How Realtors are Paid

Real Estate Commission

Most real estate agents make money through commissions that are based on a percentage of a property's selling price, (Commission can also be flat fees, but that is much less common.) Agents work under real estate brokers, and the commissions are paid directly to the brokers.

Real Estate Agent vs. Broker vs. Realtor

The relationship between agents and brokers helps explain how real estate agents are paid.

Real estate agents are sales people licensed to work under the umbrella of a designated real estate broker, who ensures the agents are in compliance with state and national real estate laws. Agents cannot work independently and are prohibited from receiving commissions directly from their clients.

Brokers, who are able to work independently, hire real estate agents as their employees. Each real estate office has one designated broker. All commissions must be paid directly to a broker, who splits the commission with any agents involved in the transaction.

Both real estate agents and brokers can have the title of Realtor, if they are members of the National Association of Realtors (NAR) and subscribe to its code of ethics.

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Are You Supposed to Pay Your Real Estate Agent?

Consumers don't pay real estate agents directly. Brokers receive the commission, which is taken from the total proceeds of the sale. This amount is then split between the broker and the agent.

Is a real estate commission worth it for the seller?

Paying a real estate agent is worth it for sellers because it often translates into higher home prices. The value a full-service agent offers comes from years of experience working on particular types of properties, understanding an area, completing transactions, and navigating the complexity. This experience translates into higher home prices. A recent study found that sellers received 5.82% more money for a home when using an agent, compared to selling it on their own.

The work of a full-service agent includes:

  • Prospecting for clients
  • Preparing client proposals including pricing
  • Listing and marketing a home to find buyers
  • Negotiating offers and advising the seller
  • Getting the home from an accepted offer to closing or settlement

When do agents receive their commission?

Agents are paid when the home is sold and the transaction is completed. In a real estate transaction, this is called a “closing” or “settlement”.

At closing, a third party — typically a title or escrow company — facilitates the transaction, preparing closing statements and writing checks to the agent’s broker out of the sale proceeds.

How do the agents share their commission?

A real estate commission is usually shared evenly between a buyer’s agent and seller’s agent. Each agent shares their commission with the broker they work for, giving them as much as half of their share. With a starting total commission of 6%, this means that each agent would end up with a 1.5% commission.

Are realtor fees negotiable?

Realtor fees are always technically negotiable — but many agents aren’t willing to budge on their rate. As the Consumer Federation of America reports, roughly 73% of listing agents won’t negotiate on their fees.

That said, there are some situations where a realtor may have some room to negotiate. If you’re selling a more expensive home (think above $500,000), a realtor may be willing to lower their fees — because they’ll still receive a high dollar amount overall.

Realtors may also be more flexible on their fees if your home is in excellent condition and is likely to sell fast, if it’s a hot seller’s market, or if you’re planning to buy and sell a home with the same agent. 

» MORE: How to negotiate your real estate commission

How commissions have changed over the years

Since the early 1990s, Realtor commissions have seen a fairly steady decline. In 2021, the average commission was 5.5 percent — down from more than 6 percent in 1991.

This isn’t to say the total amount Realtors earned decreased, however. In strong selling markets, home prices are high and sellers receive multiple offers. This allows more room for negotiation on the commission, so Realtors may accept a lower commission to earn a higher amount overall.

As the market slows down, Realtor commissions may rise again and become less negotiable. Even so, a seller with a  high-priced listing may still be able to negotiate a lower commission more effectively.

Dual Agency

Agents on both sides of a deal have a fiduciary responsibility to their clients. This means agents must disclose known issues about a property and negotiate in good faith. As such, a buyer’s agent must act in the best interests of their customers just as a seller’s agent must represent the best interests of their clients. There may be a time when a listing agent also represents a buyer (for the same property), and this is known as dual agency.

Because dual agency makes it difficult to negotiate and represent both parties of a real estate deal, several states prohibit the practice. The State of California allows dual agency, but only if the agent or broker fully discloses it to the buyer and seller. To say the least, this becomes a precarious situation.

Realtor Fees FAQ: Everything You Need To Know

Whether you are a first-time homebuyer or a seasoned real estate investor, it is crucial to know about all the costs of purchasing a property. That’s where Realtor fees come in. Read through the following commonly asked questions and make sure you know what to expect when working with a Realtor.

How Do Realtor Commissions Work?

