# Who Pays the Broker's Commission?
Usually the party who hired the broker, most often the seller, out of the proceeds. In insurance and mortgages a third party pays. The cost is shared anyway.
---
The broker's commission is paid by whoever agreed in writing to pay it, and in most industries that is the party who hired the broker: the seller in business sales, yachts, equipment and most property sales, the shipper in freight, and a third party (the insurer or the lender) in insurance and mortgages. Who writes the payment and who bears the cost are two separate questions. The party named in the agreement owes the commission; the cost is carried by buyer and seller together through the price, in a proportion that depends on how hard each side can negotiate.
The answer changes from one industry to the next because the broker's client changes. A business broker works for the owner who is selling. A buyer's agent works for the buyer. A freight broker sits between a shipper and a carrier and earns a margin instead of a commission in the strict sense. An insurance broker advises the policyholder and is, in many markets, paid by the insurer. Each of those arrangements has its own logic, its own disclosure rules and its own consequences for the broker who has to collect.
Law and custom differ by country and by state. The rules quoted below are named with the jurisdiction they belong to, and everything here is general information, not legal advice.
$46,200to the broker when the seller pays 10% out of a $462,000 price
$44,000when buyer and seller each pay 5% on a $440,000 price
$42,000when the buyer pays 10% on top of a $420,000 price
Illustrative worked example: one buyer with a total budget of $462,000, the same 10% headline rate, three ways of charging it. Detailed in the section on what the same rate yields.
## Who pays the broker's commission in each industry?
In most brokered sales the seller pays the commission out of the sale proceeds; in freight the shipper pays the broker's whole invoice and the broker keeps a margin; in insurance and mortgages the commission usually comes from the insurer or the lender. The table sets out the usual payer in seven industries and the variations a broker meets in practice.
| Industry | Who usually pays | Common variations | Where the cost shows up |
| --- | --- | --- | --- |
| Business sales | The seller, at closing | A buyer who hires a buy-side advisor pays that advisor | Lower net proceeds for the seller |
| Real estate | The seller, or each side its own broker | Buyer pays under a buyer agreement; landlord or tenant on a lease | Net proceeds, or the buyer's cash at closing |
| Yachts | The seller, under the listing agreement | Listing broker shares with the buyer's broker | Lower net proceeds for the seller |
| Equipment | The seller, or the buyer through a fee on top | Both: a seller's commission and a buyer's fee | Net proceeds, the buyer's total outlay, or both |
| Freight | The shipper pays the broker; the broker pays the carrier | Carrier-side agents paid by the carrier | The gap between the shipper's rate and the carrier's rate |
| Insurance | The insurer, out of the premium | A fee paid by the client instead of, or with, commission | Inside the premium |
| Mortgage | The lender, or the borrower | One or the other, depending on the country's rules | The interest rate, or a fee at closing |
Read the first column of answers as custom, not as law. Outside regulated lending and insurance, almost nothing prevents the parties from agreeing something else, and a broker who assumes the custom applies without writing it down is relying on a habit instead of a contract.
## Why does the seller usually pay the broker?
The seller usually pays because the seller hired the broker, and because the sale proceeds are the only pool of money that exists on the day the deal closes. Those two reasons, the mandate and the source of funds, explain the custom in business sales, yachts, equipment and most property markets.
The mandate comes first. A business owner signs an engagement with a broker to find a buyer and run the sale. A yacht owner signs a listing agreement, often called a central agency agreement, with one broker who markets the vessel. The person who signed the engagement is the person who owes the fee. A law firm's published commentary on superyacht sales puts it plainly for that market: under a standard central agency agreement the listing broker has a contractual right to commission from the seller, and any payment to the broker who brought the buyer depends on a separate arrangement between the two brokers.
The source of funds comes second. Before closing, the seller holds an asset and no cash; after closing, the seller holds the price. Taking the commission out of the proceeds means the broker is paid from money that has just arrived, at the moment the result the broker was hired for is achieved. That is why a commission in these markets is nearly always a success fee calculated on the price and deducted at closing.
## When does the buyer pay the broker?
The buyer pays the broker when the buyer is the one who hired the broker, or when the sale format charges a fee on top of the price. Buy-side mandates, buyer's fees on equipment and auction sales, and buyer agreements in residential property are the three common cases.
