U.S. Real Estate Commission After 2024: How Commissions Work, Who Pays, and How to Negotiate
· Selling
Commission splits, negotiation timing, and who actually pays after the 2024 MLS rule change. Specific documents and sequence explained.
The 2024 National Association of Realtors settlement changed the mechanics of how commissions appear on listings, but it did not eliminate commissions or make them meaningless. What changed is transparency and timing: the buyer's agent commission is no longer automatically broadcast to all agents through the MLS before a buyer makes an offer. Instead, it is negotiated directly between the buyer, their agent, and the seller during the offer and acceptance process. Understanding this shift requires knowing what actually happens at each stage, who writes what into which document, and when money changes hands.
Start with the basic mechanism. In a traditional California home sale, the seller typically pays a total commission that is split between two agents: the listing agent (who represents the seller) and the buyer's agent (who represents the buyer). The seller's net proceeds are reduced by this total commission. The listing agent and buyer's agent then split this amount according to a separate agreement between their brokerages, or sometimes according to whatever the listing brokerage offers to cooperate. Before 2024, the MLS listing itself stated what the listing brokerage would offer to pay a buyer's agent. After 2024, that offer no longer appears in the MLS; it must be negotiated separately.
The timing of this negotiation is crucial and often misunderstood. The buyer's agent commission is typically discussed and agreed to before or at the moment an offer is submitted. It does not wait until closing. The agreement is memorialized in the buyer's agent compensation section of the Purchase Agreement and Joint Escrow Instruction document (also called the CAR form or PRDS, Purchase, Real Estate, Document Service). This is the same document that states the purchase price, contingencies, and earnest money. If no commission agreement is reached before the offer is accepted, the transaction can still proceed, but the buyer's agent's compensation will be uncertain and contentious, and many agents will not invest time in a buyer without a clear, written agreement about their fee.
Here is the sequence. The buyer's agent, after identifying a property and discussing the buyer's offer strategy, will typically ask the listing agent or seller's attorney about the buyer's agent compensation before writing the offer. The listing agent may respond by saying "I can offer 2.5% of the purchase price to a buyer's agent" or "The seller is not willing to pay a buyer's agent fee; your buyer will need to pay you directly." This becomes part of the Pre-Offer Discussion. The buyer's agent then fills in the compensation terms on the Purchase Agreement form before submitting the offer to the seller. The form has a specific line item for this: it might read "Buyer's Agent Compensation: 2.5% of the purchase price, paid from seller's proceeds at close of escrow" or "Buyer to pay buyer's agent $X directly." When the seller signs the document, they are agreeing to these terms as a condition of acceptance. This is legally binding from that moment; it is not renegotiated at the close of escrow.
The most common mistake is assuming the seller will always pay the buyer's agent commission, as was standard before 2024. This is no longer automatic. The seller's financial motivation to offer buyer's agent compensation is straightforward: offering a competitive buyer's agent commission attracts more buyer's agents and, by extension, more potential buyers. A home offered with no buyer's agent compensation, or with a commission lower than market norms in that area, may receive fewer offers and possibly a lower final price. However, sellers sometimes choose not to offer buyer's agent compensation, particularly in hot markets or when they believe they can still attract offers. When this happens, the buyer must either pay their agent directly or walk away from that property. Some buyers decide to pay their own agent a flat fee or hourly rate instead of a percentage commission; this is a separate negotiation between buyer and agent and does not involve the seller.
The payment flow at closing works like this. The seller's proceeds are calculated by taking the purchase price and subtracting the total commission (typically stated as a percentage of the sales price), escrow fees, title insurance, property taxes prorated to the close date, and any other seller costs or credits agreed to in the Purchase Agreement. The total commission is paid from the seller's proceeds and goes into the escrow account. The escrow company (also called the title company) disburses the commission to the listing brokerage, not to the individual listing agent. The listing brokerage then pays the buyer's agent's brokerage according to the agreement that was negotiated, and that brokerage pays the individual buyer's agent, typically at closing or within a few business days after. The individual listing agent receives their share from their brokerage according to their internal broker agreement. This entire disbursement sequence is controlled by the escrow instructions, which are part of or attached to the Purchase Agreement.
Suppose a home is under contract for $850,000 with a total commission of 4.5% of the purchase price and a 50-50 split between the listing agent's share and the buyer's agent's share. The total commission is $850,000 × 0.045, which equals $38,250. Half of that, $19,125, goes to the buyer's agent or their brokerage, and half goes to the listing agent or their brokerage. At the close of escrow, the escrow company pays the full $38,250 from the seller's proceeds. The seller receives $850,000 minus $38,250, minus escrow costs, title insurance, and prorations, which leaves them with roughly $811,000 or less after all closing costs. The buyer's agent receives their share through their brokerage from this pool, typically within days of closing.
Negotiation happens in three potential windows. First, before an offer is made: the buyer's agent can call or e-mail the listing agent to ask what the seller is willing to offer. This conversation is informal but should be documented in writing. Second, when the offer is submitted: the Purchase Agreement form includes the compensation term, and this is part of what the seller accepts or counteroffers. A seller might counter by reducing the buyer's agent commission or requiring the buyer to pay a portion directly. Third, after acceptance but before closing: rarely, if the parties want to modify the commission for some reason, they can sign an amendment to the Purchase Agreement to change it. This is unusual and generally discouraged because it reopens negotiation on a closed term, but it is technically possible. Most transactions proceed with the commission agreed to at acceptance.
Who actually negotiates depends on the brokerage structure. In most cases, the listing agent does the initial negotiation on behalf of the seller. Some sellers, particularly those with attorneys, may direct the negotiation themselves. Buyer's agents typically do not negotiate their own compensation directly with the seller; instead, they negotiate through the listing agent or the seller's attorney by proposing terms on the Purchase Agreement. The written Purchase Agreement is the controlling document; verbal agreements about commission are not enforceable if they contradict what is written on the form.
A common misunderstanding is that the 2024 rule change eliminated the seller's obligation to pay buyer's agent commission. It did not. What changed is that the buyer's agent commission is no longer guaranteed by the MLS; it must now be actively negotiated and agreed to in writing as part of each transaction. If a seller wants a property to be attractive to buyers with agents, offering a reasonable buyer's agent commission is still the most effective way to do so. If a seller refuses to pay a buyer's agent, the property may still sell, but likely at a lower price, after a longer marketing time, and to a narrower pool of buyers.
The escrow timeline typically runs about 30-45 days for a financed purchase and roughly 14-21 days for cash, and commission is due at closing, not before. The seller does not pay commission upfront; it is deducted from the proceeds at close. This means the buyer's agent must wait until closing to receive their commission, just as the listing agent does. If a transaction falls through before closing, the commission is not paid. This is why agents have an incentive to negotiate clear, written commission terms early: it protects both sides and ensures no surprises at closing.
After the purchase price and contingencies, commission is the next most important term to nail down in writing. For sellers, offering a competitive buyer's agent commission reduces friction and signals motivation to the market. For buyers, confirming commission terms in writing before making an offer protects the buyer's agent and ensures no disputes arise after acceptance. For both, remembering that commission is not final until it is signed into the Purchase Agreement, not just discussed verbally, prevents costly misunderstandings. If you are selling or buying in Southern California and want to understand how commission applies to your specific deal, contact Shirley Tang at 888 Realty to discuss your situation with an agent who navigates these terms every transaction.