Who Pays the Buyer’s Agent in the Bay Area?

In my 22+ year career in real estate, I have represented a good mix of both buyers and sellers. When I work with buyers, one of the first things they ask is how do I get paid?  It’s a good question – and for decades, there had been a fairly straightforward answer.  In light of the Sitzer-Burnett lawsuits settlement in 2024 around REALTOR® commissions, the way that buyer’s agents are compensated is no longer quite so straightforward.  This article will explore the history of how buyer’s agents have been paid historically, and then address the question of who pays the buyer’s agent today in the Bay Area.

Buyer Broker Representation over the Years

As I understand it, back in the olden days – prior to about the 1970s – most buyers in the United States did not have their own agents.  Before then, when a homeowner wanted to sell their home, they listed their home with an agent, and paid that agent the entire commission – often around 6% of the sale price.  A buyer would reach out to the listing agent directly to arrange for a showing on the property, ask questions, and ultimately, to write up an offer and then buy the property.  Buyers did not have their own representation at all, as a general rule. There was one REALTOR® in the deal, and that agent always represented the seller exclusively.  The agent only had a fiduciary duty to the seller, and everything that agent did was for the seller’s benefit alone.

Sometime in the 1970s, things began to change.  Buyers began to bring their own agents to the transaction, to represent their interests in the home-buying process. For a number of years, buyers who wanted to bring their own agent to represent them would have that agent approach the listing agent, who would then negotiate a split or a share of the listing agent’s commission. The buyer’s agent became a “cooperating broker” and would be paid a “cooperating broker fee” out of the total commission the seller paid to the listing agent.

Here’s a concise overview over how buyer broker representation has evolved over the past several decades:

Traditional Model (Before the 1970s)

Historically, real estate agents represented only sellers. Buyers typically worked with these seller’s agents, often under the misconception that the agents were helping them find the best deal or in some way had an obligation to look out of the buyer’s interests. This was the norm until the late 20th century.

Rise of Buyer Awareness (1970s)

In the 1970s, the real estate market began to change. Buyers became more aware of the potential conflicts of interest in the traditional model. They realized that agents representing sellers might not have the buyer’s best interests at heart.

Introduction of Buyer Brokerage (Late 1980s – 1990s)

This awareness led to the emergence of buyer brokerage. Buyer brokers are real estate agents who represent the interests of the buyer in a real estate transaction. This was a significant shift from the previous norm. There was no law in California which mandated the use of buyer brokers or buyer brokerage agreements, however, since 1988, agents have been required to present the Disclosure Regarding Real Estate Agency Relationships (CAR Form AD) to buyers before representing them.

Legislative Changes and Recognition (1990s)

The concept of buyer brokerage gained legal recognition and support during this period. Many states in the U.S. passed laws to recognize and regulate buyer brokerage, ensuring that buyers could have representation that was legally obligated to protect their interests. However, California was not one of those states, relying only on a mandated disclosure of agency relationships and duties.

Mainstream Acceptance (2000s – August 2024)

Over time, buyer brokerage has become a mainstream practice. Today, it’s common for buyers to work with their own agents to represent them in real estate transactions. This shift has led to a more balanced and transparent market where both buyers and sellers can have representation that looks out for their specific interests. Prior to August 2024, almost all buyer’s agents were paid through the blanket offer of compensation made by the listing agent and seller through the Multiple Listing Service.

Buyer Broker Compensation Transparency (August 2024 – Present)

The outcome of the Sitzer-Burnett lawsuit has changed the mechanics of the real estate business.  Now, all agents across the country are required to have a written buyer broker representation agreement with any buyer they are representing, before they submit an offer for that buyer.  That agreement and the purchase offer itself detail how much the broker is to be paid, and by whom (buyer or seller).

