The answers to the questions you want to ask...but don't.
Article source: Homelight.com
Most real estate agents get paid through commissions. Commissions are typically calculated as a percentage of a property’s sale price, though some brokerages will charge a flat fee. The average real estate agent commission rate nationwide is 5.8% of the home sale price, according to HomeLight’s real estate transaction data of thousands of home sales each year.
Generally, you can expect to pay between 5%-6% in agent commissions when selling a home in 2022. On a property worth the median existing home price of $358,000 as reported in Jan. 2022, that amounts to $17,900-$21,480 in commission costs. According to the most recent data from the National Association of Realtors, the median gross income of Realtors in 2020 was $43,330, down from $49,700 in 2019. The decline is likely due in part to a shortage of for-sale homes and increasing number of real estate licensees in the business (3 million and counting).
Who pays real estate commission fees?
Typically commission fees are paid in full by the seller in the transaction. As explained by top real estate agent Rachel Moussa of Flower Mound, Texas, in most places, “the standard is for sellers to pay both the listing agent and the buyer’s agent’s commission. The listing agent puts on the MLS what percentage the seller has agreed to pay cooperating brokers.”
When is the commission owed?
The real estate commission will automatically be deducted from the sale proceeds at the time of closing. Until then, no money to the real estate agent will be owed.
Does the agent get to keep the full commission?
Although the seller pays the entire commission, the listing agent (representing the seller) in a transaction doesn’t keep it all. Part of their commission will go toward marketing your property with professional photography, open houses, offline marketing, and more.
The commission is also typically split 50/50 with the buyer’s agent to compensate them for bringing a buyer to the sale and coordinating the buy-side of the transaction. So, around 2.5% to 3% goes to the listing agent, and the other 2.5%-3% goes to the buyer’s agent.
Both the listing agent and the buyer’s agent will then share a percentage of their commission with their sponsoring broker.
These split rates can vary; however, it’s common for the listing agent to give their broker anywhere from 30%-50% of their commission, depending on the agent’s level of experience, their market size, and brokerage agreement.
How is the commission divided between agents?
The commission paid for 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)
Are commission rates negotiable?
Real estate agent commission rates are negotiable, but don’t be surprised if your agent holds firm on how much they charge. A 2019 study from the Consumer Federation of America interviewed 200 agents and brokers nationwide and found that 73% will not negotiate their commission. One reason agents gave for not lowering the rate was their ability to negotiate a higher sale price for the seller.
Top-producing agents especially would not be likely to devalue their services — the reason being, they have a stellar reputation, they don’t need to reduce their rate to attract client, and they’ve invested in certifications and trainings to provide expert services. Because an agent’s services often include photography and a pricing analysis, a lower commission could also translate as a smaller marketing budget for your property or inaccurate list price, reducing the home’s promotion, exposure, and likelihood of selling.
“There was a house that was being listed by a ‘you move free’ discount broker.” It was on the market for 81 days,” shares Moussa. “They fired that agent and hired us. It was a renovated farmhouse. We brought in a stager, did drone photography and videography, and properly marketed it and got multiple offers.”
Exceptions can occur if you’ve already found a buyer. Let’s say you’re selling your house to a friend, or have decided to sell to a family member, in that case, the agent would likely be willing to play the role of transaction coordinator and independent go-between for a reduced commission rate.
In summary, commissions are negotiable but do your research first. When asking an agent to lower their pay, you’re limiting the pool of agents willing to work with you. And the downsides to working with a low-commission agent can be steep. Without a top agent in your corner, you could dramatically undersell your home, have a rough selling experience, or fail to sell the home at all.
What is included in a real estate agent’s commission?
A full service real estate agent will provide a high level of offerings that go toward giving you a great selling experience and boosting exposure to your home.
An agent’s services fall into a few main categories:
Guidance on pre-sale improvements
Agents have seen a lot of houses. They will have an eye for the small but impactful improvements you could make to help it sell for more. The best agents will go above and beyond to help their clients get the job done.
“We had one seller — they had stuff everywhere, it was super dirty, the furniture wasn’t working the way they had it. But the house was over a million dollars. We went through the whole process of making a list of things that they needed to do,” shares top-selling agent Sandra Rathe of her experience selling the home of a client in South Florida. “This particular client had a lot of paperwork from their business. So we called in our intern; we bought a shredder and sent it over with the intern.”
Pricing strategy
An agent will put together a comparative market analysis in the form of a thick packet featuring charts, facts, figures, and photographs of houses. The analysis will show you what your home is worth based on comparable sales in the neighborhood, market trends, and local price per square foot. This key tool is going to help you set a realistic price that helps you attract offers right off the bat in a fraction of the time it would take a non-professional to determine.