Realtor commission works the same as a Realtor fee. To be clear, Realtor fees and Realtor commissions are synonymous with each other. A Realtor commission is a percentage of the sales price and will be applied accordingly. However, it is quite common for the buyer’s agent and the seller’s agent to receive about half of the commission each. If the same agent represents both sides of a transaction, there’s a chance they will lower their commission. Every detail about a real estate agent’s commission and any transaction fees should be outlined in the contract you sign when hiring an agent. This is referred to as a listing agreement. It specifies how long the agent will represent you, typically between 90 to 120 days.

Usually, it is the landlord’s responsibility to pay rental agent fees. However, this is not required. In places like New York, tenants will pay the rental agent’s commission from time to time. The commission can also be 10% – 20% higher if a vacant lot is sold. This is because selling land is often more difficult.

How Much Does A Realtor Cost On Average?

On average, real estate agents and Realtors will charge somewhere between five and six percent of the sales price. There is no universal amount for how much an agent will make on a home sale. It is, however, possible to calculate how much a Realtor fee translates to in the average home sale.

According to Zillow, the median price of homes that have sold in the United States rests at $230,000. So if you want to understand how much the average Realtor makes in fees on the average home sales price, take six percent of $230,000, which is $13,800. That means the average Realtor fee is somewhere around $13,800. But remember, the fee is typically divided in two to pay the agents representing each side of the deal.

How Much Does A Realtor Charge In Fees?

As previously mentioned, Realtors typically charge a percentage of the final sale price in fees. However, this Realtor fee amount only equals the commission they will make from a given deal. There are still fees that can be incurred while the property is on the market. Depending on whether you are buying or selling, these can be important to look for. A few examples of Realtor fees, aside from commission, are as follows:

  • Home Inspection: Realtors will typically request a home inspection and appraisal while the property is still on the market. This is to ensure the correct sales price and make sure there are no undiscovered issues with the property. Home inspection fees vary but can range anywhere from $200 to $400, depending on the market.

  • Photography: While not all sellers opt for professional stagings, they should at the very least secure professional photographs for the listing. Many experienced Realtors will already have a professional connection when they take on a listing, and fees can vary accordingly. One thing is for certain: no matter what market your property is in, professional listing photographs will almost always pay for themselves.

  • Staging: Staging is one of the best ways to hook potential buyers, but it does come at a price. Realtors will typically work with professional stagers, ranging from $400 to $500 a room per month. Again, these fees vary depending on the market and property size.

  • Closing Costs: Technically speaking, closing costs are not included as part of Realtor fees. They are required costs at the end of a transaction. Therefore, it is important to keep them in mind. Closing costs cover loan fees, title company fees, insurance, taxes, surveyor costs, recording of the real estate deed, and more. Closing costs will vary with each unique home sale or purchase and range from 2% to 7% of the purchase price.

How Do You Calculate Realtor Fees?

To calculate Realtor fees, you must know three things: the sales price of a home, the number of agents in a respective deal, and the percentage they charge for their representation. Once you have those three numbers, calculating your Realtor fees is as simple as multiplying and dividing a few numbers.

Start by taking the sales price and multiplying it by the percentage the Realtor is charging. For example, if a home sells for $500,000, multiply it by the percentage the agent is charging. If they are charging the average commission I already spoke of, the equation will look like this: ($500,000 x 0.06), which gives you $30,000. Then, take that $30,000 and divide it by the number of agents representing the deal.

Are Realtor Fees Included In Closing Costs?

Realtor fees and commissions are not included in a home’s closing costs. Whereas commissions are strictly for the representing agents, closing costs result from several miscellaneous fees (unrelated to the agents). For the most part, closing costs include, but are not limited to things like:

  • Loan processing: Lenders will charge for processing, credit checks, and other administrative duties when approving a loan. The exact amounts based on the financial institution, and can sometimes even be lumped together in one origination fee.

  • Title company fees: Title fees typically make up the bulk of closing costs. These fees cover the title search, title insurance, and some settlement services.

  • Surveyor costs: In many cases, a surveyor is necessary to check the boundaries and property lines surrounding a home.

  • Deed recording: Many local governments will charge recording fees after the sale of a property in order to update county records. On average, recording fees are around $100.

  • Insurance: Some lenders require homeowners to prepay one year of insurance costs at the time of closing. There may also be fees associated with private mortgage insurance, depending on the details of the loan.

