What is the Commission Amount for Buying a Property in New York?

As a prospective buyer, you might be surprised to learn that you don't usually pay commissions to the agent when purchasing a property. However, there is an important exception to this rule, especially when the seller or landlord is paying a commission to the listing agent. This article will explain how commissions are typically handled in real estate transactions in New York, and what buyers need to know about this process.

Buyer's Side: No Direct Commissions

The typical scenario is that as the buyer, you won't have to pay any commission directly. In most cases, the seller, or the landlord in the case of rentals, is the one who pays the commission to the listing agent. If you have an agent representing you in the transaction, you will share the commission with the listing agent. Therefore, the buyer generally isn't involved in paying any commissions directly.

Real Estate Transaction Structure in New York

A real estate transaction in New York is usually structured in a standard way. Let's illustrate this with an example. Suppose Henry is selling his house for $300,000, listed with agent Malcolm on a 5% commission split, with Malcolm agreeing to pay half (2.5%) to a co-operating agent - that is, the one representing the buyer.

In this scenario, you are house-hunting with agent Valerie and considering making an offer on Henry's house for the full listing price of $300,000.

Valerie will draft a $300,000 offer for Henry and deliver it to Malcolm, the listing agent.

After all the paperwork has been sorted out, when the deal is about to close, 5% of the sale price will be billed to the seller, Henry. This comes to $15,000.

Once that commission is collected by Henry's brokerage, Valerie's half (7500) will be passed on to her brokerage. This is how Valerie is compensated for her efforts in working with you as the buyer.

Exceptions and Important Considerations

There is, however, one important exception to this rule. Transactions involving cash buyers and motivated sellers can occasionally require buyers to pay a commission. However, this is becoming less common, and most listings will have the buyer's agent's commission already sorted out. Therefore, you shouldn't worry too much about this issue.

It's crucial, though, to discuss this with your agent to avoid any surprises. The wording in the representation agreement might include a condition that makes you responsible for paying a commission, even if the agreement is typically one-sided. Agents should inform you about such clauses to ensure you understand your obligations.

Selling the Property: Commissions for the Seller

When it comes time to sell, you will have to pay a commission to the listing agent. Using the same example as above, you would then place yourself in Henry's position, paying 2.5% of the sale price, which in this case would be $15,000 on a $300,000 house.

Understanding these nuances is essential for a smooth and successful real estate transaction in New York. Familiarizing yourself with the process and discussing any potential issues with your agent beforehand can help prevent unforeseen complications.