Content of the material
- Hiring the Seller’s Agent Probably Won’t Save You Any Money
- Dual Agency
- For Sale By Owner
- Real estate agent fees: Standard transactions
- Commissions When the Sale Doesnt Close
- How Much Realtors Make FAQs
- How Are Real Estate Fees Paid?
- Do Real Estate Agents Get Paid a Base Salary?
- Are You Supposed to Pay Your Real Estate Agent?
- Do Real Estate Agents Get Paid Weekly?
- What Percentage Do Most Real Estate Agents Charge?
- Real Estate Commission and Taxes
- Are Realtors overpaid?
- Average real estate commissions by state
- Who Pays the Commission?
- Who pays realtor fees for…
- FSBO homes
- When the buyer and seller use the same agent
- New construction homes
- Foreclosures and bank-owned homes
- Auctioned homes
- Land sales
- Short sales
- The bottom line
- Learn more:
Hiring the Seller’s Agent Probably Won’t Save You Any Money
One of the biggest misconceptions that buyers have is that they’ll save on agent commissions by having the seller’s agent—commonly, the one you meet at an open house, or talk to if you call the number on the “For Sale” sign—handle the entire transaction.
This is called “dual agency.” And while the agent might offer to bring the home price down a tad to compensate you for not bringing your own agent, that supposed savings might be offset by not having someone who will put your interests first and negotiate accordingly.
Dual agency is not allowed in many places, as it can create a conflict (either perceived or real) when you have the same person attempting to advocate for both sides. In some parts of the United States, the same agent can represent both sides as a “transaction broker,” where the person steps away from being an advocate for either side and simply mediates the transaction. This arrangement can also be tricky, as the real estate agent might find it difficult to let go of the advocate relationship he or she might have previously developed with one side.
Regardless, whether someone is working as a dual agent or a transaction broker, it is often the case that the agent will simply take the full commission offered to both sides anyway, which leaves the buyer and the seller in the same position. If you decide to work with the home seller’s agent, tread very carefully and ask a lot of questions.
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.
For Sale By Owner
For sale by owner (FSBO) listings are one way to reduce the overall commission paid in a real estate transaction. Though, the seller will be responsible for the listing agents responsibilities. This includes photographing and marketing the property to potential buyers. Sellers will also need to negotiate with buyer’s agents and navigate the closing process alone.
If you have experience in the real estate industry, this may seem like a simple enough task. However, a lot goes into marketing a property and you could sacrifice the best price by attempting to handle the job alone. It is also important to know that the transaction will still have a buyer’s commission, so FSBO properties will not avoid these costs entirely. That being said, some owners find this to be the best method. Consider your options and learn more about FSBO properties before attempting to list a property yourself.
Real estate agent fees: Standard transactions
Now that we’ve looked at what’s included in real estate agent fees and how they’re determined, let’s dive into the differences between standard and non-standard transactions.
Standard transactions refer to real estate deals where the buyer’s agent and the listing agent split the commission 50/50.
Now, let’s talk about non-standard transactions.
Commissions When the Sale Doesnt Close
Commissions are generally paid only when a transaction settles. There are instances, however, when a seller is technically liable for the broker's commission even if the transaction is not complete. If the broker has an offer from a buyer who is ready and able to make the purchase, the broker may still be entitled to a commission if the seller:
- Changes their mind and refuses to sell
- Has a spouse who refuses to sign the deed (if that spouse signed the listing agreement)
- Has a title with uncorrected defects
- Commits fraud related to the transaction
- Cannot deliver possession to the buyer within a reasonable time
- Insists on terms not listed in the listing agreement
- Mutually agrees to cancel the transaction with the buyer
Listing agreements vary and each is individually negotiated. They may include contingencies that require sellers to pay a commission even if the home doesn’t sell.
How Much Realtors Make FAQs
How Are Real Estate Fees Paid?
Real estate commissions are deducted directly from the sale proceeds at closing. The amount is then paid directly to real estate brokerage firms, which split them with the agents involved.
