Content of the material
- How much commission do Realtors get paid?
- Are Realtors overpaid?
- Average real estate commissions by state
- How do you calculate real estate commissions?
- What is a ‘fair’ real estate commission?
- Be Leery Real Estate Agent Commission Gimmicks
- How Can You Increase Your Real Estate Commission?
- The Commission a Real Estate Agent Charges Will Vary Depending on Their Role
- Who Pays the Real Estate Commission?
- Factors that influence commission rates
- How home value affects average real estate commission rates by state
- Why realtors lower their fees for repeat clients
- FAQ on How Much Commission Does a Realtor Make
- Who pays the commission with an FSBO seller?
- How much does the average real estate agent make?
- How much do commercial real estate agents make?
- Do real estate agents ever make more than just commissions?
- Does an experienced Realtor make more?
- Now you know how real estate agent commissions work!
How much commission do Realtors get paid?
Only a very small portion of Realtors work on salary — the commission model is much more common. Real estate commissions can be negotiated, but they typically run about 5 percent to 6 percent of a home’s sale price. The exact terms of an agent’s commission vary from sale to sale, and can depend on region and which firm they work for.
Here’s roughly what you can expect to pay, based on how much your home sells for:
|Home’s sale price||5% real estate commission|
Realtor commissions are typically paid by the home seller, explains Patrick Duffy, who runs Duffy Realty in Miami. Sellers sign a listing agreement with a Realtor in which they agree to pay a commission fee.
Depending on your state, the buyer may not be responsible for Realtor fees at all. Instead, both the buying and selling agents are paid with proceeds from the sale of the home. These two agents typically split the total commission — so for a 6 percent commission, the selling agent would receive 3 percent and the buying agent would receive the other 3 percent.
That changes in the case of dual agency, when one agent represents both the buyer and seller. Laws about whether and how listing agents can sell the properties they’re representing to buyers vary by state. In a dual agency scenario, pay particular attention to the appraisal to ensure you’re getting a fair price. While agents have a fiduciary duty to their clients, with dual agency, the lines can get blurred.
If working with a buyer’s agent, “you have to sign a buyer’s agency agreement,” explains Tim Noland, a buyer’s agent with Great Mountain Properties in Murphy, North Carolina. “A true buyer’s agent works for the buyer. They protect the buyer’s investment, as opposed to the listing agent, who’s actually working for the seller.”
Real estate brokerages may get a cut of the commission as well. The brokerage brand RE/MAX, for example, has a split commission setup by which its agents receive 95 percent of the full commission from the sale, and 5 percent goes back to the company.
“The broker has to set the policy and oversee, monitor and supervise everything the agent does,” Duffy says. “And if the agent does something fraudulent or unprofessional, the broker gets sued.”
Are Realtors overpaid?
Though home sellers may feel that Realtor fees of up to 6 percent are too high, Duffy argues that they’re not high enough. After all, a lot goes into listing a home, such as:
- Performing a comparative market analysis to establish a competitive price
- Arranging for photo shoots, sometimes including aerial shots via drone
- Writing descriptive listing copy to attract interest from other Realtors and potential buyers
- Providing staging guidance
- Showing the property multiple times to prospective buyers
- Hosting open houses on weekends
- Providing yard signage
- Making sure listings are populated on all major property search websites
- Helping the seller review and negotiate buyer offers
When an offer comes in, the listing agent negotiates on behalf of the seller, often presenting one or more counteroffers. And with the volatility of the current market and record low levels of inventory, Realtors frequently deal with multiple potential buyers to help you get the most out of your property.
Average real estate commissions by state
Overall, the national average Realtor commission in 2021 was 5.5 percent, according to data from Clever. In most states, the commission ranged between 5 and 6 percent. But in states like California and New Hampshire, where expensive properties abound, the commission was typically under 5 percent. Find the average commission in your state in the table below:
|State||Average commission rate|
How do you calculate real estate commissions?
In almost all cases a real estate commission isn’t a set fee payment, but a percentage of the total sales price of the home.
To calculate the total real estate commission, follow this simple formula:
- Divide the real estate commission percentage by 100.
- Multiply this number by the purchase price to get the gross commission.
For example, if the commission is 6 percent and the home costs $500,000 to purchase, the commission is $30,000.
Once the total commission is calculated, there are often many other factors to consider.
From buyer or seller credits and home warranties to rebates and concessions, calculating the final sales price and commission owed can be more complicated.
You can simplify the entire process by using commission management software that allows for quick calculations, agent commission plans, and all applicable fees.
