When you plan on selling or buying a house, a real estate agent can be necessary. Their experience can not only haggle the price down on your behalf, but their knowledge of the housing market can steer you towards better offers in better areas. Their expertise may be invaluable, but it isn’t priceless.
Real estate agents work on commissions that many buyers are so worried about paying that they 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). 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 commission do realtors charge?
To ensure that the work they do is for your benefit and not a stalling tactic, real estate agents get paid based on a commission determined by the value of the houses they “sell” to their clients, as opposed to an hourly wage.
So you may be wondering, in real numbers, how much commission does a realtor make?
It’s 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 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%.
This may still seem like a lot of money, but since 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 one the money is whacked up again 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, earn the entire sale commission by default.
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 commissions, so this commission is technically negotiable. You can bargain with your agent for a lower price.
If you’re asking for a lower commission price because you are that strapped for cash, there’s something called “transactional agreements” that you should consider.
This means that for a flat rate 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 purchasing a property 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 commission is paid by the seller. This is due to the fact that the seller hires a listing agent 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.
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 this 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.