Content of the material
- How real estate agents get paid, and who really pays them
- How to avoid paying Realtor fees
- Is Hiring an Agent Worth the Cost?
- How Much Are Real Estate Agent Fees?
- Are realtor fees negotiable?
- Negotiating other fees
- What do real estate agents and Realtors do?
- Alternatives to using a real estate agent or Realtor
- What Does a Real Estate Commission Cover?
- Who pays realtor fees?
- Why does the seller pay the buyer’s agent?
- When and how do you pay realtor fees?
- What If a Home is Listed As For Sale by Owner?
How real estate agents get paid, and who really pays them
The agents who represent the seller and buyer split a commission fee (typically 5-6% of the purchase price of the home according to Forbes) at the close of escrow. The concept of who pays the commission can be a tricky one to explain, which is why it’s no surprise some agents attempt to simplify things by telling the buyer that the seller covers the fees. That, however, isn’t entirely true.
While the payment is technically disbursed by the seller, the funds come from the money the buyer pays to the seller. It’s actually not uncommon for sellers to account for paying these commissions by factoring them into the initial listing price. Buyers essentially foot the bill for these fees when it comes time to close.
According to agent Elizabeth Weintraub, “It can be argued, quite rightfully so, that the buyer always pays the commission. Why? Because it’s typically part of the sales price. If the seller did not sign an agreement to pay a commission, the sales price might have been lowered.”
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.
Is Hiring an Agent Worth the Cost?
Okay, now let’s answer the question you’ve been waiting for: Are real estate agents worth the cost? Well, as we covered earlier, sellers cover the commission for both agents. So, buyers have nothing to lose! But how about you sellers out there? If you’re considering not using an agent or going the “For Sale by Owner” (FSBO) route, first take a look at the stats. The latest data shows the typical FSBO home sold for $217,000 compared to $242,300 when sold by an agent.2 That’s a $25,300 difference!
If you’re considering not using an agent or going the “For Sale by Owner” (FSBO) route, first take a look at the stats. The latest data shows the typical FSBO home sold for $217,000 compared to $242,300 when sold by an agent.2
Sure, around $16,000 of that would go toward the agent commissions. But that’s still almost $50,000 more in your pocket than you would have gained by selling solo! And, even if that difference ($65,000) is only half right in your particular market, you’d still potentially come out ahead by $18,500 by using an agent.
How Much Are Real Estate Agent Fees?
The average real estate agent commission ranges anywhere between 5% and 6%. Keep in mind, though, that these fees are negotiable. If you're using a top-tier broker or agent, it may be worth it to pay the full commission as they will probably work as hard as they can to get you the best deal possible.
Are realtor fees negotiable?
Realtor fees are always technically negotiable — but many agents aren’t willing to budge on their rate. As the Consumer Federation of America reports, roughly 73% of listing agents won’t negotiate on their fees.
That said, there are some situations where a realtor may have some room to negotiate. If you’re selling a more expensive home (think above $500,000), a realtor may be willing to lower their fees — because they’ll still receive a high dollar amount overall.
Realtors may also be more flexible on their fees if your home is in excellent condition and is likely to sell fast, if it’s a hot seller’s market, or if you’re planning to buy and sell a home with the same agent.
Negotiating other fees
If you’re trying to save money, consider negotiating other fees before closing. Your Closing Disclosure provides a breakdown of the fees you’re responsible for as the buyer. These include credit report fees, loan application and originations fees, and broker fees, among others.
Additionally, buyers and sellers may encounter additional fees based on the city or state where the transaction takes place. In San Francisco, for example, Navarro notes that there is a city transfer tax that is split equally between the buyer and the seller.
However, the way fees are split between buyer and seller can also vary. Navarro points out that in Santa Clara county it’s customary for the seller to pay title and escrow fees for the buyer, but in San Francisco and most other Bay Area counties the buyer covers those costs. Real estate agents can help make sure you’re aware of any relevant state or city fees and they can offer insight on local procedures.
What do real estate agents and Realtors do?
Whether acting on behalf of sellers or buyers, the duty of a real estate professional is to maximize the benefits his or her client gets from the home transaction.
Agents do this by having:
- An intimate knowledge of the local housing market, including expertise in appraisal
- Negotiating skills to secure the best or optimum price for the client
- Local contacts in the marketplace who can help with the rapid acquisition or sale of a home
- A close knowledge of the legal and mortgage processes involved
- Troubleshooting skills that keep a transaction on track when issues arise
- Interpersonal skills that allow clients to feel comfortable and in control throughout the process
If you pick a good one, your agent can be highly valuable.
Ideally, your agent will have several years of experience in your local real estate market. But new agents can offer a lot of skills and insights, too.
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.
What Does a Real Estate Commission Cover?
A real estate commission covers all the work that goes into buying and selling property. Trust us, a great agent does a lot to help you buy or sell a house. A seller’s agent shows you how to stage your home for buyers and—since they know what similar homes in your area are selling for—they help you price it right. They also put your home in front of a ton of buyers using a multiple listing service (MLS), social media and ads. This helps you get your home sold quickly and for top dollar.
Meanwhile, a buyer’s agent studies home listings that match your needs and price range. They help you arrange a home inspectionand oversee any necessary repairs or contract adjustments so you don’t get a bad deal. They do everything they can to help you find and purchase a dream home that’s within your budget.
Beyond those differences, both types of agents give you the confidence that a real estate professional is on your side, and they offer many similar services. For example, both agents:
Meet with you in person to understand your needs and answer any questions you have
Educate you on current market conditions
Give you access to an MLS—which offers more options to buyers and visibility to sellers
Refer other needed pros (mortgage lenders, photographers, inspectors, attorneys)
Schedule home showings
Negotiate the best price for you
Represent you throughout the sale and act in your best interest
Help you through the mountain of paperwork
A good agent tackles these tasks day in and day out. Their experience helps you avoid rookie mistakes. Sure, you can try to handle all these things by yourself. But, when you’re sitting in the hot seat of a real estate transaction, you’ll quickly realize that agents are worth their weight in gold!
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.
What If a Home is Listed As For Sale by Owner?
Sometimes, people list their property as For Sale by Owner in order to reduce the costs of listing fees or paying an agent. However, if a buyer who is represented by an agent purchases the property, the seller is still generally expected to pay the buyer’s agent commission. In this instance, sellers will often include a clause that determines the amount they will pay the buyer’s agent upon the sale of the home. This amount is usually in the range of 2%-4%, but as mentioned above, buyer’s agents should be diligent in ensuring their commission is covered in writing.
It’s important to remember that real estate agents do plenty of hard work in order to guarantee the satisfaction of their clients and act in their best interests. They deserve the commission that they make, so due diligence should be taken when navigating the payment of commissions to ensure that no conflicts arise.
While there are multiple costs included in a real estate transaction, agent fees tend to be the single largest expense. Because of this, it’s important to have an understanding of who is expected to pay what. Although the money for the buyer’s agent commission is technically coming from the seller, this cost is nearly always factored into the price of the home, which means that contrary to popular opinion, the buyer usually ends up being the one footing the bill.