Commission in New York City Real Estate Transactions: A Guide for Buyers

When navigating the real estate market in New York City, understanding the terms and conditions of commissions can often be complex. This guide aims to clarify the typical fees, particularly those relevant to buyers, in order to help you make informed decisions throughout the purchasing process.

Understanding Commissions in Real Estate Transactions

A major point of confusion for many first-time buyers is whether they are responsible for paying any commission to a real estate agent. In most cases, the buyer does not have to pay any commission to their agent directly. However, there are some exceptions to this rule, particularly in scenarios where the seller is paying a commission to the listing agent.

Standard Practices in Real Estate Commissions

In New York City, and throughout the United States, real estate transactions typically involve a commission split between the listing agent and the buyer's agent. This commission is usually a percentage of the sale price, which is agreed upon by both parties. For instance, if the sale is set at 5%, the buyer's agent and the listing agent would each receive 2.5% of the sale price, also known as the commission.

Example Scenario: A New York Purchase

Consider a scenario where Henry has listed his house for $300,000, with agent Malcolm representing him at a 5% commission. If the buyer's agent, Valerie, represents a potential buyer who decides to make an offer at the full listing price:

Valerie drafts the $300,000 offer and forwards it to Malcolm, the listing agent.

Once the deal is finalized, the 5% commission from the sale price, or $15,000, is billed to the seller, Henry.

Upon collecting the commission, Henry's brokerage pays Valerie's brokerage 7500, ensuring that Valerie has been compensated for her efforts working with the buyer.

This illustrates the typical distribution of commissions in a transaction where both agents are involved.

The Exception: When Sellers Pay the Commission

One key exception to the rule applies when the seller is responsible for paying the commission. In such cases, if the buyer is represented by an agent, the commission is shared between the listing agent (representing the seller) and the buyer's agent. However, it's crucial for buyers to be aware of this arrangement, as the wording surrounding it can sometimes be concealed in the representation agreement.

Insightful Tips for Buyers

Given the nuances in real estate commissions, it's essential for buyers to stay informed and proactive. Here are some tips to ensure a smooth transaction:

Informal Discussions: Discuss commission arrangements early in your search, ideally before even engaging with a real estate agent. This ensures that you are not caught off guard by any unforeseen financial obligations.

Informed Agreements: Carefully review any representation agreement you sign to ensure that the terms regarding commissions are clearly stated and understood. Pay particular attention to any clauses that may require you to pay a commission.

Professional Guidance: Consult with a real estate attorney or advisor if the agreement is unclear or if you have any doubts regarding the terms and conditions.

Lessons for Future Sellers

On the flip side, if you are planning to sell your property, you should also understand how commissions work. If the buyer is not represented by an agent, then the listing agent will receive the full commission. However, if the buyer is represented, then you, as the seller, will be responsible for paying the full or agreed-upon commission to the listing agent, similar to Henry in the scenario above.

In conclusion, while buyer's agents typically do not receive direct payments from buyers, understanding the commission arrangement is crucial for a smooth and stress-free real estate transaction in New York City. Whether you are a buyer looking for a new home or a seller preparing to list your property, keeping this information in mind can prevent any unwanted surprises and ensure a successful transaction.