When you plan on selling or buying a house, a real estate agent can be necessary as their experience can be priceless. A good seller's agent will showcase your house, ensuring you get top dollar while a good buyer's agent can haggle the price down on your behalf, or use their knowledge of the housing market to steer you towards better offers in better areas. Their expertise may be invaluable, but it isn’t priceless.
Do You Need to Pay a Real Estate Commission?
You don't need to pay a real estate commission if you don't work with a realtor. But since most real estate agents work on commissions, many buyers and sellers will try to find ways of avoiding it altogether. Real estate websites like Zillow have features now where you can list and buy houses without any interference from an agent, which is both potentially profitable and very risky, while other companies are offering buyer rebates, essentially refunding part of their commission to the buyer. This is just one more fee you have to pay, along with moving and closing costs. Most people want to avoid them.
However, since real estate agents are a valuable resource and often necessary to closing your buying and selling deals, you will most likely be paying this commission. It helps to know how much you’ll be paying and to whom so you can plan ahead and even work something out in your favor.
What Percentage Do Realtors Charge?
The typical commission rate is usually 5 to 6 percent of the sale’s value; some real estate agents also charge a service fee, but this isn’t common. So if the house you buy costs $1,000,000, the commission earned will be $50,000 to $60,000. That being said, it's not exactly going to one single realtor. Most real estate transactions involve two agents, and each earns half of the commission. So the percentage commission your realtor is earning will generally be closer to 3%.
How Much Does a Realtor Make on a Sale?
The 5-6 percent commission on a sale is typically split up between two realtors. That means both the listing agent (who represents the seller and is also called the seller's agent) and the buyer's agent will gross approximately 2.5-3% of the sales price. While this may seem like a lot of money, the entire process of finding a house, negotiating a price, and finalizing a sale can take many months, and it may not be nearly as much as paying for the equivalent services on an hourly basis.
Furthermore, agents will need to split this commission with their broker so once the money is whacked up again. Successful real estate agents with a lot of experience will have higher splits, but new agents may only have a 50-50 commission split so the percentage your realtor will be collecting might only be 1.25% to 1.5%. That means that while the seller might be paying a $60,000 fee on a $1 million sale, each agent might only take home a $15,000 commission.
Sometimes, a real estate agent has what’s called dual agency, which means that they are the agent of both the buyer and the seller. Since this conflict of interest is complicated to juggle, most real estate agents don’t put themselves through it. Those who do, however, can earn the entire sale commission by default. It should be noted that dual agency is only legal in some states, and you should be wary of working with a dual agent.
Can You Lower the Real Estate Agent's Commission?
Buyers and sellers will always be wary about paying so much in commissions, particularly on more lucrative sales. Once they find out how much realtors make, they’re thinking of ways to get the number lower.
Luckily for them, there are no federally regulated standards in terms of a real estate agent’s commission fees, so this commission is technically negotiable. You can bargain with your agent for a lower price.
If you’re a home seller that's looking for realtors with lower commissions, there’s something called “transactional agreements” that you should consider.
This means that for a flat fee instead of that 5-6% commission, your realtor will help you set up your pricing, meet and showing the property to buyers, and help you with contracts, but they won’t always give you their full services. You'll also likely have to pay a non-refundable marketing fee up-front to cover their expenses.
If you need a real estate agent but can’t afford the full package, a transactional agreement can help you lower the burden of hiring one while still getting some of their basic services. Just remember that not every agent accepts these agreements.
If you're a home buyer you're not technically paying the buyers agent fee so you might not think you have a lot of negotiating power, but that's not necessarily true. In many states, you can negotiate a buyer commission rebate, where the buyer effectively gives you a portion of their commission.
Who Pays the Realtor's Commission?
In most cases, the realtor commissions are paid by the seller from the proceeds of the home sale. This is due to the fact that the seller hires a listing broker to market the property and sign a listing agreement. In doing so, the seller typically agrees to pay a commission of 5 to 6 percent of the sale price of the home. That being said, it can be argued that the buyer is actually paying the real estate commission since they're the only party bringing money to the table.
Things to Keep in Mind About Realtor Fees
All aspects of a realtor’s commission and fees should be decided before you buy or sell the house. You should have signed a contract when you hired the agent that specified their commission and who will pay it. This means that you can’t wait until you’ve found a house to haggle this amount: this is something you have to make up your mind about well in advance.
Another thing to keep in mind is that rules of commissions can vary between states, particularly between different kinds of agents, such as rental agents. You need to research relevant state requirements if you have a concern about this aspect of your transaction.
You should also realize that everything in this guide pertains only to selling a property with a house on it. Other kinds of purchases could be subject to different rules. Selling or buying a vacant lot, for instance, entails a much large commission – sometimes, as high as 20% of the sale. This is because selling vacant land takes much more of a real estate agent’s time and requires even more marketing than a house.
Real Estate Commissions Takeaway
If you’re buying or selling a house, you may be wondering what the realtor percentage will be, or the percent your real estate agent will make of the value of the sale. You’ll be happy to know that the average commission is usually fixed at around 6 percent of the purchase and isn’t mandated by any state or federal laws, which makes it technically negotiable.
You have options if you don’t want to pay it, such as a transactional agreement that forgoes the realtor’s full services for a flat rate fee instead. While this seems like it may save you money, you may lose some of the real estate agent’s desirable services in the realm of price negotiation and marketing.
Your real estate agent probably wants to work with you to get a deal and move you into your new house in the perfect neighborhood. They ask a commission on the sale to help you do it. Hopefully, this guide will help you determine what parts of that transaction you can control so you can get the best price on this commission.
Not all real estate agents will negotiate with you, but it doesn’t hurt to ask. Just be prepared to find a new agent if you’re dead set on a certain number.