Your Buyer's Agent Isn't Free — Here's Who's Actually Paying

The short version: Buyer's agent commissions have never been free. The cost is embedded in the home's sale price, financed into the buyer's mortgage, and compounded with interest for up to 30 years — turning a $10,000 commission into roughly $23,950 in total payments on a $400,000 home at 7%.

I recently thought of a conversation I had with a couple I met with last year who'd just closed on their first house. It was a decent spot — three bedrooms outside of Austin, mid-$300s. They were thrilled. When the conversation turned to what the whole thing cost, the husband said something I've heard a hundred times.

"At least we didn't have to pay our agent. That was covered by the seller."

He wasn't wrong, exactly. Their agent did get paid out of the seller's proceeds at closing. But the idea that it was free — that no cost landed on them — is one of the most persistent and expensive misunderstandings in residential real estate.

Let's trace where that money actually comes from.

How the Commission Structure Has Worked for Decades

Here's the traditional setup. A homeowner decides to sell and hires a listing agent. They sign a listing agreement that includes a total commission — usually somewhere between 5% and 6% of the eventual sale price. That commission gets split between the listing agent (or their brokerage) and whoever brings the buyer.

So on a $400,000 sale with a 5% total commission, the listing agent's side might get 2.5% ($10,000), and the buyer's agent's side gets the other 2.5% ($10,000). The full $20,000 comes out of the seller's proceeds at closing.

On paper, the seller is writing the check. But here's the part that doesn't get said out loud often enough: the seller built that commission into their asking price.

Think about it from the seller's perspective. If you're selling a home and you know you'll owe 5–6% in commissions at closing, you price the home to account for that. The listing price isn't just what the house is worth — it's what the house is worth plus the cost of selling it. Commissions, staging, closing costs, maybe some pre-sale repairs. All of that gets layered into the number you see on Zillow.

So when a buyer purchases that home, they're paying a price that already includes both agents' commissions. And if they're financing — which the vast majority of buyers are — they're borrowing that inflated amount. They're paying interest on it. For 30 years.

The Money Has to Come from Somewhere

Real estate commissions aren't charity. They're a business expense, and like every business expense in a transaction, they get passed through to whoever is funding the deal. That's the buyer.

Imagine you're buying a car. The dealership has overhead — salaries, rent, advertising, the salesperson's commission. They don't eat those costs. They build them into the sticker price. When someone tells you the salesperson's commission is "paid by the dealership," that's technically true. But you're the one handing over the money that funds it.

Real estate works the same way. The seller "pays" the commission, but the buyer funds the price that makes that payment possible. It's not a gift. It's an embedded cost.

This isn't a criticism of agents or the industry. It's just how the math works. And once you see it clearly, you can't unsee it.

Why This Myth Has Lasted So Long

The "seller pays" framing isn't an accident. It's been the industry's primary sales pitch to buyers for decades, and it's effective because it's technically accurate while being practically misleading.

When a buyer's agent says "My services are free to you — the seller covers my commission," they're telling the truth about the transaction mechanics. The commission check does come from the seller's side of the settlement statement. But framing it as "free" implies there's no cost to the buyer, and that's where it falls apart.

There's also a structural reason this myth persisted. Until 2024, the buyer-agent commission was advertised right on the MLS listing. A listing might say "2.5% to buyer's agent." That created an expectation — almost a guarantee — that the buyer's agent would get paid, and the buyer wouldn't see a bill for it.

The result was a system where buyers had no reason to question the cost, because the cost was invisible to them. It showed up in the sale price, which showed up in the mortgage, which showed up in a monthly payment they'd make for three decades. By the time that commission cost is fully paid off, it's been obscured by years of interest.

What the 2024 NAR Settlement Actually Changed

The National Association of Realtors settled a major antitrust lawsuit in 2024, and one of the key outcomes was that buyer-agent commissions can no longer be published on the MLS. Sellers can still offer to pay a buyer's agent — but it's not assumed, and it's not advertised the same way.

More importantly, buyers must now sign a written agreement with their agent before that agent can show them a home. That agreement has to spell out what the agent will be paid and who's paying it.

For the first time, buyers are being forced to confront the cost of their representation. And many are doing some math they've never done before.

Let's Run the Numbers

Say you're buying a $350,000 home. Your buyer's agent commission is 2.5%. That's $8,750.

If the seller was budgeting for that commission and built it into the list price, you're effectively paying $350,000 for a home that might have been listed at $341,250 without the buyer-side commission factored in.

Now finance that $8,750 over 30 years at 7% interest. You're paying roughly $20,950 in total for that embedded commission. Not $8,750 — $20,950. Because you're borrowing it, and interest compounds.

On a $500,000 home, a 2.5% buyer-agent commission is $12,500. Financed over 30 years at 7%, that becomes approximately $29,900.

These numbers aren't hypothetical. They're the actual cost of the "free" service, once you trace the money from the listing price through the mortgage and out the other side three decades later.

The Part Nobody Talks About: Opportunity Cost

There's another layer here that rarely comes up. When a buyer-agent commission is baked into your purchase price, it doesn't just cost you the financed amount. It also raises your loan-to-value ratio, which can affect your mortgage insurance requirements, your equity position on day one, and how quickly you build wealth in the home.

A buyer who purchases at $350,000 starts with less equity than a buyer who purchases the same home at $341,250. The first buyer is underwater sooner in a downturn. The first buyer pays PMI longer (if their down payment was less than 20%). The first buyer's net worth takes longer to grow.

None of this shows up on a HUD statement. But it's real.

This Doesn't Mean Agents Are a Scam

I want to be clear about something. The fact that buyer-agent commissions aren't free doesn't mean agents provide no value. A good agent — one who knows the market, negotiates skillfully, and stays on top of the process — can absolutely be worth their fee. For certain buyers, in certain situations, hiring an agent is the right call.

But you should make that decision knowing the true cost. Not the "seller pays" cost. The actual, financed, compounded-over-thirty-years cost.

When someone offers you a service and says it's free, the right question isn't "great, where do I sign?" It's "who's paying, and how?"

In real estate, you now know the answer.

Understanding the true cost is the first step. But exactly how much does that commission add up to once it's baked into your mortgage? We break down the 30-year math in our next piece: The True Cost of a Buyer's Agent on a 30-Year Mortgage.