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Real Estate Commission: How Much and Other Things to Know

By Bill Gassett | November 1, 2022

Many things can be foreign to you when you have never bought or sold a home. One of the greater mysteries in the real estate industry is the commission consumers pay when engaging the services of an agent.

When you buy or sell a house, a commission will be paid. But how much? What is the average Realtor Commission? Do Real Estate agents or Realtors ever negotiate their fees?

Being a Realtor for the last thirty-six years, commissions are always one of the most vital topics discussed. Sellers want to know where they stand and the value they are getting for paying so much money.

We will look at everything you need to know about real estate commissions. If you have questions after reading this, feel free to reach out.

Average Realtor Commission
What is the average real estate commission for an agent?

How Much is a Real Estate Agents Commission?

When you sell a home and meet with a real estate agent, you will likely ask how much they will charge.

Real Estate commissions are entirely negotiable. However, many real estate brokers suggest to their agents how much they expect them to charge.

The fees you can expect to pay will vary around the country, but you can expect to pay somewhere between 5-6 percent of the sales price. In some areas, real estate commission is traditionally five percent, and in others, it is 6 percent.

Does that mean that it cannot deviate from the norm? Absolutely not. Any shrewd business person can ask a real estate agent if they are firm on their fees.

Example of a Real Estate Commission Split

Some people incorrectly assume that if they pay a 5 percent commission, their real estate agent is getting rich. Folks, that is not the case. In most circumstances, the real estate commission is split four ways.

The listing company will get 2.5 percent, and the selling company will get 2.5 percent. The buyer's and seller's agents will then split the 2.5 percent with their respective real estate brokers.

So, if you sell a home for $500,000 with a 5 percent commission, your real estate agent is not walking away with $25,000. They are not even walking away with $12,500 because they will have a commission split with the house (their broker).

Understanding how a real estate agent gets compensated is always essential to understand.

Who Pays The Real Estate Commission?

Most of the time, the seller will pay the real estate commission. There are some circumstances where a buyer may pay a real estate agent.

For example, if you are working with a buyer's agent and they find you a home for sale by owner, you might need to pay the agent.

Some FSBOs will not pay a real estate agent's commission. The buyer agent will ask the buyer to pay them a fee in cases like this one. Technically, a buyer can make an offer less the commission the seller would typically have paid, so they are not taking the money out of their own pocket.

If a buyer's agent agreement is signed, the agent may also expect a certain percentage from the sale. For example, an agent may have in their contract that they need to be paid 2.5 percent of the sale price.

If the seller only offers a 2 percent co-broke fee, the buyer would be expected to make up the half percent difference.

What Does The Real Estate Fees Typically Cover?

When selling your home, the commission should cover everything you're expected to pay your real estate agent. There should be no additional fees. The real estate commission will cover a myriad of things, including:

  • Putting your home in the Multiple Listing Service
  • Proving photography - hopefully professionally done
  • Adding your property to the top websites buyers visit
  • Creating a marketing plan
  • Providing marketing materials such as color brochures
  • Sending out postcards and other marketing material
  • Coordinating showings and feedback from them
  • Negotiating offers, home inspections, and anything else that comes up
  • Communicating with you throughout the transaction
  • Staying in touch with multiple parties, including the other agent, mortgage broker, attorneys, and others
  • Helping with any vendors needed to make the sale go smoothly.
  • Coordinating everything, so the eventual closing goes smoothly.
  • Communicate with the real estate closing attorney about location and details.

Should I Except Dual Agency?

Your real estate agent may entice you to accept dual agency in exchange for a lower real estate commission. Don't fall for it.

Let me make one thing perfectly clear - dual agency is horrible for consumers. Buyers and sellers should avoid real estate agents that practice dual agency.

When you allow dual agency, the real estate agent you hired to work FOR YOU no longer does. They become a neutral party in the transaction.

What does that mean for you? YOUR real estate agent can no longer give you any advice. The only person who benefits from dual agency is the real estate agent.

How do some real estate agents entice you to accept dual agency? They tell you they will reduce their fee. For the agent, they are getting the whole commission. It is real estate nirvana.

For you, the commission is reduced by a small amount, and you don't get buyer or seller agent services depending on what side of the fence you are on.

Dual agency has been banned in several states because it is a conflict of interest. Can you imagine a real estate attorney representing a plaintiff and a defendant in a lawsuit? Sounds silly, right? That's because it is and so is dual agency.

When Should Real Estate Commission Be More Negotiable

Some real estate agents believe they need to make a certain percentage on a sale. In some circumstances, that is really shortsighted.

When you work with a real estate agent as a buyer and seller, it makes sense to ask for a commission break. A real estate agent will be making two sales from one party. Are they doing a significant amount of work - sure, no doubt.

Does that mean you should ask for a break - hell no! Intelligent real estate agents will offer some kind of concession in this circumstance.

Agents that don't want to budge on commission fees are missing the boat. Here is what I call glorified stupidity. What intelligent person who will make $50,000 in commission from two sales would not agree to take $5000 less?

I know getting $45,000 is much better than getting nothing. As silly as this sounds, there are real estate agents who do just that. They have been poorly trained to think that commissions need to be a steadfast number or else. So dumb!

Real Estate Agent Commission Will be Outlined in Your Real Estate Contract

Although there are a couple of types of listing contracts, you'll typically sign an exclusive right-to-sell listing agreement when selling a home. The contract will state the total commission rate and the amount that will be split with the buyer's real estate agency. The listing contract will also state how long the agreement lasts.

Exclusive right-to-sell agreements are usually 3-6 months long.

If you are working with a buyer's agent and they have you sign a buyer's agency agreement, the commission information will be spelled out.

Final Thoughts on Real Estate Commission

Without a doubt, a real estate agent commission is a significant amount of money. It is essential to get value from what you are paying. Make sure you interview multiple Realtors and choose one that offers the most value.

Look for a track record of success above all else. In real estate, you truly get what you pay for.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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