A buy-side mandate reverses the usual picture. A company that wants to acquire a competitor, a collector looking for a specific vessel or machine, or an investor searching for off-market assets engages a broker to search, approach owners and negotiate. That broker works for the buyer and is paid by the buyer, typically with a success fee on the price paid and sometimes a retainer during the search. The seller may have a broker of their own, paid separately by the seller.
A fee on top of the price is the second case. In equipment sales and at auction, the buyer often pays a percentage added to the sale price, commonly called a buyer's premium, while the seller may also pay a commission deducted from the proceeds. The intermediary is then paid by both sides, openly, under terms each side accepted before the sale.
Residential property in the United States is the third. Since the practice changes the National Association of Realtors put in place on August 17, 2024, offers of compensation to a buyer's broker are no longer communicated through a multiple listing service, and an agent working with a buyer must have a written agreement before touring a home. According to the association, that agreement must state the amount or rate of the agent's compensation, and the agent may not receive more than that amount from any source. A seller may still agree to cover the buyer's broker, so the buyer's agreement fixes what the broker earns and the negotiation decides who funds it.
## What happens when both sides pay, or when the commission is shared?
When both sides pay, each side owes its own fee under its own agreement; when a commission is shared, one side pays the whole commission and the brokers divide it between themselves. The two situations look alike from a distance and are legally different.
In the first situation there are two debts. The seller owes a seller's commission and the buyer owes a buyer's fee, each under a separate agreement or under published terms of sale. If the buyer fails to pay their fee, the seller's obligation is unaffected, and the reverse is true as well.
In the second situation there is one debt and an internal split. A yacht seller pays a single commission to the listing broker, who shares it with the buyer's broker under a co-brokerage arrangement. The buyer's broker has no claim against the seller; the claim is against the listing broker, and only if a co-brokerage agreement exists. The same commentary notes that these splits are negotiated case by case and that the terms are often not disclosed to the buyer or the seller. For the cooperating broker, the practical lesson is that the right to be paid rests on a document between brokers, and that document should exist before the buyer is introduced.
A third situation needs more care: one broker paid by both the buyer and the seller for the same deal. An agent owes duties to a principal, and in most legal systems an agent who takes payment from the other side without the principal's informed consent risks losing the commission and facing a claim. Dual payment is workable only when both parties know about it, know the amounts and agree in writing.
## What does the same 10% yield when the seller pays, the buyer pays, or both?
A 10% commission produces three different amounts depending on who pays it, because the base it is calculated on changes. Paid by the seller, the 10% applies to the whole price; paid by the buyer on top, it applies to a smaller price, since the buyer's budget has to cover the price and the fee together.
Take an illustrative worked example. A contractor has a total budget of $462,000 for a used crawler crane and will not spend a dollar more, fees included. The broker's headline rate is 10% in each case. The only thing that changes is who is charged.
| Structure | Sale price | Commission | Seller's net |
| --- | --- | --- | --- |
| Seller pays 10% of the price | $462,000 | $46,200 | $415,800 |
| Buyer and seller each pay 5% | $440,000 | $44,000 | $418,000 |
| Buyer pays 10% on top of the price | $420,000 | $42,000 | $420,000 |
In every row the buyer spends exactly $462,000. In the shared case that is $440,000 of price plus a $22,000 buyer's fee, and the seller pays a matching $22,000 out of the proceeds. In the buyer-paid case it is $420,000 of price plus $42,000 of fee.
Two conclusions follow. First, the headline rate is not the effective rate. Measured against what the buyer actually spends, the broker receives 10% in the first case, about 9.5% in the second and about 9.1% in the third. A broker who moves from a seller-paid to a buyer-paid structure at the same percentage takes a cut of $4,200 on this deal without having agreed to one.
Second, moving the charge from the seller to the buyer barely moves the seller's position. The seller's net goes from $415,800 to $420,000, and the entire $4,200 difference is the reduction in the broker's commission, not a saving made at the buyer's expense. The buyer's budget set the ceiling; the commission came out of the space under it, whichever name was on the invoice.