Do Real Estate Agents Get Paid a Base Salary?
Most real estate agents are paid on a commission-only basis. But certain agents—including those who are employed by companies like Redfin—get a base salary plus bonuses.
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 agency and the agent.
Do Real Estate Agents Get Paid Weekly?
Real estate agents do not get paid weekly. Instead, they work for commissions on the sales they make. These commissions are split between the agency and the agent and are paid following closings.
What Percentage Do Most Real Estate Agents Charge?
Real estate commissions typically range anywhere between 4% and 6% of a property's sale price. This amount is further divided between the agency and the agent who worked on the sale.
Real Estate Commission and Taxes
One thing a brokerage will never do is deduct taxes from your commission split. As an independent contractor, it’s up to agents to pay taxes on their own. You’ll need to carefully track all of your income and expenses. Since the IRS considers real estate agents to be self-employeed, you’ll need to pay estimated taxes every quarter.
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|
Who Pays the Commission?
The commission comes out of the proceeds of the sale before the seller receives any money. So the buyer is the one who is obligated to pay.
However, since the sale price includes the commission, the buyer is also paying the commission. Sometimes buyers may be able to negotiate a lower price if a seller is representing himself or herself and therefore doesn’t have to pay a seller’s agent commission.
A seller without a listing agent may still be called upon to pay the buyer’s agent a commission. However, the commission will likely be lower than the full commission that would be paid if there were buyer and seller agents on the deal.
Like everything about commissions, a buyer and seller can negotiate the way the commission is paid. A seller could agree to pay a portion of it.
If neither buyer nor seller is represented by an agent, there is no sales commission. Often in this case one or both parties would hire a real estate agent, broker or attorney to oversee preparing documents for closing.
Who pays realtor fees for…
There are a lot of moving parts in real estate transactions, and where your agent’s fee directly comes from will vary based on your unique circumstances.
It’s most common for sellers to distribute agent fees once they get the money from their home sale, but this isn’t always the case. You could end up paying realtor fees out of pocket based on a variety of factors, such as the contracts you sign with your agent or the type of home you purchase.
Let’s take a look at some common outliers when it comes to real estate transactions, and just who pays realtor fees in these situations.
Selling your home without a realtor is one of the leading ways that sellers save money on agent fees, but it can leave buyers in the lurch when it comes to fees.
If you’re buying a FSBO home, it’s possible that the seller isn’t offering any agent commission, or is only offering a fraction of your agent’s established rate. If this is the case, consult your agency agreement to determine if you need to pay your agent out of pocket.
Before you sign with an agent, ask them about FSBO home purchases and how they would expect to be compensated if the seller isn’t offering to cover their fee.
If you’re selling FSBO, we always recommend offering a buyer’s agent commission in your sale price. It’s a good way to ensure that agents will show your home to potential buyers, so you get multiple competitive offers.
When the buyer and seller use the same agent
In this situation — known as dual agency — one realtor works as both the buyer’s and seller’s agent. The agent’s fee will typically still come from the proceeds of the home sale in a dual agency transaction.
Since the agent makes two commissions from the same sale, there’s also room for negotiating a lower commission rate. Sometimes a dual agent will be willing to lower their rate to 4% instead of 6%, so don’t be afraid to ask!
💰 Tips For Sellers If you’re selling and want to stay open to a dual agency arrangement, ask your agent to include a variable rate commission in your agency agreement. This model would allow your agent to charge their full fee if the sale closes with another agent, or a reduced rate if they end up also representing the buyer.
Dual agency can present some conflicts of interest, though, and is actually illegal in some states.
Why? A listing agent’s job is to help their client get the highest possible price for their home. The buyer’s agent wants to negotiate the lowest possible price for their client. It can be difficult for a single agent to balance both of these obligations.
Because of this, it’s usually best to consider dual agency for specific situations, like if you already have a buyer or are comfortable negotiating with one on your own, and just need a professional to handle the paperwork.
