Content of the material
- Real Estate Commission
- Real Estate Agent vs. Broker vs. Realtor
- How Much is the Real Estate Commission in California?
- How is the commission divided between agents?
- Real Estate Commissions What You Need to Know
- Usually, The Seller Pays The Agent Fees.
- Types of real estate agents
- Real estate agent vs. Realtor
- Real estate agent vs. broker
- Example of a Real Estate Commission
- When Does Real Estate Commission Get Paid?
- Factors that influence commission rates
- How home value affects average real estate commission rates by state
- Why realtors lower their fees for repeat clients
- Published by
- Andrew Te
- Who pays realtor fees?
- Why does the seller pay the buyer’s agent?
- When and how do you pay realtor fees?
- Related links
- Are Realtors overpaid?
- Average real estate commissions by state
- How commissions have changed over the years
- What is a fair real estate commission?
- How Do Realtors Calculate Commission?
- Alternatives to using a real estate agent or Realtor
- Related reading
Real Estate Commission
Most real estate agents make money through commissions that are based on a percentage of a property's selling price, (Commission can also be flat fees, but that is much less common.) Agents work under real estate brokers, and the commissions are paid directly to the brokers.
Real Estate Agent vs. Broker vs. Realtor
The relationship between agents and brokers helps explain how real estate agents are paid.
Real estate agents are sales people licensed to work under the umbrella of a designated real estate broker, who ensures the agents are in compliance with state and national real estate laws. Agents cannot work independently and are prohibited from receiving commissions directly from their clients.
Brokers, who are able to work independently, hire real estate agents as their employees. Each real estate office has one designated broker. All commissions must be paid directly to a broker, who splits the commission with any agents involved in the transaction.
Both real estate agents and brokers can have the title of Realtor, if they are members of the National Association of Realtors (NAR) and subscribe to its code of ethics.
How Much is the Real Estate Commission in California?
Alright, so how much is the real estate commission in California? The answer isn’t so black and white.
First, there are the commission costs between the agent and the seller. As a real estate agent, you’ll be negotiating the final amount with the seller until you come to an agreement.
In California, the percentage of commission can range from 1-6% of the final sale. On average, the total amount paid to real estate agents in the US is between 5-6% of the final sale price. However, in California, more expensive properties will pay out a commission of 4-5%. That’s surprisingly lower than the national average!
This commission is for both real estate agents, the buyer’s agent and the seller’s agent. It is generally split between both agents equally meaning that each is paid a total of 2-3% on average.
How is the commission divided between agents?
The commission that’s paid by the seller will be split among each agent and the brokerages through which they hang their real estate license. Let’s say you sell your home for $220,000 with a 6% commission rate. You pay a commission of $12,000 and each agent has a 70/30 split agreement with their brokerage. Here’s how that might look:
- Listing agent: $4,200 (70% of their $6,000 commission share)
- Listing broker: $1,800 (30% of their $6,000 commission share)
- Buyer’s agent: $4,200 (70% of their $6,000 commission share)
- Buyer’s broker: $1,800 (30% of their $6,000 commission share)
Real Estate Commissions What You Need to Know
Let’s look how at how real estate commissions work.
Usually, The Seller Pays The Agent Fees
The seller pays the real estate agent’s commission in most real estate transactions. The seller paying makes a lot of sense because the home sale will produce a big payout for the seller, and the seller’s agent has to do a lot of work to make that sale happen.
The real estate agent commission can vary and is negotiable but often sits somewhere between 4 percent to 7 percent.
Depending on where you’re located, the most probable commission you’ll pay to sell your home is 5 to 6 percent of the home’s sales price. The average real estate commission will fall between these two figures, at 5.5%.
Since the seller is paying, they must do their due diligence before hiring a real estate agent. If you are selling a home, you need to interview multiple real estate agents to find one that fits your specific needs and has a personality that you can work with and feel comfortable with.
Once you hire the real estate agent, they will sell the home and ensure that you get the best possible deal from the transaction. Typically, real estate agents do not get paid until the home sells.
Types of real estate agents
You may hear the terms ‘real estate agent,’ ‘Realtor,’ or ‘brroker’ used interchangeably. But there are some key differences between these professionals.
Real estate agent vs. Realtor
All Realtors are real estate agents or brokers. But not all real estate agents or brokers are Realtors.
Realtors are members of the National Association of Realtors (NAR). And the Realtor trademark is intended to stop agents who aren’t Realtors from claiming they are.
