Understanding real estate fees and closing costs

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No matter how you choose to buy or sell property, there are costs involved. Even an all-cash transaction with no real estate agents is not free.

Realtor commission fees have come into the spotlight recently, due to a lawsuit and the subsequent settlement by the National Association of Realtors®.  The new rules stemming from that settlement went into effect on August 17, 2024.

While these regulations were meant to make transactions more transparent, they are the source of confusion and concern for many buyers, sellers, and agents.

In the past, commission fees for both the listing agent and the buyer’s agent were built into the selling price of the home. This was understood and home sellers took it into consideration when pricing their homes for sale.

Homes sold with the commissions included in the price were used for comparisons by both the agent who prepared a market analysis and the appraisers who furnished values to the lenders.

Now things have changed.

Under the new regulations, buyers are legally responsible for compensating the agent who represents them in the transaction. Additionally, before viewing homes with a REALTOR® they must sign a buyer/broker agreement and be made aware that they bear that responsibility. This agreement must also state the flat amount or percentage to be paid to the buyer’s agent.

However, not all buyers will be required to pay that fee.

The seller may choose to include buyer agent compensation, either initially or as part of the negotiations leading to the final agreement. Should the sellers choose to pay the buyer’s agent, they must sign a disclosure stating the amount or percentage rate of such compensation. Sellers may also offer other concessions, such as a willingness to pay the buyer’s closing costs.

When entering the listing into the multiple listing service (MLS), the agent may list concessions the seller will pay, but may not mention the seller’s willingness to pay the buyer’s agent. The MLS, as you probably know, is the marketplace used by listing agents to advertise their offerings and used by buyer’s agents to find properties for their buyer clients.

To gain this information, the agent working with the buyer must contact the seller’s agent.

Why this matters…

Some buyers are unable to pay their agent’s fee in addition to their down payment and closing costs. They simply don’t have the funds to do so.

Therefore, the agent can choose to only show homes for which the sellers have agreed to pay his or her fee, work for free, or negotiate creatively to move other buyer costs to the seller. Another method is to roll the closing costs into the mortgage, freeing up funds to compensate the buyer’s agent.

By federal law, lender must furnish you with a good faith estimate of your closing costs before you begin the process of obtaining a loan. Therefore, you will know approximately how much those costs will be.

What are those other closing costs?

  • Title insurance
  • Appraisal
  • Home inspection
  • Loan processing
  • Loan origination fee
  • Deed recording
  • Homeowner’s insurance
  • Property taxes
  • Homeowners association fees
  • Attorney fees (if applicable)
  • Survey costs (if necessary)

Closing costs vary, but are generally somewhere between 2% and 7% of the purchase price. In general, sellers pay 1% to 3% while buyers pay 3% to 4% of the selling price of the home. Many of these costs, like the real estate commissions, are negotiable.

What if you choose not to use a real estate agent?

You will save the cost of the commission, but it could cost you far more in errors.

Remember that agents are experts who will work on your behalf to come to a price and terms that are favorable to you, and to deal with the numerous problems that can and do crop up between agreement and closing. An agent’s job is to advise you, assist you, and take care of your transaction. And of course it is in his or her best interest to do so.

Remember that your agent is the one professional who is not paid unless and until the job is completed. And if the transaction fails, the commission based agent receives nothing for the hours and days expended.

Other choices:

Commission fees vary between brokers and agencies, with some now offering flat fee listings, limited representation, and some flat fee services. 

If you’re a seller, you could choose to have your house listed in MLS, but not marketed. Potential buyers and buyers’ agents would contact you directly for showings and you would negotiate on your own behalf. If you’re a buyer you could choose to have an agent make appointments and show you homes, but not represent you in presenting offers or negotiating. You would order your real estate serviced a’ la carte.

Note that most agents offer only full service.

What about dual agency?

In some states it is legal for the agent to work with both buyer and seller. In this case, the agent is expected to be neutral. He or she will assist both sides in understanding the forms, writing offers, meeting the deadlines, and responding to offers and counter-offers.  A dual agent will maintain the letter of the law in making sure neither party is misled, but will not help either side negotiate price and terms.

Before you shop for a home…

Do become pre-qualified for your home loan. We at Homewood Mortgage, the Mike Clover Group, will be happy to help you pre-qualify and to show you what you can afford with today’s rates. We’ll also be glad to give you further information and guidance with regard to the new buyer brokerage regulations.

We at the Mike Clover Group are known for our fast and friendly service, and for providing our customers with the best rates and lowest fees available in Texas.

We look forward to hearing from you!

Call us today at 800-223-7409

Mike Clover

Mortgage Banker

Homewood Mortgage,LLC

NMLS# 234770

www.mikeclover.com

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