What is a ‘fair’ real estate commission?
A commission rate between 5%-6% is standard for most markets to hire a full service real estate agent. This rate should translate as having an agent who is dedicated to selling your home for the best possible price, who is available and communicative, and who is willing to quarterback the transaction from start to finish. If an agent isn’t willing to offer all or the majority of services listed above, you should interview some more candidates.
Be Leery Real Estate Agent Commission Gimmicks
Consumers need to be leery of real estate agents who sucker you into circumstances that benefit them and not you. Here are a few examples of ways home sellers get duped:
- Pocket listings or in-house sales – a pocket listing is when you let your real estate agent market your home without letting everyone else know it’s for sale. The agent hopes they are the one who procures a buyer and gets an in-house sale making a double commission. To get the most money for your home, you should have maximum exposure to ALL buyers.
- Coming soon listings – coming soon real estate marketing is similar to pocket listings because the listing agent has an opportunity to sell the house themselves. The property is not being opened up to all the buyers. One of your goals should be a bidding war when selling a home.
- Guaranteed home sale – The guaranteed home sale is a gimmick that has been around for many years. Real Estate agents use it to sucker naive sellers by telling them they will purchase the house if it doesn’t sell. Yippee – they will buy your home for fifty cents on the dollar. Do yourself a favor and hire a winner. Not a real estate agent that uses these kinds of marketing tactics.
- Dual agency – discussed below in detail—is something every seller should avoid. There are no benefits to a seller. The only winner is the real estate agent. Agents often exaggerate the benefits of open houses to increase the odds of dual agency occurring.
How Can You Increase Your Real Estate Commission?
In the real estate business, a real estate agent is in ultimate control of how much they make. A real estate agent can increase their real estate agent commission in a few ways:
- Being both the buyer’s and seller’s agent. If you list a property and then find a buyer for it, you get the full commission, rather than having to split it with the other agent. This is called dual agency.
- Negotiating better rates with your broker. You might need to go to another broker if your current one is too expensive or if it’s just not a good fit.
- Negotiating a higher sale price for your listings. As a seller’s agent, it’s in your interest to make sure your sellers get the best price for their house, every time.
- Selling more houses. Real estate is very much a numbers game. If you can’t increase each individual commission, you can increase your total real estate commission by selling more properties.
- Getting into bigger markets. Waterfront properties and luxury properties are naturally going to make more money for a Realtor, though they may be more of a challenge to sell.
- Providing additional services. A real estate agent can provide services such as home staging for their listings, as well as sell packages such as superior photography and videos.
Your actual commission rate isn’t likely to waiver from 4% to 6% total. The ceiling is going to be set by the area you’re in, even with negotiations. But the amount that you, as a Realtor, make in commission is somewhat under your control because you can always do more.
The Commission a Real Estate Agent Charges Will Vary Depending on Their Role
Determining what a real estate agent does and who they work for can be confusing if you just go off of terms and titles – for instance, sometimes the buyer’s agent can be called the selling agent.
The listing agent is the term used for the agent working for the seller.
To ensure you know what you are getting into, ask the agent to clarify who they work for and what they charge upfront.
As a seller, you want an agent working on getting you the highest possible sales price – or a combination of a higher price and other desirable terms, such as selling quickly to move to the closing and buy another home.
As a buyer, you want an agent who will work to get you the best possible deal on the house you want.
Who Pays the Real Estate Commission?
Precisely who pays a real estate agent's commission is where things get a little tricky. Standard practice is that the seller pays the fee. However, the seller usually wraps the fee into the price of the home. So, the buyer ultimately ends up paying the fee, albeit indirectly.
Let’s say, for example, that a buyer and seller (each with a real estate agent) agree to a deal on a home for $200,000. Assuming the real estate commission is 5%, the fee would be $10,000 ($200,000 x 0.05). The fee comes out of the cost of the home—it is not added to the sale price. So, although the buyer would pay $200,000, the seller would receive $190,000 from the sale. (This is an overly simplified example as closing costs and other fees would apply.)
Factors that influence commission rates
In addition to regional trends, there are a number of factors that influence how much you end up paying in realtor fees when you sell your home.
Most of the factors that affect how much an agent might charge for a given home sale stems from the fact that realtor fees are negotiable. Agents will lower or raise the amount they charge depending on:
- The home
- The client
- The current state of the real estate market
Based on our research,working with repeat clients is the most common reason that real estate agents agree to accept lower rates.