In California, the requirement for buyer-broker representation agreements was established through Assembly Bill 2992 (AB 2992), which was signed into law by Governor Gavin Newsom on September 24, 2024. This legislation mandates that, effective January 1, 2025, all buyer’s agents must enter into a written agreement with their clients as soon as practicable, but no later than when the buyer submits an offer to purchase real property. The agreement must detail the agent’s compensation, services provided, payment conditions, contract duration (not exceeding three months for individual buyers), and termination clauses.

In summary, the history of buyer brokerage in the United States and California is marked by a gradual shift from a seller-centric model to one that acknowledges and protects the interests of buyers, and ultimately to the way that buyers brokers are compensated. This evolution reflects broader changes in consumer awareness and legal frameworks within the real estate industry.

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How the Buyer’s Agent’s Commission is Structured

Today, when a homeowner signs a listing agreement with an agent, there is one commission amount only, that is to be paid to that listing agent. There is now no mention of the buyer’s agent’s commission at all in a standard California listing agreement (unless amended). There’s good reason for this, because today, the amount of money the seller pays for the buyer’s agent commission is specified explicitly in the buyer’s offer, not to exceed the compensation amount written in the buyer’s broker representation agreement.

Today, a buyer’s agent is required to have a buyer broker agreement signed with the buyer “as soon as practicable,” but no later than the time a purchase agreement is signed with an agent representative. The buyer broker agreement will specify how much the buyer’s agent is to be paid.  There is no place on the standard buyer broker representation agreement to specify that buyer’s agent’s commission is to be paid by the seller, however, there are a couple of checkboxes that say the a) the buyer does not have the financial capacity to pay the commission amount, and/or b) the buyer intends to use financing that will pay for the buyer’s agent’s fee.

Instead, the standard California residential purchase agreement now has language – in paragraph 3G(3) – that specifies how much of the buyer’s brokerage compensation the buyer wants the seller to pay. This amount cannot be more than what is agreed upon in the aforementioned buyer broker agreement.  What’s more, if the seller has signed an addendum to the listing agreement making a blanket offer of compensation to a buyer’s agent, any amount the seller is offering which is in excess of the amount the buyer’s agent is to receive per the signed buyer broker representation agreement is to be credited to the buyer, not to the agent.

Do Buyers Ever Pay their Own Agent in the Bay Area?

In actual practice, I have yet to see a buyer paying their own agent.  In every transaction I have been a part of since August 2024, in every offer I have made or received as a listing agent, every buyer has chosen to have the seller pay the buyer’s agent fee – and every seller has agreed to do so.  This is understandable when the buyer does not have much cash to pay their agent – but in the Bay Area, many buyers have considerable amounts of cash, and could easily pay their buyer’s agent fee.

So why don’t they?  Sellers are really only concerned about the net proceeds to them at closing – they don’t care how much they pay or don’t pay the buyer’s agent, sellers just want to see the biggest number on their check at closing.  If a buyer were to pay their own agent, that buyer would, in almost all cases, offer commensurately less for the property.  If the property is listed for $1,000,000 and the buyer broker agreement specifies a 3% fee, if the buyer has the cash, they could just as easily offer the seller $970,000 and they could pay the $30,000 fee directly to their agent, in cash.

This has some advantages:  it would lower the property tax amount somewhat in perpetuity – so that is advantageous to the buyer.  And the transfer tax and closing costs would be modestly lower, and the seller’s cost for compensation to the listing agent would be fractionally lower as well.

So it does work in the favor of both buyer and seller for the buyer to pay their agent in cash, if they are able to…yet even when they can do so, I have personally yet to see it.  I think buyers just prefer the simplicity of one price to pay, and have the seller cover the cost of their buyer’s agent, as they have been doing so for the past few decades.

Perhaps that will change going forward, but as of early 2025, this is not yet common practice.

The Average Real Estate Commission in the Bay Area

Real estate commission rates vary across different parts of the U.S., primarily influenced by local custom and market conditions. In the Bay Area, the average total commission rate usually comes in at approximately 5% to 6% of the total sale price of the property.  However, it is important to note that there is no standard commission, and that commissions are always negotiable.

