how real estate commission works

How Real Estate Commissions Work – How Much do Agents Make

It is not unusual to work with a realtor when you are looking for a house or want to sell your home. In fact, according to NAR, an average of 90% of buyers and sellers used a real estate agent to complete their transactions in 2018. Many of these consumers don’t know how much or who paid the agent for their services. This is not surprising, considering that the commissions are added to the many costs and fees you will be paying at closing. How much commission does a realtor make on a sale?

How Real Estate Agents are Paid

Let’s begin at the beginning. Real estate agents don’t get paid for their time. Instead, they are paid a predetermined commission once a transaction is closed. This commission is typically based on the home’s market value but can be adjusted. The total percentage then has to be split between the listing agent and the buyer’s agent.

Although it would be great if they could keep all of that, real estate agents work as independent contractors. The commission pays the brokerage fees, transaction fees, and referral fees. The agents’ take-home pay is what is left.

Who pays the agent?

real estate commission agreement

Many buyers and sellers are confused about who pays the agent. According to a study by Porch, 60% of millennials who were buying and didn’t use an agent, said it was because the services of an agent were too expensive. It is usually the seller’s responsibility for paying the full commission, even though it may surprise you or make you cringe if your home is the one being sold. The seller and the listing agent negotiate the total commission rate. After that, the listing agent “shares” x% of the agent who brought the buyer. It’s true. The buyer does not pay their agent. For the people at the back, one more time. THE BUYER DOES NOT PAY THEIR AGENT.

Although, as with most things, there are exceptions to the rule in some cases. The buyer may be responsible for paying the agent’s fees if the property is being sold by the owner, foreclosed, or in any other unusual situation. It’s critical to read your buyer agency agreement, if applicable, to determine what compensation you may be responsible for paying the agent, including any minimum requirements.

How does the Commission work?

As we mentioned, the amount of total commission paid is negotiated between the seller (or their agent). The average total commission ranges between 3-6% of the sale price. You may have to lift your jaw off the ground if you are a seller trying to do that quick math. Keep in mind that the amount is split between the listing agent who sells the house and the buyer’s agent. The amount the listing agent shares with the buyer’s agent is also pre-determined by the seller, influenced by the area you’re in, and posted to the MLS or other marketing material so that buyer agent’s coming over will know their cut ahead of time.

Let’s take an example:

A $300,000.00 home is up for sale. A listing agreement is signed to pay 6% total commissions to the agents.

real estate agent commission

$300,000 x .045= $18,000 total agent commissions paid

The listing agent will receive 3% and the buyer’s agent 3% of the total.

$300,000.00 x 0.03 = $9,000 to the listing agent

$300,000.00 x.03 = $9,000 to the buyer’s agent

Each agent has their fees, which are listed above. They also have to put the money towards marketing expenses they have paid to sell your home at the highest price. It is likely that half of the gross commission earned by an agent actually goes into their pockets.

Other options – Discount Realtors

If you are concerned about the cost of selling your home through a traditional agent, you’re not alone. Several brokerages across the country are now offering services where you can get MLS access and other limited services from a flat fee real estate agent instead of a percentage of the sales price. Be sure to research and ensure that this is the right service.

Flat Fee Agents

These providers will let you choose what level of help you need in regards to your home sale. You will then pay a set rate based on what you decide. That means YOU get to decide exactly how much you want to pay your realtor. For some home sellers, then savings can be several thousands of dollars.

Additionally, there are agents across the country that are willing to discount their listing commission to make themselves more competitive in markets that are saturated with agents. While it is true that no one can work without a fee, the truth is that there are agents who will be willing to discount their listing commissions in order to make themselves more competitive in saturated markets.

save money with a flat fee realtor

Rebates

Buyers will feel great knowing that they won’t have the commission along with the fees involved in buying a house. In 40 states, you could even find an agent willing to rebate up to 1% of the home’s purchase price back to you, straight from their commission to help with your closing costs.

What happens if the sale is cancelled?

A failed transaction is something that no one wants, but it does happen more often than people think. So who gets paid in the case you don’t make it to the closing table? Most of the time, none. In most cases, agents get paid only if they help you sell or buy a house. You should read the agency agreement carefully, as there may be exceptions.

Real Estate Commission Wrap Up

There is no easy way to determine how much commission realtors earn from each sale. Each property is unique. We do know that each property is unique and that both buyers and sellers need to be educated about the agreed upon compensation, how it will split and when it will be owed. Although buying or selling is an exciting and sometimes crazy experience, we are referring to more than just pocket money when it comes down to realtor commissions. Even if your realtor can help by giving you great tips for selling your home, it pays to be informed about your options.

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