Real estate agents make their money by arranging home sales and taking a cut of the sale price, usually in the range of 5 to 6 percent. This fee is typically paid by the seller at closing and gets deducted from the seller's money and given to his agent. The seller's agent doesn't get to keep all the cash, however. The seller's agent must share the bounty with the buyer's agent. If they didn't, Realtors would essentially work for free when showing houses, and no one wants to work for nothing.
The 6 Percent "Tradition"
Real estate commission rates aren't fixed, which means you can negotiate with your Realtor for a lower fee. Although a 6 percent commission is common, the average agent commission in 2015 was 5.26 percent. When discussing commission, you may notice that your agent frequently refers to a "traditional commission." This may seem odd, but it's quite normal in real estate circles. It's illegal for agents in an area to fix their prices by all agreeing to charge a specific rate. Any reference to a "standard" or "normal" rate has a negative connotation to Realtors because referring to a pricing standard could refer to a fixed price, 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. 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.
What Commission Covers
If a cool 3 percent per home sale has you thinking of a career change, think again. Real estate agents don't get to keep all that money. Agents typically work through a broker. The broker is the company whose name appears on the for sale sign in the yard. Brokers also pay the MLS listing fees, advertising costs and other expenses associated with selling homes. 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 place your home up for sale by owner (FSBO) and act as your own agent, advertising the home and fielding offers from potential buyers yourself. Be aware, though, that most buyers will be working with agents, and those agents will probably expect a commission from you as the seller. If you go flat-fee or FSBO when selling and you want agents to bring their clients around, you'll still end up paying some commission, albeit at a lesser rate.
- RubyHome: How do Realtors Get Paid? What Every Buyer and Seller Should Know
- Realtor.com: Who Pays the Realtor Fee and Closing Costs?
- Realtor.com: How to Negotiate a Realtor Commission
- The Washington Post: Realty Agents’ Average Commission for Home Sales Heads Down Toward 5 Percent
- Credit.com: Why Do I Have to Pay My Real Estate Agent 6%?
- Jupiterimages/Creatas/Getty Images
- Realtor Appraisal Vs. a Bank
- Can a House Be Sold Without Clearing the Title?
- What Percentage of the Sales Price Should You Offer on a House?
- How to Sell Your Home at the Highest Possible Price
- 7 Questions to Ask When Selling Your Property
- Should the Home Appraisal Be a Factor When Placing an Offer?
- How Does Listing Price Affect an Appraisal?
- How to Sell a Home Without Paying Commission