When a seller lists their home in Texas, they have choices regarding agent compensation that can impact how smoothly their transaction unfolds. It is imperative for the seller to understand buyer agent compensation in Texas.
The Texas REALTORS Listing Agreement offers two key options: 5.A. and 5.B. for brokerage compensation. Understanding the difference between these two choices is crucial for sellers who want to control their costs while ensuring their home remains attractive to buyers.
Option 5.A.: Seller Pays Both Listing Agent and Buyer’s Agent Compensation
If a seller selects 5.A. in the Texas REALTORS Listing Agreement, they are agreeing to pay a total commission that covers both the listing agent and the buyer’s agent. The exact compensation is negotiated upfront and specified in the listing agreement. The seller’s obligation to pay the buyer’s agent is documented through TXR Form 2402 (Compensation Agreement Between Brokers).
When the TXR Form 2402 is used, listing agents must communicate this correctly to a buyers agent and disseminate the appropriate documentation (TXR 2402) to the buyer’s representative so that any offers submitted to the listing side from the buyer side follow the listing agreement and adhere to the listing agreement for compensation requirements. Should a seller elect full compensation (the maximum amount that the seller is going, willing or obligates themselves to pay)* for both the listing side and the buyer side in 5.A. and the sales contract includes compensation in 12.A.(1)(b), then the seller could be on the hook for a greater amount than what was originally intended.
This setup provides clarity and ensures that the buyer’s agent is compensated through the listing agreement, making the transaction straightforward and correlates to section 8.B. of the Texas One to Four Residential Contract (Resale). This agreement is promulgated by the Texas Real Estate Commission which is the required document to be used for residential resale sales states that all obligations related to Brokers’ Fees are contained in separate written agreements outside of the sales contract.
Option 5.B.: Seller Only Pays the Listing Agent
In understanding buyer agent compensation, choosing 5.B. means the seller is only committing to pay the listing agent’s commission. The seller is not offering any pre-negotiated compensation to a buyer’s agent. Instead, the buyer and their agent must negotiate their compensation separately within the purchase contract.
If the buyer has signed a Buyer Representation Agreement that obligates them to pay their agent, they might request that the seller cover some or all of that compensation in the purchase contract under Section 12.A.(1)(b). In this case, the seller can agree, negotiate, or decline to cover the buyer’s agent fees.
What Happens If There’s a Shortfall?
If a seller has already committed to compensation through 5.A. and TXR 2402, but the buyer’s agent is expecting a higher amount, the difference can be addressed in 12.A.(1)(b) of the purchase contract. The total compensation exposure for the seller would then be the sum of:
- The amount offered in 5.A. and paid via TXR 2402, plus
- Any additional amount negotiated in 12.A.(1)(b) of the contract
Sellers Must Be Mindful of Their Total Compensation Exposure
One of the most important things when understanding buyer agent compensation, a seller should do is ensure they aren’t accidentally overcommitting to compensation. For example, if a seller has already agreed to pay both the listing and buyer’s agents in 5.A., but then the buyer’s agent requests additional payment through 12.A.(1)(b), the seller needs to carefully review the total amounts to ensure they align with their original agreement.
A competent listing agent should proactively track these details and communicate the seller’s obligations accurately. The listing agreement should always be followed exactly. If a buyer’s agent mistakenly places their compensation in 12.A.(1)(b) when it was already covered in 5.A. and TXR 2402, the seller could end up paying more than they intended. Reviewing the numbers before agreeing to any contract terms is essential!
What If The Seller Does Not Want to Pay Buyer Agent Compensation?
When sellers complete their Texas Listing Agreement, they decide whether to offer compensation to a buyer’s agent—and that choice has serious implications. Unlike other closing costs, a buyer’s agent’s commission cannot be rolled into the buyer’s loan. That means if the seller opts not to cover this expense, the buyer must pay out of pocket. This can create a significant barrier, especially for buyers who are already stretching their finances to cover down payments, closing costs, and moving expenses.
Even buyers who do have the cash may find themselves in a bind—using their funds to pay their agent could reduce their down payment, making them ineligible for certain loan programs with strict down payment requirements. Sellers who choose not to offer buyer agent compensation may inadvertently shrink their pool of potential buyers, slowing down the sale and possibly affecting their final sale price. If you’re selling your home, it’s crucial to understand the full financial picture—your choices in the listing agreement don’t just impact your bottom line; they directly affect who can afford to buy your home.
Key Takeaways for Sellers
- You have a choice! When signing a listing agreement, carefully consider whether you want to commit to buyer’s agent compensation upfront (5.A.) or negotiate it later in the contract (5.B.).
- Know your obligations. If you select 5.A., the buyer’s agent compensation is pre-negotiated and paid via TXR 2402.
- Watch for shortfalls. If the buyer’s agent expects more than what was offered in 5.A., they may negotiate additional compensation in 12.A.(1)(b) of the contract.
- Double-check your total commitment. Sellers must ensure they are not overcommitting by paying both in 5.A. and 12.A.(1)(b) unless they are fully aware of and agree to the total amount.
- Your listing agent should guide you. A knowledgeable listing agent will help you navigate these options and ensure that all agreements align.
- Remember, Buyers CANNOT finance their Buyer Agent Compensation. A buyer must pay out of available cash any amount they have obligated themselves (well before finding the seller’s home to purchase) which will cause undo burdens on the buyer.
It is incredibly important when understanding buyer agent compensation to remember that when a seller signs a real estate contract that includes compensation in 12.A.(1)(b), they are committed from the moment that the document is executed. It is imperative that the seller and the listing agent make sure that the compensation for a buyer’s agent is handled appropriately from the beginning and not make any mistakes.
Understanding these nuances can help sellers make informed decisions, avoid surprises, and ensure they are compensating agents in a way that aligns with their goals. When in doubt, discuss these details thoroughly with your listing agent before signing any agreement!
* thank you Doug Jacobs for asking for the clarification.