## When does a third party such as an insurer or a lender pay the broker?
A third party pays the broker in insurance, where the insurer pays commission out of the premium, and in mortgage lending, where the lender often pays the broker for originating the loan. Freight brokerage is a related case: the shipper pays the broker, and the broker's earnings are the margin left after paying the carrier.
In insurance, the client pays one premium to the insurer, and the insurer pays the broker a percentage of it. On an illustrative commercial policy with a $20,000 premium and a 12% commission, the broker receives $2,400 from the insurer. The alternative is a fee arrangement: the insurer quotes the cover net of commission at $17,600 and the broker invoices the client $2,400 directly. The client's outlay is $20,000 either way; what changes is who the broker's payer is and how visible the amount is to the client.
In mortgage lending, both models exist and regulators treat them carefully. In Australia, the consumer site of the Australian Securities and Investments Commission explains that lenders generally pay mortgage brokers a commission for distributing their products, that the commission is a percentage of the loan amount and typically has an upfront and an ongoing part, and that the borrower does not pay the broker directly in that case. Where a broker does charge the borrower, the same source says the fee must be set out in a written quote that the borrower signs before the broker starts work.
In the United States, Regulation Z forbids combining the two. Under the loan originator compensation rule, if a loan originator receives compensation directly from the consumer on a loan secured by a dwelling, the originator may not receive compensation from any other person in connection with that transaction. The same rule bars compensation based on a term of the transaction, which is why a broker cannot be paid more for placing a borrower in a higher rate.
Freight works differently again. A shipper agrees a rate of, say, $2,500 for a load. The broker contracts a carrier at $2,150 and keeps $350, which is 14% of what the shipper paid. Nobody "pays a commission": the shipper pays the broker's invoice, the broker pays the carrier, and the margin is whatever lies between the two. Agents who work on the carrier's side, booking loads for a trucking company, are paid by the carrier out of the freight revenue.
## Who really bears the cost of a commission?
The cost of a commission is borne by buyer and seller together, whoever is named as payer, because the commission is part of the gap between what the buyer spends and what the seller keeps. The party with less room to negotiate carries more of it.
The crane example shows the mechanism. The buyer was willing to spend $462,000 in total. Suppose the seller would have accepted $400,000 net. Any outcome between those two numbers is a deal, and the broker's commission is carved out of that space. In a market with many sellers and few buyers, sellers accept a lower net and effectively carry the fee. In a market where buyers compete for scarce assets, the price rises until buyers are carrying it. The agreement decides who owes the money; the market decides who feels it.
Third-party payment follows the same logic, one step removed. An insurer that pays 12% to brokers prices that 12% into the premium. A lender that pays a broker recovers the cost through the pricing of the loan. An illustrative comparison makes the point: on a $400,000 loan over 30 years, a broker's compensation of 1.5% is $6,000. If the borrower pays it at closing, assume the rate is 6.25% and the monthly payment $2,462.87. If the lender pays it, assume the rate is 6.50% and the monthly payment $2,528.27. The lender-paid loan costs $65.40 more each month.
A lender-paid broker fee is repaid through the monthly paymentIllustrative: $400,000 loan over 30 years, $6,000 compensation, 6.50% lender-paid versus 6.25% borrower-paid
Fee paid by the borrower at closingExtra payments made on the lender-paid loan
Illustrative rates, not market data. Extra payments are the $65.40 monthly difference multiplied by the number of months; the small difference in remaining loan balance is not counted.
The two amounts meet in the 92nd month, a little under eight years in. A borrower who keeps the loan for less time than that pays less under the lender-paid model; one who keeps it longer pays more. In neither case did the borrower escape the broker's compensation. The same reasoning applies to every "free to the client" brokerage service: the client is not invoiced, and the client's price contains the fee.
