According to the National Association of Realtors, up to 89 percent of sellers and 87 percent of buyers choose to work with a real estate agent to facilitate the sale of their property.
After all, buying or selling a home is a major financial transaction that requires knowledge of the local laws and market, as well as effective negotiating skills.
In exchange for their services, real estate agents receive a commission, which often amounts to thousands of dollars.
Before signing a contract with a listing or buyer’s agent, potential buyers and sellers should learn about the real estate agent commission and the work agents do to earn it.
The role of a real estate agent
Real estate agents fall into one of two categories: listing agents or buyers’ agents.
- A listing agent’s job is to help the homeowner sell the property as quickly as possible for the most amount of money.
- Buyers’ agents help buyers find a home that meets their criteria and price range, and then negotiate the best possible deal with the seller.
Both types of agents guide their clients through the closing process, which involves legally binding contracts and deeds.
Agent commission breakdown
The standard real estate agent commission on a transaction is 6 percent of the property’s sale price, and the buyer’s and seller’s brokers split this money.
After taking their cuts to cover the cost of operating the real estate firm, the brokers pay the agents, who typically receive between 60 percent and 90 percent of the remaining commission.
Under this arrangement, the total commission on a property that sells for $200,000 is $12,000. Each brokerage receives $6,000 and pays the two agents between $3,600 and $5,400 each.
Who pays the commission?
When listing a property for sale, sellers usually agree to pay the agent’s brokerage firm a commission based on the sale price.
At the closing table, the real estate agent commission comes from the seller’s side of the disbursement table, so many people believe the seller foots the entire bill for the commission.
However, this isn’t necessarily the case. Buyers may roll the commission into a mortgage. Sellers may inflate the sale price to ensure they receive a set amount of money.
Sometimes, buyers decide to buy a property being sold by the seller without representation if they don’t want to work with an agent to negotiate with the seller and assist them with the closing. In this case, the buyer’s agent must ask either the seller or the buyer to pay the agent’s portion of the commission.
Negotiating the commission
Though they earn a living from the commissions they make, real estate agents will negotiate the fees, especially if the market is slow and they need the business.
Brokers also sometimes agree to a smaller commission for sellers willing to share some of the work required to market and show the property, as long as the state’s law allows it.
When negotiating the real estate agent commission, buyers and sellers need to carefully consider what they’re asking the agent to do.
Unless the local market is so hot that homes are selling before they reach the multiple listing service, or MLS, real estate agents invest considerable time and money trying to complete a sale.
Their work includes searching through the available listings to locate property that meets the buyer’s criteria, negotiating the terms of the sale between the buyer and seller, and creating an effective marketing strategy for the home.
It’s not fair to expect agents to complete these tasks for a ridiculously low amount of money. Clients also need to remember that the broker, not the agent, makes the final decision on commissions.
Money well spent
Working with a real estate professional who understands what it takes to sell property in a specific area helps many buyers and sellers get the best possible deal on what’s likely the biggest financial transaction of their lives.
For some buyers and sellers, the commission they pay for this expertise is money well spent because it means they don’t have to complete the tasks themselves.
However, that doesn’t mean they pay full price for the work. Negotiating the real estate agent commission helps sellers save money while still getting the assistance they need.
NEXT: If you have a real estate agent, be ready to buy with a preapproved loan.