fixing, and it is strictly forbidden in the United States. Now, Think about gasoline prices in the grocery store, prices of automobiles. Those prices kind of normalize and are pretty steady within a certain geographic area. And the same is really true for real estate commissions in the Traverse City area. Mostly what I've seen is about 2.5%, some 3%, and then even less often 2%. And the 2% commission rate is usually offered on properties that are over $1.5 million or so. Now, what if the seller is adamant that they do not want to pay a buyer's agent commission? Well, the first thing I would do as their agent, if I were representing them as their seller's agent, is I would try to talk them out of that. But assuming that I as an agent agree to represent a seller who's not offering any buyer's agent commission, what do we need to do at that point? If the seller is not offering any buyer's agent commission, then it is up to the buyer to pay their own buyer's agent's commission. This would be negotiated between the buyer and the buyer's agent, and it would usually be articulated within what's called a buyer broker agreement. That is a separate contract on the buyer side. So on the listing or the seller side, you have this listing agreement, an agreement between the seller and his or her agent, and they may or may not choose to offer a buyer's agent commission. And then over here on the buyer's side, you have potentially an agreement between the buyer and the buyer's agent in the form of a buyer broker agreement. And in there ought to be some language around, in case the seller is not offering any commission, what commission does the buyer agree to pay his or her agent. So why do I think that all of this is a moot point as it relates to who pays for the buyer's agent commission? Again, I think it's very, very important that everybody has eyes wide open. I'm a big believer in being transparent and honest and not trying to hide anything in the complexities involved. So everyone ought to know, eyes wide open, who's paying for what. Whether a seller chooses to offer a buyer's agent commission or not, what remains constant is what a buyer can afford or is willing to pay for the house or property that's for sale. When a seller doesn't offer a buyer's agent commission, that seller is just shifting the burden of calculating the net cost from the seller side to the buyer side. What doesn't change is how how much overall that buyer can or is willing to pay for the property. It just shifts the burden of who needs to calculate it into their net, whether it's the seller's take-home net or the net amount that the buyer has to bring to closing in order to afford the property.