The NAR would say, with some justification, that its members have greater expertise (they have to pass additional exams) and are held to higher professional standards than other real estate agents.
Real estate agent vs. broker
A real estate agentis someone who has passed his or her state’s relevant exams and who’s been licensed to practice as an agent.
A real estate license is the lowest level of qualification for people to facilitate the buying and selling of homes.
Each state sets its own exam standards and continuing education requirements. It’s easier to get a licence in some states than others.
A real estate broker has gone the extra mile and taken additional exams. So he or she should — theoretically — have greater knowledge and expertise than an agent.
And a broker is more likely to have a senior post in a real estate brokerage, often managing other agents’ activities.
The Bureau of Labor Statistics reports the national median income of a real estate agent was $51,220 in 2020.
By contrast, the BLS also found real estate brokers tend to make about $10,000 a year more than sales agents.
Example of a Real Estate Commission
Here's an example of how a real estate agent is paid a percentage of the commission that the listing broker earns on the transaction.
Say an agent takes a listing on a $200,000 house at a commission rate of 6%. This equals a total commission of $12,000. If the house sells for the asking price, the listing broker and the buyer's agent's broker each get 50% of the commission, or $6,000 each ($200,000 sales price x 0.06 commission ÷ 2). The brokers then split their commissions with their agents.
A common commission split gives 60% to the agent and 40% to the broker, but the split could be 50/50, 60/40, 70/30, or whatever ratio is agreed by the agent and the broker. It is common for more experienced and top-producing agents to receive a larger percentage of the commission.
In a 60/40 split, each agent in our example receives $3,600 ($6,000 X 0.6) and each broker keeps $2,400 ($6,000 X 0.4). The final commission breakdown would be:
- Listing agent: $3,600
- Listing broker: $2,400
- Buyer's agent: $3,600
- Buyer's agent's broker: $2,400
There are cases, though, in which commissions are split among fewer parties. For instance, if a broker lists a property and finds a buyer, that broker would keep the full 6% commission (or whatever the rate in the listing agreement is). Or, if a listing agent sells the property by acting as agent for both the seller and the buyer, that agent would split the full commission with their sponsoring broker. If the commission is $12,000, as in the previous example, the broker keeps $4,800 and the agent receives $7,200 (assuming the same 60/40 split).
Of course, as in other professions, an agent’s earnings are eroded by taxes and business expenses. Federal, state, and self-employment taxes as well as the cost of doing business—insurance, dues, multiple listing service (MLS) fees, and advertising—end up taking sizable chunks of the agent’s commissions.
When Does Real Estate Commission Get Paid?
Real Estate commissions are paid at the closing. The fees come out of the seller’s proceeds and are shown on the HUD Settlement Statement.
The commission check will be given to the listing agent at the closing table. The listing brokerage will pay any balance of the commission owed to the co-broke if there is one.
Factors that influence commission rates
In addition to regional trends, there are a number of factors that influence how much you end up paying in realtor fees when you sell your home.
Most of the factors that affect how much an agent might charge for a given home sale stems from the fact that realtor fees are negotiable. Agents will lower or raise the amount they charge depending on:
- The home
- The client
- The current state of the real estate market
Based on our research,working with repeat clients is the most common reason that real estate agents agree to accept lower rates.
Here's a full breakdown of the most common factors that cause agents to lower their commission rates:
Conversely, our survey showed that the most common reason that listing agents negotiate for higher rates was that home sellers requested expensive marketing.
Below, we've included the full breakdown of all of the factors:
How home value affects average real estate commission rates by state
Typically, realtors will be more willing to accept lower commission rates for homes that have high values.
Our study of commission rates found that in real estate markets where home values were high, realtor fees were typically lower than the national average. For example, commission rates across the states with the highest median home values were markedly less than the national average of 5.37%.
So why would high home values cause agents to lower their rates? Mainly, it's because the work that agents have to do to sell homes is not significantly different for high and low value homes.
Agent's earn commission based on the home's selling price, so they stand to earn a lot more money selling higher value homes — relative to their effort and time investment — than lower value homes.
Furthermore, even if they have to spend more time or money marketing a high cost home, it may be worth it for that agent.
