What are buyer-broker real estate commissions ?

Buying a home is one of the biggest financial decisions you'll ever make. Until recently, one aspect of the process often seemed invisible to the buyer: the buyer's agent commission.

In California, and across the nation, significant industry changes have shifted how buyer broker compensation is handled, so that the costs of working with an agent are more transparent. Or at least, it's what the new laws have tried to do…

If you're buying or selling a home in California, here is a breakdown of what you need to know about buyer broker commissions.

The "traditional" California Commission Structure

Historically, the total real estate commission, typically averaging around 5% to 6% of the home's sale price, was paid entirely by the home seller from the sale proceeds. This commission was then split between the seller's agent (listing agent) and the buyer's agent.

However when you think about it, the buyer is always paying a buyer broker because they're the ones putting the money to buy the house.

New Legislation

Recent legal settlements and California legislation have fundamentally changed how buyer agent compensation is discussed and agreed upon. The shift emphasizes transparency and negotiation directly between the buyer and their agent.

Here are the key takeaways for today's California real estate market:

Written Buyer-Broker Agreements are Now Required

Effective January 1, 2025, California law mandates that a buyer's agent must enter into a written buyer-broker representation agreement with their client. This agreement must be signed as soon as practicable, and no later than the execution of the buyer's offer to purchase.

Why this matters: This contract legally clarifies the relationship and, most importantly, clearly defines the agent's compensation.

Some of the key terms that the buyer broker contract stipulates is how much a buyer will pay their agent.

It states the amount, either a percentage or a flat fee. The contract clearly states the time period the contract is in place in most cases, agreements are only valid for 3 months before they have to be renewed.

To see the entire buyer broker agreement, please email rene@contextre.com

The purchase contract itself has a section that shows how much concession the seller will provide to pay for agent commissions. Think of this as asking sellers to pay for closing costs, which is nothing unusual. The concession request can either state that the seller is covering the entire amount of commission which all parties associate with 2.5% and it is written as 2.5%, partial concession such as 1% or the contract can state that the buyer will pay their buyer broker directly.

Technically, a buyer's offer will be stronger if the buyer pays the buyer broker fee directly without asking for the seller to cover the commission of the buyer broker since all things equal, the seller looks at their net proceeds of an offer.

How does this work in the real world:

Even though under new contract guidelines sellers have much more freedom to say “No we're not going to offer any credits for commissions“ this new law has not really changed anything and most sellers willingly still offer 2.5% - 3% concession to buyer agents.

Rare exceptions : Lets say you write an offer requesting 2.5% as a concession for the buyer broker fee. Sellers can counter with saying they will only give a concession of a lower percentage or a flat fee. If the buyers have a contract with a buyer broker stipulatating that they will be paid more than what the seller agrees to pay as a concession, the buyers are liable to pay the rest of the comission.

Thanks for reading!

Rene Perez Jr, Broker

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