Can a Seller Pay a Buyer’s Agent Commission?

It’s always been beneficial for sellers to work with trusted listing agents with a robust network of buyer’s agents who help bring qualified buyers to the table. The transaction often moves along smoothly when the buyer is financially able to act quickly with the home purchase.

However, preparing a qualified buyer and representing them means the buyer’s agent will look to earn a real estate commission. The question then becomes, "Can a seller pay a buyer’s agent commission?"

Below, the team from Prevu will shed light on the topic in light of recent changes to National Association of Realtors (NAR) guidelines, explaining what a buyer’s agent commission is, the benefits of a seller choosing to pay a buyer’s agent commission, and whether they can offer to pay it, in general.

What is a buyer’s agent commission?

Simply put, a buyer’s agent’s commission is the financial compensation for the agent representing the buyer throughout a home purchase process. 

This commission compensates the buyer's agent for their services, including property searching, scheduling and conducting showings, negotiating the purchase price and terms with the seller or the seller's agent, and providing guidance and support through closing. Essentially, the buyer's agent ensures their client finds a property that meets their needs and interests at the best price and terms.

While a seller isn’t obligated to pay the buyer’s agent’s commission, they are legally allowed to offer and pay this compensation. Doing so can create a strong incentive for the buyer and potentially attract a larger pool of qualified buyers to help speed the transaction along for the seller.

How can an owner pay a buyer’s agent commission?

Sellers can pay the buyer's agent commission either by explicitly offering a specific commission rate or amount to buyer’s agents or by expressing a willingness to negotiate and pay a buyer’s agent commission as part of any offer. 

This can be particularly appealing in specific scenarios, such as when a seller is highly motivated to close the deal quickly or when the market conditions favor buyers. By offering to cover the buyer's agent commission for the buyer, the seller can make their property more attractive. Otherwise, buyers will have to absorb that extra cost out of pocket at closing.

Another method involves a seller providing buyers with a seller concession - an amount that can be used toward closing costs of the buyer’s choosing, which may include paying a buyer’s agent commission. This approach requires careful consideration and may require documentation.

Both parties should consult with their real estate agents and possibly real estate attorneys to navigate the specifics of these arrangements. Ensuring that any agreement to have the seller pay the buyer's agent's commission is clearly documented and legally sound is essential, as this can help avoid potential complications during closing.

Why should a seller consider paying a buyer’s agent commission?

By offering to pay the buyer's agent's commission, the seller effectively lowers the overall purchasing cost for the buyer, making the property more appealing compared to other listings that don't offer this advantage. 

This can be particularly effective in markets where buyers have numerous options, adding a unique selling point to the property. Also, shouldering the buyer's agent commission cost can expedite the sales process. 

Buyers may be more inclined to move forward with a purchase when they perceive financial benefits upfront. Moreover, this gesture can be seen as a sign of good faith from the seller, potentially smoothing negotiations and fostering a more collaborative atmosphere during the buying process. 

It might also lead to better offers, as buyers feel they're getting more value for their money, thereby benefiting the seller with a quicker sale and potentially higher offers.

Sellers should keep in mind, if a buyer pays their own buyer agent commission, they need to show up with the down payment, closing costs, and the funds for buyer’s agent all upfront at closing. Most lenders will not allow buyers to finance the buyer’s agent fee. 

However, if a seller offers to pay the buyer’s agent commission if they agree to a desired purchase price, the buyer can potentially finance a higher purchase price.

What are the benefits of paying a buyer’s agent commission?

Paying the buyer's agent commission can significantly widen the pool of potential buyers. It removes financial barriers for buyers who would otherwise have to save up longer to pay the buyer’s agent commission out of pocket themselves if they seek representation, making the property more appealing. 

This increased interest can lead to more competitive offers, providing an advantage in markets where sellers are keen to secure the best possible sale price. 

By making the property more financially accessible to a broader audience, sellers can attract serious buyers more quickly, potentially reducing the time the property spends on the market. A faster sale is convenient and can reduce the seller's monthly costs, such as mortgage payments, utilities, and taxes, on the property while it awaits a buyer.

Can sellers negotiate a buyer’s agent commission?

Like any real estate commission, the buyer’s agent commission is always negotiable. Sellers can work with their listing agent to set the groundwork for what they are willing to pay a potential buyer’s agent and decide on a negotiating plan accordingly.

Sellers, particularly in market conditions that favor buyers or during periods when moving a property quickly is paramount, might consider the commission offered to the buyer's agent as a lever in the negotiation process. Adjusting this commission can serve as an incentive, making the property more attractive to buyer's agents and, by extension, their clients. 

For instance, offering a slightly higher commission to the buyer's agent in a market that favors the buyer could amplify interest in the property, leading to a faster sale.

It's important for sellers to work closely with their listing agent to understand the current market dynamics and to develop a strategy that balances the desire to attract buyers with the need to maximize the proceeds from the sale.