How Much Are Real Estate Commissions?

  • How Much are Real Estate Commissions?

We get asked frequently, “How much are real estate commissions?” or, “What is the commission you pay to a real estate agent to help you buy or sell a home?” Most people think the answer is around 6%, split between the buyer’s and seller’s agent which is usually correct. But, what if you knew that it was all negotiable? And, what if you knew you could save some of that money to buy more house or keep your hard-earned equity?

Over the years, the real estate industry has created the belief that there is a “standard commission.” This is simply not true. Real estate commissions are absolutely negotiable.

While some homeowners don’t mind paying that rate because they believe their agent has earned it, most would be happy to pay less and save more.

Technology Has Changed Real Estate

With the use of technology, homebuyers are able to find their dream home online easier than ever before. Buyers now have apps and websites like Zillow that let them search by location and neighborhood. Many online listings have virtual tours so shoppers can look at a bunch of potential homes while narrowing down their search to a select few in the effort to save time. According to a survey by the National Association of Realtors, more than half of all home shoppers say that finding the right home is the MOST DIFFICULT STEP in home buying. But here’s the crazy thing, most of the home searching process is done by a potential home buyer BEFORE he or she connects with a real estate agent.

So why would you want to pay a REALTOR® 3% if you found your own home which is the hardest part of the process? Some would say it is because of the work that goes into it after you are under contract, not just opening a door- which is true. However, if you are a potential buyer or seller, you may question, “Is my agent truly earning their commission check?”

But How Much Are Real Estate Commissions?

In 2017, home buyers and sellers paid a total of approximately $75 billion in real estate commissions. Take a look at how much it is in the top 10 markets in the US. However you slice it, that’s a massive number, but to understand how this impacts each and every home buyer and seller, let’s take a look at a couple real life examples:

Susan owns a beautiful $400,000 home in Denver. She decides to list her home with her friend Rhonda who is a real estate agent. They list Susan’s home on a Thursday and by Monday it is under contract for the full asking price of $400,000. Woohoo! When the home closes and Susan hands the keys over to the new owner, she will also pay $22,400 in real estate commissions ($400,000 x 5.6% average real estate commissions in Denver). WOWZA! That means that Rhonda will make $11,200 and the buyer’s agent will also make $11,200.

Let’s look at another scenario. Bob owns a $850,000 home in Seattle and decides to sell his home. He uses Bruce his brother-in-law. They list Bob’s home on a Thursday and by Saturday it is under contract for the full asking price of $850,000. In this scenario, Bob the REALTOR® would make $25,500 and the other agent who brought the buyer would also make $25,500. So Bob is paying $51,000 in real estate commissions ($850,000 x 6% average real estate commission in Seattle). Call us crazy but he must really like his brother-in-law to pay him $25k for a month’s worth of work.

Are More Expensive Homes More Work to Buy or Sell?

This all makes us wonder why should an agent who is going through the exact same procedures make substantially more simply because a home is more expensive? Despite what an agent may tell you, selling a more expensive home isn’t double the work.  Just ask our lead agents. They will all tell you that the real estate transactions are pretty standard. Our lead agents know what they’re talking about. They each sell an average of 168 transactions per year, which is 30x the national average.

Negotiate the Commission

REALTORS® have been known to tell a homebuyer, “Don’t worry about the commission, the seller pays it anyways.” If that is indeed the case, you should ask them to take a commission less than 2.8% to strengthen your offer. Some will say, “OK” and unfortunately some will say the dreaded line, “If they don’t pay me the 2.8% commission, you owe me the difference,” which then voids their statement of, “Don’t worry about the commission, the seller pays it anyways.”

Ask your agent what the commission he or she will make on each home you’re considering. If you are a buyer who is looking at a home listing that is offering a reduced commission, you don’t have to pay the difference to get your agent 2.8-3% commission. A REALTOR® can take a reduced commission and we see quite a few agents who do. If you do ask for a reduced commission, you’ll never get it.

Are There Alternatives to Paying Standard Real Estate Commissions

Did you know that there are many ways you can either save your equity or buy more home? If you are a seller, you can negotiate the listing agent commission as well as the commission you are offering the buyer agent who successfully brings a buyer! You can use those savings for retirement, your kid’s tuition, or our personal favorite… a kitchen remodel! Also, if you are a buyer and searching for a home, you can submit an offer with a reduced commission to strengthen your offer, or you can negotiate the commission with your buyer agent. If they are offering 2.8%, you can use the excess to pay for your closing costs or reduce the amount of your loan. Who doesn’t love a smaller mortgage payment!?

There are alternatives to paying high commissions.  Transaction Brokers and Flat Fee Brokerages are one example. With this model, you simply pay one flat fee to buy or sell a home no matter the price. TRELORA can assist help you with either of these alternatives if you are buying or selling. Simply contact us and let’s get the conversation started.

 

By |2018-08-01T20:49:12+00:00July 12th, 2018|Buying, Real Estate Commissions, Selling|0 Comments

About the Author:

TRELORA is the word “REALTOR®” jumbled up for a reason. Traditional agents work for commissions; TRELORA works for you. Instead of charging expensive percentage-based commissions, TRELORA uses the best technology and the best people in the business to provide the same full-service experience at a low flat fee.