How do Realtors get paid?
Home sellers might have the sense that real estate agents charge an exorbitant fee for their services. But the fees, which are based on a percentage of a home’s sale price, can vary widely. In fact, Realtor fees have been decreasing for years and fell to a record low of 4.94 percent in 2020.
With mortgage rates still relatively low, it makes sense to work with an agent if you’re buying a home. But sellers see many benefits, too. Your home will still need to be staged and listed for on the market, and it takes time to research properties and put in a good offer when you’re buying. So despite the shift toward virtual showings through the pandemic, Realtors still provide a wide variety of services to sellers and buyers that are worth the commissions they charge.
How much commission do Realtors get paid?
Only a very small portion of Realtors work on salary — the commission model is much more common. Real estate commissions can be negotiated, but they typically run about 5 percent to 6 percent of a home’s sale price. The exact terms of an agent’s commission vary from sale to sale, and can depend on region and which firm they work for.
Here’s roughly what you can expect to pay, based on how much your home sells for:
|Home’s sale price||5% real estate commission|
Realtor commissions are typically paid by the home seller, explains Patrick Duffy, who runs Duffy Realty in Miami. Sellers sign a listing agreement with a Realtor in which they agree to pay a commission fee.
Depending on your state, the buyer may not be responsible for Realtor fees at all. Instead, both the buying and selling agents are paid with proceeds from the sale of the home. These two agents typically split the total commission — so for a 6 percent commission, the selling agent would receive 3 percent and the buying agent would receive the other 3 percent.
That changes in the case of dual agency, when one agent represents both the buyer and seller. Laws about whether and how listing agents can sell the properties they’re representing to buyers vary by state. In a dual agency scenario, pay particular attention to the appraisal to ensure you’re getting a fair price. While agents have a fiduciary duty to their clients, with dual agency, the lines can get blurred.
If working with a buyer’s agent, “you have to sign a buyer’s agency agreement,” explains Tim Noland, a buyer’s agent with Great Mountain Properties in Murphy, North Carolina. “A true buyer’s agent works for the buyer. They protect the buyer’s investment, as opposed to the listing agent, who’s actually working for the seller.”
Real estate brokerages may get a cut of the commission as well. The brokerage brand RE/MAX, for example, has a split commission setup by which its agents receive 95 percent of the full commission from the sale, and 5 percent goes back to the company.
“The broker has to set the policy and oversee, monitor and supervise everything the agent does,” Duffy says. “And if the agent does something fraudulent or unprofessional, the broker gets sued.”
How commissions have changed over the years
Since the early 1990s, Realtor commissions have seen a fairly steady decline. In 2021, the average commission was 5.5 percent — down from more than 6 percent in 1991.
This isn’t to say the total amount Realtors earned decreased, however. In strong selling markets, home prices are high and sellers receive multiple offers. This allows more room for negotiation on the commission, so Realtors may accept a lower commission to earn a higher amount overall.
As the market slows down, Realtor commissions may rise again and become less negotiable. Even so, a seller with a high-priced listing may still be able to negotiate a lower commission more effectively.
Realtor fees cover benefits for sellers and buyers
You might wonder, what services does this fee buy me? One of the biggest ways buyers benefit from working with a Realtor is gaining access to the Multiple Listing Service (MLS), the database Realtors use to see and list properties for sale. An agent is also able to utilize their contacts to negotiate, find properties and take you on tours of multiple homes. It also compensates the agent for time spent answering questions and helping you through the process.
The Realtor’s fee covers a wide range of costs for sellers as well, including marketing materials, staging and showing the property, coordinating open houses and contacting agents of potential buyers.
As with most of the other expenses related to homeownership, a Realtor’s fee isn’t paid until the sale closes. You’ll encounter plenty of other closing costs, too, from taxes to legal fees, so it will blend into the landscape of checks you’re making out.
Are Realtors overpaid?
Though home sellers may feel that Realtor fees of up to 6 percent are too high, Duffy argues that they’re not high enough. After all, a lot goes into listing a home, such as:
- Performing a comparative market analysis to establish a competitive price
- Arranging for photo shoots, sometimes including aerial shots via drone
- Writing descriptive listing copy to attract interest from other Realtors and potential buyers
- Providing staging guidance
- Showing the property multiple times to prospective buyers
- Hosting open houses on weekends
- Providing yard signage
- Making sure listings are populated on all major property search websites
- Helping the seller review and negotiate buyer offers
When an offer comes in, the listing agent negotiates on behalf of the seller, often presenting one or more counteroffers. And with the volatility of the current market and record low levels of inventory, Realtors frequently deal with multiple potential buyers to help you get the most out of your property.
Average real estate commissions by state
Overall, the national average Realtor commission in 2021 was 5.5 percent, according to data from Clever. In most states, the commission ranged between 5 and 6 percent. But in states like California and New Hampshire, where expensive properties abound, the commission was typically under 5 percent. Find the average commission in your state in the table below:
|State||Average commission rate|
How to avoid paying Realtor fees
In 2019, just 11 percent of home sales were sold by owners without the help of an agent, according to the National Association of Realtors (NAR). In addition, NAR says, for-sale-by-owner homes (FSBOs) typically sell for less money than homes sold by Realtors. In many instances, FSBO sellers already know the buyers who end up purchasing their homes. Buying without a Realtor is also doable, but the jury is out about whether it’s a wise move — especially in this market.
When you shop around for Realtors, ask them from the outset what their commission is and compare the terms of each person you talk to. If you think the fee is too high, talk to them about lowering it.
“In certain situations where there’s a competitive environment for a prime or trophy listing, Realtors sometimes will negotiate the commission upfront,” Duffy says. “For example, if I’m listing a $4 million home at 6 percent, that’s a lot of money. In a situation like that there is greater flexibility to negotiate the commission — if you get $100,000 or $80,000 instead of $120,000, it’s still a good payday.” If the transaction is being handled on both sides by agents from the same brokerage, you might have more leverage as well.
The bottom line
Realtor fees can cost quite a bit, it’s true. Going it alone is possible, but the services an experienced agent provides are valuable, especially in a hot and fast-paced market. And it’s tough to DIY when you’re already juggling other everyday responsibilities. In addition, since Realtors don’t get paid until your home sells, they’re highly motivated to make sure your property brings in the best possible price it can.
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