## What must a broker disclose about who pays?
A broker must disclose who pays, and often how much, wherever a regulator has said so, and those rules are strictest where the payer is a third party the client cannot see. Insurance, mortgage lending and freight each have a named rule in at least one major jurisdiction.
| Rule | Where it applies | What it requires |
| --- | --- | --- |
| Regulation 194 of the Department of Financial Services | New York, insurance | Tell the purchaser whether the producer is paid by the selling insurer on the policy; on request, the type, amount and source |
| Insurance conduct rules of the Financial Conduct Authority | United Kingdom, insurance | On a commercial customer's request, promptly disclose the commission, in money terms and in writing |
| Regulation Z, loan originator compensation | United States, home loans | No compensation from anyone else when the consumer pays the originator directly |
| Federal broker record rule, Part 371 | United States, freight | Record the broker's compensation and the name of the payer; each party may review the record |
The detail matters in each. The New York rule, as described in an opinion of the Department of Financial Services, also covers the case where the amount is not yet known: the producer then describes the factors that will determine it and gives a reasonable estimate. The United Kingdom rule extends, according to the regulator's guidance, to every form of remuneration, including profit shares, volume payments and payments from premium finance providers. In Australia, the securities regulator's consumer guidance states that mortgage brokers must give the borrower information about the commissions they may receive and must act in the borrower's best interests.
The freight rule is the least known and the most concrete. Federal regulations in the United States require a property broker to keep, for three years, a record of each transaction showing the compensation received for the brokerage service and the name of the payer, along with the freight charges collected and the date the carrier was paid. Each party to the brokered transaction has the right to review that record, which means a carrier can ask to see what the shipper paid.
Outside regulated sectors, no statute may require disclosure, and the duty comes from agency law and from the contract. The safe working rule is the same everywhere: the party you represent should never learn from someone else who paid you and how much.
## How should a fee agreement state who pays?
A fee agreement should name the payer, the base the percentage applies to, the moment the fee is earned, and the mechanism by which the money reaches the broker. A clause that says only "commission of 10%" leaves all four open, and each one is a dispute in waiting.
Writing the "who pays" clauseFive points to fix before the first introduction
Name the payerState the legal name of the party who owes the commission. If a company is selling, decide whether the company or its owners owe the fee, and have the right one sign.
Fix the baseSay what the percentage applies to: the price before fees, the total paid by the buyer including a buyer's fee, or the amount received at closing only. In the crane example, the choice of base moves the commission from $46,200 to $42,000.
Say what happens if someone else paysIf the other side may fund part of the commission, state that any such payment is credited against what your client owes, and that you will not receive more than the agreed total from all sources.
Set the moment and the routeState that the commission is earned at closing and paid from the proceeds at that moment, and authorise whoever handles the closing funds to pay you directly.
List every other paymentRecord any fee, share or referral you receive from a third party in connection with the deal, and have the client acknowledge it in writing.
The third point is the one most often missing. Where a seller may cover a buyer's broker, or a listing broker may share with a cooperating broker, the agreement with your own client should say what your client still owes if that outside payment falls short or never arrives. Without that sentence, a broker can complete the work and find that neither side considers itself the payer.
## What changes for the broker depending on who pays?
Who pays determines three things for the broker: whom the broker has to collect from, when the money arrives, and whose interests the broker is expected to serve. The amount is only the fourth consideration.
Collection is the first. A commission deducted from sale proceeds at closing is the most secure form of payment a broker has, because the money and the obligation meet at the same table. A fee owed by a buyer after the purchase is an invoice like any other, sent to a party who has just spent their budget. A commission owed by an insurer or a lender arrives on that institution's schedule and can be subject to its own conditions, such as recovery if a policy is cancelled or a loan repaid early, where the contract provides for it.
Loyalty is the second. Being paid by one party does not by itself make that party your client, and being paid by a third party does not release you from duties to the person you advise. An insurance broker paid by the insurer still advises the policyholder. A buyer's broker whose fee is funded by the seller still works for the buyer. Where the payer and the client are different people, say so in writing at the start, since that gap is where most misunderstandings about loyalty begin.
Sharing is the third. When one commission has to reach several people, such as a listing broker, a cooperating broker and a referrer, the usual route is one payment to the lead broker followed by onward payments, and each onward payment depends on the one before it. One way to remove that dependency is a payment router. Shaka is one: each party's share is set as a percentage of the deal and can be signed by each recipient before the client pays, the client pays once, and every party is paid their share at the same moment, in one transaction. It routes the payment and never holds the funds, and a deal can have at most 20 recipients. It divides one payment; it does not decide who owes the commission, which remains a matter for the agreement.