Consider the following example, where the listing agent earns 57% more per hour selling a $500,000 home than they would selling a $250,000 home, even after factoring in the marketing costs and time commitment:
Home sale price $250,000 $500,000 Time to sell 10 weeks 12 weeks Out of pocket marketing cost $500 $1,000 Time spent actively selling (eg showing, marketing, etc.) the home 30 hours 34 hours Commission earned $4,500 $9,000 Net commission earned per hour of time actively marketing/showing the home $150 $235
Why realtors lower their fees for repeat clients
Realtor fees are by far the most expensive part of selling your home. By lowering the rate you pay by just a small margin, you can save thousands of dollars when you sell.
Having steady business is valuable for real estate agents — home sellers can use this fact to negotiate lower commission rates.
For real estate agents, having consistent streams of clients is crucial to their livelihood. After all, real estate agents typically only process around 12 real estate transactions per year— meaning that gaining a deal has a large impact on their income.
To agents, there is more value in having reliable repeat business, than there is in maximizing their commission they earn on any single deal. Because of this, agents often lower rates to attract clients that are likely to use them for future transactions.
Andrew has 7+ years of experience in Real Estate and working with Real Estate Agents. He is passionate about the housing market and solving problems. View all posts by Andrew Te
Who pays realtor fees?
The home seller pays realtor fees for both their listing agent and the buyer’s agent out of their final proceeds.
Though buyers pay closing costs when purchasing a home (including things like escrow fees and mortgage points), these do not include real estate agent commissions.
» MORE: Who pays realtor fees?
Why does the seller pay the buyer’s agent?
You can consider the buyer’s agent commission as a marketing expense when selling a home. It’s sort of a bounty — the seller offers a financial reward to the realtor who brings them a qualified buyer with a solid offer.
Since the buyer pays for the house and realtor fees are deducted from the seller’s proceeds, the buyer does pay realtor fees in an indirect way. Technically, realtor fees and other closing costs are just baked into the seller’s asking price.
When and how do you pay realtor fees?
During the home sale closing process, the title company takes the realtor fees out of the seller’s proceeds and distributes them to the agents’ brokerages. The brokerages take their cut and then pay the agents.
This process happens seamlessly during closing. You won’t have to worry about mailing a check or handing cash over to the agents — the title company handles everything.
ARTICLE SOURCES National Association of Realtors. "Quick Real Estate Statistics."  Collateral Analytics. "Saving Real Estate Commissions At Any Price."  Zillow. "United States Home Values."
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 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.
What is a fair real estate commission?
A commission rate between 5%-6% is standard for most markets to hire a full service real estate agent. This rate should mean you have an agent who is dedicated to selling your home for the best possible price, who is available and communicative, and who is willing to shepherd the transaction from start to finish. If an agent isn’t willing to offer all or the majority of services listed above, you should interview more candidates.
How Do Realtors Calculate Commission?
Commission is, very simply, calculated as a percentage of the home sale.
So for a $600,000 home and a standard 6% commission, that’s sale price x (percentage/100) = Commission fee, or $600,000 (6/100)= $36,000.
The Realtor fee comes from the home sale price before repairs or deductions to account for repairs, not after.
Alternatives to using a real estate agent or Realtor
Many sellers think real estate agents’ commissions as too high and try to avoid them.There are three main ways of selling a home without such high costs:
- For sale by owner — At its most basic, this might involve putting up a yard sign, printing and distributing some flyers, and telling everyone you know your home’s for sale. It’s cheap and sometimes works, especially in hot real estate markets. But the risk of undervaluing or overvaluing your home is high
- Flat-fee MLS listing by owner — The MLS is the Multiple Listing Service. It’s the online resource that real estate agents use to let other agents and buyers know that a home is available. Owners can add their listings (which may appear on Realtor.com and Zillow, too) by paying a flat fee — or a smaller flat fee with a success charge on sale
- Trimmed-down services — Some agents offer lower commissions for a more basic service. You might get a menu — from MLS alone through increasingly complete levels of service — from which you choose what you want and how much you’re willing to pay
Are these better ways to sell? That will depend on many factors, including:
- How strong your local property market is
- How good you are at appraising your own home’s value
- How much effort you’re prepared to put into finding a buyer
- How confident you are in your ability to shepherd your sale through to closing
If you’re sure you can handle all those as well as an agent, feel free to sell without enlisting one.
But for many people, working with a real estate agent, broker, or Realtor gives them peace of mind they’re getting the best price on their home from the most qualified buyer.
Do I Need A Real Estate Agent? Learn The TRUTH: If you think the best way to save money on realtor fees is to forgo working with a realtor, you’ll want to read this. Learn exactly what agents do to earn their commission and what you’ll need to do if you opt to buy or sell without one.
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