Here's a full breakdown of the most common factors that cause agents to lower their commission rates:
Conversely, our survey showed that the most common reason that listing agents negotiate for higher rates was that home sellers requested expensive marketing.
Below, we've included the full breakdown of all of the factors:
How home value affects average real estate commission rates by state
Typically, realtors will be more willing to accept lower commission rates for homes that have high values.
Our study of commission rates found that in real estate markets where home values were high, realtor fees were typically lower than the national average. For example, commission rates averaged 5.12% across the states with the highest median home values — which is markedly less than the national average of 5.49%.
Based on our survey's findings, homeowners in the five states with the highest property values would pay 11% less in realtor fees when they sell their home than residents in the states with the five lowest home values — as a percentage relative to their home's sale price.
So why would high home values cause agents to lower their rates? Mainly, it's because the work that agents have to do to sell homes is not significantly different for high and low value homes.
Agent's earn commission based on the home's selling price, so they stand to earn a lot more money selling higher value homes — relative to their effort and time investment — than lower value homes.
Furthermore, even if they have to spend more time or money marketing a high cost home, it may be worth it for that agent.
Consider the following example, where the listing agent earns 57% more per hour selling a $500,000 home than they would selling a $250,000 home, even after factoring in the marketing costs and time commitment:
Home sale price $250,000 $500,000 Time to sell 10 weeks 12 weeks Out of pocket marketing cost $500 $1,000 Time spent actively selling (eg showing, marketing, etc.) the home 30 hours 34 hours Commission earned $4,500 $9,000 Net commission earned per hour of time actively marketing/showing the home $150 $235
Why realtors lower their fees for repeat clients
Having steady business is valuable for real estate agents — home sellers can use this fact to negotiate lower commission rates.
For real estate agents, having consistent streams of clients is crucial to their livelihood. After all, real estate agents typically only process around 12 real estate transactions per year— meaning that gaining a deal has a large impact on their income.
To agents, there is more value in having reliable repeat business, than there is in maximizing their commission they earn on any single deal. Because of this, agents often lower rates to attract clients that are likely to use them for future transactions.
FAQ on How Much Commission Does a Realtor Make
Who pays the commission with an FSBO seller?
The seller usually pays Realtor fees for both the buyer and the seller. So, who pays if you’re working with a home that’s for sale by the owner? Sometimes, you can negotiate that the seller pays the fees. But this can be a hard sell because often the FSBO seller is intentionally trying to avoid the cost of an agent or brokerage. In that case, you’ll have to ask your buyers if they’re willing to pay a buyer agent fee directly.
How much does the average real estate agent make?
With very few exceptions, the average real estate agent salary is $0. Most real estate agents don’t get a salary; they need to be supported by commission. The average real estate commission is going to vary depending on the area. According to the Bureau of Labor Statistics, the average real estate agent makes about $51,220 a year.
How much do commercial real estate agents make?
Commercial real estate agents usually have a lower commission percentage because the properties they are selling are much higher in value. But they may make just as much money — it’s just a smaller percentage of the sale. A home sale could be $250,000, whereas a commercial sale is going to be closer to $2,500,000.
Do real estate agents ever make more than just commissions?
Real estate agents don’t make a salary. But they can make a referral fee, especially once they have become established in the business. Some real estate agents may also sell additional services, such as listing photographs, staging, and more.
There are also real estate agents that work with rental properties rather than purchased properties, draw up paperwork such as a listing agreement or rental agreement, etc. A rental agent will make fees based on the lease prices.
Does an experienced Realtor make more?
There isn’t that much difference between a sales agent who has just achieved their real estate license and a seasoned professional in terms of their commission fee. Rather, it’s that an experienced real estate professional will be able to sell houses for more and faster.
Now you know how real estate agent commissions work!
Sellers pay real estate commissions in exchange for an agent’s expertise and services throughout the sale process. If you’re worried about the cost of the commission, consider that targeted upgrades, stellar marketing, and savvy negotiations can help you maximize your sale price. With an agent to guide you, you also avoid the stress of navigating this complex process without professional oversight.
The key is finding a quality agent who provides the highest amount of value for their commission fee. In fact, our transaction data shows that the top 5% of agents in the U.S. sell homes for as much as 10% more than the average agent.
We’d recommend going through an online agent matching service like HomeLight that can surface top agents with experience tailored to your needs. Whenever you’re ready to get started, HomeLight would be happy to put your commission worries to rest by introducing several agents in your area well worth their salt.
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