Prior to August 2024, this total commission had typically been specified in the residential listing agreement the seller signed with the listing agent.  That one total commission amount would specify how much of that commission the listing agent should offer to pay the buyer’s agent (typically 1/2 of the total commission). For instance, if a property is sold at $1,000,000 with a commission rate of 6%, the total commission would have been $60,000, with each agent receiving $30,000. There was no need for a buyer and their agent to negotiate any commission at all, with most agents just accepting whatever happened to be offered by the seller.

Today, many listing agents will insist on listing broker compensation in the range of 2-3%.  Some may charge less – some may charge a lot less, and some may charge more. Likewise, I have seen most offers from buyers come in specifying that sellers pay the buyer broker something in the range of 2-3% as well – although I do know that there are brokerages and agents who offer lower fees than that.

Therefore, I think most sellers should expect to pay a total in the 4-6% range for buyer and seller commissions, although again, it could be higher or lower since there is no such thing as a standard commission.

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Understanding the Value of Bay Area REALTOR® Fees

Given the substantial amount of money which is commonly spent on real estate commissions, it’s valid to question whether these fees are worth it. The answer largely depends on the value and quality of the services provided by your REALTOR®.

A proficient REALTOR brings to the table a wealth of knowledge, experience, and negotiation skills, all of which can significantly increase the chances that you actually get your offer accepted in what is often a hyper-competitive market in the Bay Area.  A REALTOR® can guide you through the complex real estate landscape, help you understand market trends, and assist in making sound decisions.

Personally, I feel that one of my biggest responsibilities when working with a buyer is to help that buyer avoid making a horrible mistake. Buying the wrong property could potentially set a buyer back many years financially, putting them into a hole which it may be difficult to escape from, depending on their circumstances.

But then, when we find a property that checks enough boxes, I help buyers craft a winning offer strategy that will make the home theirs. That is often much easier said than done. Helping coach a buyer to beat out a half-dozen other well qualified buyers so that they can buy their favorite home – the one they definitely don’t want to get away from them – is a learned skill.  In many cases, buyers are banking on my experience, reputation, and relationships with other REALTOR®s to help them get their offer accepted and ultimately close on that favorite home.

Are Commissions Negotiable?

Real estate commissions are not officially regulated, which means they are negotiable. REALTOR® commissions are – and always have been – 100% negotiable. Even prior to August 2024 when sellers made blanket offers of compensation to buyer’s agents, a buyer could negotiate with their agent (prior to submitting an offer) how much the agent would be paid on that deal, with any amount in excess of that agreed amount paid by the seller would be credited back to the buyer. There is no shortage of agents and brokerages that did this; Redfin for example has based their whole business model on this.

However, it’s vital to understand that a lower commission may not always result in cost savings, and in fact could well end up costing you the loss of a home you really, really want as well as a prolonged time spent running the Bay Area real estate gauntlet.

An agent offering a discounted commission might not provide the same level of service, expertise, and attention to detail as an agent charging a higher rate. The lower-fee agent obviously has less incentive to get into contract on a property (which can be very challenging in a the Bay Area), and less inclined to go the extra mile to make sure the buyer’s interests are protected.

Therefore, it’s crucial to consider the value the agent brings to the transaction rather than focusing solely on the commission rate.  After all:  you get what you pay for.

Conclusion

To sum up, understanding the real estate commission structure in the Bay Area can be complex, but it’s a crucial aspect of buying or selling a home. The commission is typically borne by the seller and split between the listing agent and the buyer’s agent. However, it’s crucial to remember that these rates are negotiable and can vary based on the value and quality of the REALTOR’s services. By understanding these dynamics, both buyers and sellers can navigate the Bay Area real estate market more effectively and make informed decisions that align with their financial goals.

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