Marketing services
As part of their commission, at a minimum agents should offer expert home prep and staging, professional photography, marketing flyers and pamphlets, direct mail, automatic postings of your listing on major home search sites, local advertisements, exclusive previews for other brokers, and open house coordination. Advanced agents may also offer development of a virtual tour.
“Our team actually meets the photographer out at the house to make sure that all the right angles are taken,” shares Moussa.
Offer management and negotiations
When you receive one or more offers, an agent will help you determine the strength of the offer and work with you to proceed on responding to buyers. They’ll advise on whether to accept, reject, or make a counteroffer, while putting together offer spreadsheets to identify the best offer in bidding war situations.
If a buyer requests repairs after the inspection, an agent will help you push back where appropriate and advise on when to concede. Should the appraised value be lower than the contract price, an agent can help you determine whether to ask the buyer to make up the difference or if you should lower your price.
Market knowledge and neighborhood expertise
Great real estate agents know what local buyers seek in homes and which of your home’s attributes to highlight. Whether your sunroom is the only one like it in the area or your location can’t be beat, an agent will skillfully incorporate these features into your home’s listing description and immediately be able to recognize what makes your house or the surrounding area special.
Moussa summarizes an agent’s services and the ultimate goal:
“The agent puts everything into the MLS, asks detailed questions about the home, writes the property description, and then markets it. We do Facebook Ads, door hangers, whatever we need to do to get it out so that every possible buyer’s agent can see the home. The listing agent’s responsibility is to bring as many offers as they can to the seller.”
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 translate as having an agent who is dedicated to selling your home for the best possible price, who is available and communicative, and who is willing to quarterback 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 some more candidates.
What if the house doesn’t sell?
Real estate agents only get paid if and when your home sells successfully. Most real estate contracts are “exclusive right to sell” which provides the real estate agent the sole rights to market the property, list the property on MLS, and receive the commission if the sale closes in a determined time frame. If your house remains on the market beyond the time period outlined in the listing agreement, you are not obligated to pay your agent.
Keep in mind, though, that your listing agreement may contain a protection clause, also known as a “brokerage protection clause, “safety clause,” “extension clause,” or “tail provision.” The protection clause states that if a buyer who the listing agent introduced to the property purchases the property after the listing agreement expires, the seller still must pay the agent a commission.
How can you avoid paying Realtor® fees?
There are two main ways to avoid paying Realtor® fees. You can either sell your home without an agent’s help, or sell it directly to a cash buyer without ever going on the market.
“For Sale By Owner”
Without a real estate agent, you’re responsible for preparing your home for sale, marketing, negotiating, and navigating legal and financial documents — and potentially assume more legal risk along the way. When going FSBO, you’ll need to hire an attorney at a minimum to make sure the paperwork is right.
Typically, FSBO makes the most sense if you already have a buyer. Industry data since 1981 shows that FSBO sellers often sell to a friend, family member, or neighbor. As of 2020, 51% of FSBO sellers knew their buyer, compared to 8% of all sellers.
This indicates that while the FSBO route is rare (8% of sellers), it’s even more rare to forgo a real estate agent’s help when you don’t already have a buyer lined up and ready to go. In addition, according to the National Association of Realtors, the average “For Sale By Owner” property sold for $217,900 last year, compared to a median of $242,300 for agent-assisted sales. That’s an 11% loss in value for a 6% commission saved.
Sell to a cash buyer
Cash buyers — including iBuyers, investors, and house buying companies — are individuals or entities that purchase your home outright, without the need for lender financing. These buyers typically make off-market purchases and can provide speed and convenience to sellers. You can receive a competitive cash offer through HomeLight’s Simple Sale platform, with no hidden fees or agent commission.
HomeLight provides offers for homes in almost any condition, while giving sellers a flexible move-out date. Just be aware that the price offered by any cash buyer may not match what you could receive on the open market with the help of a top agent.
Now you know how real estate agent commissions work!
Sellers pay real estate commissions in exchange for an agent’s expertise and services throughout the sale process. If you’re worried about the cost of the commission, consider that targeted upgrades, stellar marketing, and savvy negotiations can help you maximize your sale price. With an agent to guide you, you also avoid the stress of navigating this complex process without professional oversight.
The key is finding a quality agent who provides the highest amount of value for their commission fee. In fact, our transaction data shows that the top 5% of agents in the U.S. sell homes for as much as 10% more than the average agent.