If Home Buyer Negotiates a Price Drop, Does This Lower Agents' Commission?

In the typical home sale, the real estate agents who represent the property buyer and seller do not receive payment until and unless the transaction closes. That payment comes from the seller in the form of a commission. Because of the various steps that must be handled during the escrow period, however, weeks can go by between the time when the seller accepts the buyer's offer and when money actually changes hands.

During these weeks, it's not uncommon for the buyer to do a home inspection and, per the relevant contingency in the purchase contract, discover repair needs or other issues that indicate reduced property value and negotiate accordingly. In some cases, the negotiations do not affect the selling price, such as if the seller agrees to set aside money in an escrow fund to cover repairs. But in other cases, the seller will agree to bring down the selling price. Will that then lower the agents' commission earnings? The answer is yes, as this article will explain.

How Real Estate Agent Commissions Are Calculated

In U.S. real estate sales, it's normal for both the seller's agent to be paid a percentage of the final price of the property sold, and split that (usually halvsies) with the buyer's agent. Total commissions usually amount to between 5% and 6% of the sales price. (That amount is the norm as of 2023. However, lawsuits against the National Association of Realtors might force a rethinking of this traditional model).

Both the agent representing the seller and the agent representing the buyer will be paid out of the funds that the buyer gives to the seller at closing. In other words, the seller is responsible for seeing that the agents involved receive their commissions.

For example, let's say Maria plans to sell her house for $400,000. She hires an agent, and they agree upon how much Maria's agent as well as the buyer's agent will be paid. (It's traditional to post this latter amount on the local listing service, which is accessible by agents.) They decide that Maria's agent will be paid 3.0% of the sales price, and the buyer's agent will be paid 2.8%. That means that, if the house sells for the exact list price of $400,000, Maria's agent will receive $12,000, and the buyer's agent will receive $11,200. This $23,200 total will be deducted from the total money Maria receives from the buyer.

How Changes to Final Price Affect Real Estate Agent's Commission

If a house sells for more or less than it was originally listed at, the real estate agent's commission will change accordingly. So, continuing with the example above, if Maria has trouble selling and finally accepts an offer for $380,000, the agents will receive 3% and 2.8% of that amount, respectively. And if a number of buyers love the house and she accepts a bid for $480,000, the agents will earn the agreed-upon percentages of that higher price.

While the property is under contract, the buyer and the seller may negotiate various monetary adjustments due to inspection items or other issues that come up. For example, if the buyer discovers that there is an encroachment on Maria's property that no party was aware of, the parties could start to discuss what the negative monetary effect is of the encroachment. If the adjustment comes in the form of a price reduction, the agents' commissions will be reduced proportionally to the change in the sales price.

Of course, since it's the agents doing the negotiating, this might not be their preferred strategy! Nevertheless, an agent will integrity will assist in negotiating such a change when it's the appropriate thing to do. It might be particularly appropriate when issues are revealed that cannot be repaired, such as impending construction that will block a house's view.

When Negotiations Over Financial Terms of a Home Sale Don't Affect Selling Price or Commissions

Reducing the sales price isn't the only possible way to deal with home repair issues. Offering the buyer a credit at closing is another common approach. Which approach gets chosen depends in part on the policies of the bank or other institution lending money to the buyer (it regards the house as its collateral, which it must set contractual terms to protect) and on what the buyer and seller can negotiate.

If, however, the financial adjustment is made in the form of a credit to the buyer at closing, and the sales price remains the same, the agents' commission amounts will also remain the same. This is despite the fact that the seller is not making as much money on the home due to the credit.

Therefore, once the parties start talking about monetary remedies for problems with the property, it is important for the seller to consider how this will affect commissions and, subsequently, the bottom line.

For More Information on Home Buying and Selling

To learn more about home buying and selling, including agent's commissions, see the relevant articles on Nolo's Real Estate & Rental Property section.