Real estate agents make their money by arranging home sales and taking a cut of the sale price, usually in the range of 5 percent to 6 percent. When you're selling a home, this can cost you a substantial amount of money come closing time, since it's the sellers who typically pay the commission. Look on the bright side, though: When you're buying, it's like your agent is working for free.
The 6 Percent "Tradition"
According to the National Association of Realtors, real estate agents have "traditionally" charged 6 percent commissions on home sales, although 5 percent commissions aren't unusual. According to Real Trends, an industry research group, the average commission in 2011 was 5.4 percent, so that's right there in the ballpark. Real estate professionals can be a little touchy about using words like "standard" or "normal" to refer to commission rates, however. That's because doing so may suggest a conspiracy to fix prices, and that's a no-no.
Who Pays It, Who Gets It
In just about every case, it's the seller who pays the commission. So if you sell a house for $200,000 and your agent charges a 6 percent commission, you'll have to fork over $12,000 worth of the sale price. Typically, the seller's agent and the buyer's agent split the commission 50-50, so in this case each agent would get $6,000. This split is negotiable, though. In fact, just about everything's negotiable when it comes to commissions. An agent might typically charge 6 percent, but you can try to talk her down to 5 percent, accept a deal in which her commission depends on how quickly the house sells, or work out some other arrangement.
Where It Really Goes
If you're thinking about getting into real estate as an agent and start raking in a sweet 3 percent per house, understand that the agent doesn't actually get all that money. Agents typically work through a broker -- the company whose name appears on the sign in the yard and on the free pens and fridge magnets and other stuff the agent gives out. Commissions are typically split between the agent and the broker, and the percentage of the split varies. For example, new agents at a particular brokerage might get to keep less than half of the commission money they earn, while veteran agents who bring in a lot of business might get to keep three-quarters of it.
Going Your Own Way
There are alternatives to the typical commission structure. "Flat-fee" and discount brokerages list houses for a set dollar amount, rather than a percentage of the sale price. You could also go the FSBO route -- "for sale by owner," where you act as your own agent, advertising the home and fielding offers from potential buyers. Be aware, though, that most buyers will be working with agents -- buyers don't pay commissions, after all -- and those agents will probably expect a commission. If you go flat-fee or FSBO when selling and you want agents to bring their clients around, you might still end up paying commission, although not as much as you would if you'd hired a traditional agent.
- National Association of Realtors: How Agents Get Paid
- Bloomberg Businessweek: Why Redfin, Zillow, and Trulia Haven't Killed Off Real Estate Brokers
- National Association of Realtors: Antitrust Quiz
- National Association of Realtors: What Are Typical Realtor Fees and Commissions?
- MSN Money: 3 Ways to Pay Lower Real-Etate Commissions
- CNN Money: Homeowners Ditching Brokers
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