Do buyers have to pay their realtor a commission or only the seller?

The Buyer can, in some cases, end up paying the agent, but not usually.

In Most states, the agent will be paid by the seller. That's basically because the agent usually works for and must look out for the Sellers, not you, the Buyer, no matter how many different houses you look at together. Talk to the agent about Buyer's Agency and FSBO's, and if he is uneasy with these, find another agent.

Bottom Line on Top:
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Buyers almost never end up paying the agent, even a contracted Buyer's Agent. My belief is that Buyer's should almost always use a Buyer's Agent, preferrable from a smaller office, and agree to pay at least the minimum norm of what is being offered by the sellers because the seller has almost always agreed to pay it for you. Decide whether you will pay the agent for FSBO's, the agent may want a little more for that.

Here's why.

When a seller makes a listing agreement with the listing agency (the agency offering it for sale), 99.9% of the time
the Seller agrees to pay the agent that brought in a buyer. This gets fuzzy when the agent working with you, the Buyer, shows you a home For Sale By Owner (FSBO).

Talk to the agent about that. Usually, a FSBO means they are trying to sell it without the use of a realty agent. This is typically someone who is pinching pennies and may or may not know what they are doing, learning as they go. Most agents will avoid them like the plauge because the agent doesn't know who, if anyone, is going to pay them.

They key point is this: who is actually working for You, the Buyer, and legally bound to look out for your best interests?

In most states, there are three general types off agents. Almost always, they are all paid by the seller. Two work for the seller, only one is allowed to work for you.

1) Listing Agent-- the agent who made the agreement with the seller to advertise the house and/or place it on the Listing Service where most realty agents can find it easily. The Listing agreement makes him directly employed by the seller, Seller's interests are primary.

2) Selling Agent-- the one who brought in the buyer and "sold" it to the buyer. They are automatically inderectly employed by the seller when they use the Listing Service to find a house for a Buyer. Seller's interests are primary.

3) Buyer's Agent-- directly employed by a Buyer, the one who signs an agreement with a buyer to find the house best suited for that buyer's needs. As paying members of the Listing Service, they can still use the Listing Service to find a house for a buyer, but the Buyer Agency agreement overrides the automatic indirect employment to the seller. Buyer's interests are primary and legally binding.

Almost always, when the seller makes the listing agreement, they also agree on how much to pay any one of these three agents, including a Buyer's Agent.

There are normally only two agents getting paid: the one that brought the seller (listing agent), and the one that brought the buyer (EITHER a Selling agent or a Buyer's Agent, no such thing as both). The same agent or broker agency can be the one that brought in both the buyer and seller, but that would not happen where a true Buyer Agency is involved.

Most Realtor's are afraid to talk about Buyer's Agency because it means asking the buyer to sign to something before they fall in love with a house. Also, True Buyer Agency also means they can't try to look out for the Seller's best interest and the Buyer's best interest at the same time, so a True Buyer Agent can't show you houses listed by that agent's brokerage. For these reasons and more, most powerful Realtor Lobbys have pushed laws through to make it easier to ignore the issues and avoid talking to buyers about those issues until the buyer is emotionally committed to a house and therefore that agent, and True Buyer Agency has been made optional in most states, offering a watered-down versions such as Designated Agency, where two agents working for the same broker in the same office can represent both the buyer and the seller, and claim to be uninfluenced by the other agent and by their inside knowledge of the other parties confidential information, needs, priorities and goals. This is called a Conflict of Interest, and would be illegal in the law profession.

The two biggest issues are: how much to pay the Buyer's Agent, and who is that agent really looking out for?

Talk to freinds and neighbors about Agents they liked. Find out if they were open and up front about Buyer Agency, and find out how eagerly they Taught new buyers about home buying each step of the way.

If you come up with several to choose from, go with an agent working in a smaller office over a big office. They can just as easily show you the houses offered by all Realtor offices, and the individual agent can absorb your goals and interests without being influenced by the homes his teammates and office buddies are struggling to sell. Realtors may not want to admit it, but office politics and freindships play a significant role in how they talk to a buyer about one of their houses vs. one for sale by another company, even if they have a Buyer Agency agreement with you that binds them to put your interests forward.

The Seller's listing agreement usually spells out the total commission and how much commission will be paid to each of the three general types of agents. It varies from town to town, agent to agent, and according to the current maket conditions, but there are norms. In my area, it most often runs 5% to 8% total, that's 2.5% to 4% for each of the two agents in the final deal. In that case, I would offer a Buyer's Agent "2.5% or the amount offered by the MLS listing, which ever is greater", or more, maybe 3% or 4% if you really want that agent to be eager to focus on you, standing out from other buyers during a "Seller's Market". The Buyer's Agent would be obligated to inform you if you are interested in a listing that offers less than that, because you would have to make up the difference.

You are a little more likely to have to pay a Buyer's Agent when looking at FSBO's, although a good agent will aproach the FSBO seller in advance of showing you the house, and a savvy seller will agree to pay your agency fees should you decide to buy the house. As I mentioned above, a FSBO seller doesn't usually realize what all is involved, and the dangers and risks involved. Because Your agent will be exposed to additional legal risks and may have to do most of the work usually done by the other agent, while still looking out for your interests, some Buyer's Agents will want a slightly higer commission when a FSBO is involved. This, and all your fees, should be spelled out in your Buyer Agency agreement.

Okay. I think I'm done adding to this answer, it's time to get back to work.

--Steve @ Knapp Realty