New construction homes
If you’re buying a new construction home, the home builder acts as the seller and pays your agent upon closing.
Before you sign a purchase contract, you’ll meet with your builder and agent. That will be your opportunity to discuss commissions, and to ask your builder if they’ll cover your agent’s fee.
Home builders with more experience and developments under their belt usually expect to pay buyers’ agents. They often bake realtor fees into their marketing budgets just like regular sellers.
🚨 For New Construction Buyers Always include your agent when initially approaching builders. Bring your agent with you when you tour a model home or register with a builder. Most builders treat agent fees similar to finders’ fees: if your agent doesn’t introduce you, the builder may not pay them.
Likewise, smaller home builders (those that are more local or have less experience) might raise the price of a build if you bring on a buyer’s agent.
If a builder won’t cover your agent’s fee, talk to your agent. They’ll discuss your options or help you find another builder that can build your dream home and cover their fee.
Foreclosures and bank-owned homes
If you’re buying a foreclosed home, otherwise known as real estate owned (REO), who pays realtor fees is pretty similar to a traditional home sale.
Instead of a home seller, you’ll work with a bank or the U.S. Department of Housing and Urban Development (HUD).
Real estate owned (REO) homes were previously foreclosed and did not sell at an initial property auction. If a home doesn’t sell at auction, a bank or the HUD will sell it themselves.
Banks or the HUD will hire a listing broker to sell the REO properties they own, and the listing broker will split the commission with the buyer’s broker after the sale closes.
When a sale goes through an auction house, the auction firm or company will pay participating agents from the sale proceeds.
If you’re selling your home through an auction, your agent’s commission fee will be decided through a contract signed between you, the agent, and the auction company. This auction contract establishes elements like agent commission, which will supersede your listing agreement if you signed one.
💡 Editor’s Note In some cases, you might not owe your agent anything if they only referred you to the auction firm. The firm will simply pay them a referral fee.
If you’re buying a house on auction, your agent also earns commission established by the auction firm. However, you might be expected to pay a buyer’s premium, usually around 3-10% of the total sale price. The auctioneer will dictate this premium, and disclose it to you prior to bidding so that you can factor it into how much you’re willing to spend.
Every auction firm is different, though. Always ask if you’re not sure about an element in a contract or need to clarify certain details. Also consider hiring a real estate attorney for extra legal support.
Realtor fees for land sales are usually split between agents like a traditional home sale, and distributed by the seller after they close on the sale.
However, commission on land sales can sometimes get a little pricier than the average 5-6% because the agent stands to make a lot less on these lower priced sales. In fact, 10% commission isn’t unheard of!
Like most things in real estate, realtor fees on land sales are negotiable. You can always negotiate with the landowner and your agent on fees.
How agents get paid on short sales is a little different than a traditional home sale.
🤔 What is a short sale? A short sale is when a homeowner sells a home for less than is still owed on their mortgage. Usually, short sales are pursued by homeowners in financial distress and must be approved by the seller’s lender.
When a short sale closes, all the proceeds go to the seller’s lender who pays out the realtor fees. Like traditional home sales, the going rate for commissions is typically 6%, split between the seller’s and buyer’s agents.
Short sale agent fees are confirmed during the negotiation process between the lender, seller, and the seller’s agent (if they have one). Real estate agents working on a short sale won’t usually know how much commission they can expect until negotiations are over and the lender has approved the short sale.
If you’re in a difficult financial situation and need to pursue a short sale to avoid foreclosure, having someone in your corner to negotiate with your lender can be a huge help. Real estate agents experienced with short selling, or even a real estate attorney, might be able to help you get better terms from your lender.
The bottom line
Realtor fees can cost quite a bit, it’s true. Going it alone is possible, but the services an experienced agent provides are valuable, especially in a hot and fast-paced market. And it’s tough to DIY when you’re already juggling other everyday responsibilities. In addition, since Realtors don’t get paid until your home sells, they’re highly motivated to make sure your property brings in the best possible price it can.
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