Not unlike the Realtor fees, however, closing costs will depend greatly on the sales price of the home in question. As a result, closing costs also tend to span a bigger spectrum, generally ranging from two to seven percent of the sales price.

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Are Realtor Fees Included In A Mortgage?

You will be happy to know that Realtor fees (or commissions) are not included in the mortgage. If, for nothing else, it’s the seller that’s going to be paying the fees. Remember, more often than not, it’s the seller’s responsibility to compensate the Realtor or real estate agent.

Are Realtor Fees Negotiable?

As with almost everything else in a real estate transaction, it is entirely possible to negotiate Realtor fees. The law states that said fees should be negotiable. Whether or not you can come up with a compromise, however, is another story. Just know this, it is possible to negotiate Realtor fees. Keep in mind, you typically get what you pay for. So while it is possible to negotiate with a Realtor, you may not necessarily want to.

What is Dual Agency?

Dual Agency is when the real estate agent or Realtor represents both the buyer and seller in a given transaction. In this case, the agent would be tasked with balancing the interests of both parties. As you can imagine, a dual agency can be tricky. That’s why several states have even made this practice illegal. In states where dual agency is allowed, agents must tell both buyer and seller that they represent both sides of the transaction.

Many home buyers and investors will often opt against dual agency situations to prioritize their best interests. Some believe a dual agent setup could reduce the overall Realtor fees (they will not be split between two agents). It is entirely up to you to decide whether to work with a dual agent or not when you encounter the option. While this situation is not particularly common, it does happen.

Who Pays The Rental Agent’s Commission?

Depending on the rental agreement, the landlord or tenant will pay the rental agent’s commission. To back up for a moment: a rental agent is similar to a real estate agent, except rather than working with buyers and sellers, they work between landlords and tenants. A rental agent’s commission will typically be between one month’s rent and 15 percent of the annual rent. Depending on the area, these fees will normally be paid for differently. For example, in larger cities, renters are often responsible for rental agent commissions. No matter which side of the transaction you are on, make sure you know who is responsible for the fees before deciding to work with a rental agent.

What Is A Commission Split?

Realtors don’t get to keep their full commission if they work for a brokerage. Usually, they’ll split their commission equally with their broker, but other split structures are possible. For example, an agent might get to keep more of the commission as they gain tenure at their brokerage. These splits help cover overhead costs for running the agency, such as advertising, office expenses, and equipment.

What If The Seller Refuses To Pay?

If a seller refuses to pay Realtor fees, then the responsibility will fall on the buyer; however, this rarely happens without other concessions. Consider possible reasons why a seller would attempt to avoid Realtor fees. Are they listing the property without a real estate agent? Is the sale price under market value? Are any repairs being taken care of before closing? More often than not, if a seller tries to negotiate with the buyer to pay Realtor fees, there will be a reason. Remember that the home buying process is full of negotiations, and while rare, you may encounter situations such as this.

How Do You Save Money On Realtor Fees?

How Do You Save Money On Realtor Fees?

The best way to avoid Realtor fees is to act as the buyer in a transaction. As I already alluded to, the sellers typically pay the fees at the closing table. However, if you can’t avoid the fees, perhaps you can lower them a little. If that sounds like something you would like to try, may I recommend taking the following actions with your Realtor:

  • Discuss everything upfront and transparently: It is always a good idea to know what you can expect when buying something before you spend money on it. For example, it is important to know if you can pick your seat (or if that will cost extra) when buying a plane ticket. The same logic applies to working with a Realtor. Ask what their services are before you start working with them; that way, you know exactly how they can help you.

  • Determine if their fee is negotiable in the first place: As you choose an agent to work with, do not be afraid to ask if their fees are negotiable. Realtors and agents will often let you know right away what to expect when working with them. Remember to pay attention to their demeanor when asking, though, as their answer may provide insight into how it will be to work with them on the property.

  • Offer a competitive rate for the other agent in a deal: It can be difficult to find a balance between saving money on Realtor fees and trying to sell your home quickly. To do so, always make sure the commission you are offering is competitive in your market area. Sellers can run into problems by offering a low commission for the buyer’s agent, which can sometimes result in fewer agents showing your property.

  • Let agents know you are shopping around: There is no rule stating that you have to work with the first agent you find. It is always a good plan to interview multiple prospective agents. Get information on their services, commission, and a general feel of what it is like to work with them. After you have a few options in mind, go with the agent that seems like the best fit for your situation.

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