How much do real estate agents make?
Many real estate agents make their money through a commission structure where they are paid directly for services rendered in the sale of a property or the purchase of property. How much commission a real estate agent makes is dependent on the value of the home and the percentage allotted to the agents. The typical real estate commission is around 6% of the home’s sale price which is paid for by the seller. It’s also typical for this percentage to get split between the buying agent and the selling agent, meaning each will get close to 3% of the sales price.
How much is a real estate commission?
Real estate commission is typically calculated by a percentage of the total sale amount of a home. The seller pays up to 6% to both the seller’s agent and the buyer’s agent, if you are working with a traditional agent. So for example, if you sell a $300,000 home, you would pay $18,000 in real estate commissions. Depending on the value of the home, this commission can be a lot higher. For a traditional realtor, that is.
Who pays the commission?
The traditional viewpoint has always been that all real estate agent commissions are paid by the seller at the closing table because that is technically where all of the real estate commissions are subtracted from the proceeds of the home sale. However, most sellers bake the real estate commissions into the price they want to list their home on the market for. So really, it’s the buyers that are paying the commission because they are the one paying to buy the house. For example, a seller’s agent might recommend selling a home for $500,000 which includes 6% ($30,000) of commission baked into the price. Additionally, that can be a large sum of money for a buyer once you figure in compounding interest on a standard mortgage.
How do real estate agents get paid?
Most real estate commissions first go to the broker who manages the real estate brokerage where that agent works. From there, the commission is then split between the broker and the real estate agent depending on their agreement. The commissions split can vary from one agent to another which also depends on their agreement. This is true for both the buyer’s agent and the seller’s agent.
The commission is split at the closing table between the listing agent’s brokerage and the buyer’s agent’s brokerage. From there, the brokers subtract their commission from the transaction and the agents themselves are then paid by their brokers.
Additionally, some real estate agents are also brokers themselves, which requires extra training and licensing but can mean that they are able to earn more commissions on a transaction. This is because they don’t have to pay a brokerage commission to anyone and get to keep the money.
Contracts and commissions
If you want to know the exact percentage of your real estate agent’s commission, it should be included in your listing agent’s contract with you. This ensures that you are paying the appropriate amount of commission and that the listing agent gets paid if the property sells.
Buyer’s agents also typically include their commission structure in their agreement with their clients so that they are paid when the buyer completes a purchase. This will happen even if the buyer finds the property on their own.
What does a real estate agent commission cover?
Real estate agents provide their clients with a large range of services including:
- Helping you price the home accurately
- Marketing the home
- Negotiating with home buyers
- Facilitating the contractual elements of the home sale all the way to the closing table.
While this can be done by the owner, real estate agents typically have access to a larger pool of buyers and more experience with contracts than the average person. One of the larger costs of selling a home is effectively marketing it to potential buyers. This can include:
- Hosting open houses
- Advertising on social media
- Preparing the home for sale with staging services
- Multiple Listing Service fees
When it comes to the buyer’s agent commission, there is not really much overhead involved in marketing the home since they are not selling it. However, the buyer’s agent role is much more hands on and requires more of a time commitment. Depending on the level of experience with buyers, and their understanding of what they want, it can take an average of 4 – 8 home viewings before the buyer makes an offer. Even then, a lot can happen with the offer and it might fall through depending on the circumstances. For example, an inspection report may come back with more issues than expected and an inspection objection may need to be issued. With that said, the buyer’s agent spends a lot of their time on tasks such as:
- Showing homes to their clients
- Assisting with writing and negotiation offers on their behalf
- Recommending reliable mortgage brokers, home inspectors, real estate attorneys and movers
- Providing guidance on the transaction
Is a real estate agent commission negotiable?
There are not any laws in place that set real estate commission rates which means real estate commissions are always negotiable. However, the normal commission standards are around 5% to 6% depending on the market that you are in. You are entitled to the right to ask your agent to reduce their commission, but they are not obligated to do so.
One reason an agent may disagree to lowering their commission is because they typically pay for some of the upfront cost of selling your home, such as the marketing dollars for the property. It becomes riskier for an agent to take on a house where they earn a lower commission since they typically front the cost of the marketing.
It never hurts to ask for a lower commission and most agents won’t be offended by the request. The worst case scenario is that they say no. In this scenario, it would be recommended that you look for a real estate agent or brokerage that already has a reduced commission or a flat fee built into their business model.
What are flat-fee realtors?
Flat-fee real estate agents take a different approach to the commission structures we have discussed above. These real estate agents will typically do everything a traditional listing agent does but for a much lower flat-fee, regardless of the price of the home. For example, if you sell your home with a traditional agent, you would be paying 3% to them and that commission would equate to about $9,000. On the other hand, selling a $300,000 home for a flat-fee of, say, $3,000 with a flat-fee real estate company would potentially save $6,000 in real estate commissions. At Trelora, our agents will list your house for a low flat-fee and give you the world-class service you expect and deserve.