Average Real Estate Commission in Minnesota

We polled local agents and found that the average real estate commission in Minnesota is 5.77%, which is higher than the national average.

More specifically, our survey revealed that commission rates in Minnesota are typically in the range of 5.37% to 6.17%. For a house sold for $272,175 — which is the median home value according to Zillow — this translates to $14,607 to $16,784 in real estate agent commission costs.

Whether you're comparing agents or just trying to estimate home-selling costs, it pays to know the typical real estate commission rate in your area. Being armed with this information can help you more accurately predict how much you will earn when selling your house or ensure that you don't overpay when hiring a real estate agent.

Below, we explain how real estate commissions work in Minnesota, detail the factors that affect how much agents charge, and give some tips on how you might be able to negotiate lower rates.

How Real Estate Agent Commission Works in Minnesota

There are two real estate agents involved in a typical home sale:

• The seller's agent (also called the listing agent), representing the home seller
• The buyer's agent, who represents the person buying the home

These agents are licensed real estate professionals, whose main goals are to help their clients navigate the home buying or selling process.

>> LEARN: More about what real estate agents do.

The seller's and buyer's agent get paid a percentage of the home's final price when the sale is finalized. This payment is called real estate agent commission, and is baked into the sale price of a home.

Real estate commission costs for both the buyer's and seller's agent are often lumped together and talked about as a single percentage (eg 5-6%). However, sometimes commission costs are broken down for each agent separately.

>> LEARN: More about how real estate commissions work.

Who pays for real estate commissions?

Home sellers are responsible for paying the real estate commission of both the agent representing them, as well as the agent representing whoever buys their home. The money that pays for these commission costs, comes from the proceeds generated by the home sale.

It may seem counterintuitive for the seller to pay for the buyer's agent. One way to think of buyer's agent commission — as a home seller — is that it is a marketing cost. In other words, you offer a commission to incentivize buyer's agents to show your home to their clients.

One important thing to note, is that commission rates aren't set in stone — the home seller can always negotiate to try and get lower rates.

>> LEARN: How you can negotiate lower commission rates.

How do real estate agents get paid?

When you sell a home, the percentage of the home's sale price that is allocated for realtor commission is split between the buyer's agent and the seller's agent. The specific terms of how commissions are paid out are outlined in the listing agreement— which is a document that home sellers sign when agreeing to work with their agent.

Often commission splits are around 50-50, but the exact amount can vary depending on where you live. Based on our research, the average commission split in Minnesota has 51.45% of the commission going to the listing agent and 48.55% going to the buyer's agent.

Real Estate Commission Split Ranges in Minnesota

Most real estate agents don't get to keep all of their commission when a home sale closes. Instead they must split the commission with their principal broker — which is a real estate professional that holds a broker's license and is therefore qualified to supervise real estate transactions. All real estate agents that don't hold a broker's license, which is 68% percent according to the National Association of REALTORS®, must work under a principal broker.

>> LEARN: More about the difference between brokers and agents.

The amount that the broker gets typically ranges from 50% to 25%. The exact percentage depends on the experience level of the real estate agent — with more experienced agents typically getting to keep a larger share.

Assuming a listing agent gets to keep 60% of the commission — with the other 40% going to their brokerage — selling a typical home in Minnesota nets them between $4,518 to $5,171.

Here's how that breaks down for a home in Minnesota that sells for $272,175:

• Total listing commission: $7,530 to $8,619
• Amount paid to the listing agent's broker: $3,012 to $3,448
• Listing agent take-home pay: $4,518 to $5,171

Factors That Affect Real Estate Commission Rates in Minnesota and Tips to Negotiate Lower Fees

Real estate commissions are not set, and there are a variety of factors that can drive rates up or down depending on where you live and what your specific circumstances are.

Knowing what the factors are that affect commission rates in Minnesota can not only help you determine whether an agent is offering you a good deal, but can also help you negotiate lower rates in some circumstances. Below, we've included the most common reasons that real estate agents lower their commission rates nationwide:

Another factor that may affect commission rates, is how common it is for home sellers to negotiate in your area. In Minnesota, 38% of the real estate agents we surveyed said that it is common for home sellers to negotiate commission rates, whereas 8% said that it was uncommon, and 46% said that it happens only some of the time.

Below, we break down some of the most common factors that affect commission rates and explain how you might use this to negotiate lower rates.

Why agents lower rates for repeat clients

Agents sometimes offer lower rates in exchange for repeat business. They do this, because the long term value of clients that are going to use them for multiple real estate transactions is much greater than the amount lost by reducing their rate for a single transaction.

If you are selling a home and planning on buying in the same area, you can take advantage of this by offering to have your listing agent represent you when you buy a home in exchange for lower commission rates. In this scenario, you get to save on commission, and your listing agent gets to earn commission on two real estate transactions instead of one.

Here's an example of how the figures breakdown for homes sold and bought in Minnesota for $272,175:

* Based on a commission rate that is reduced by 0.5% compared to the Minnesota average.

How local real estate market conditions impact commission rates

Real estate commission rates in Minnesota can fluctuate over time depending on whether it's currently a buyer's or seller's market.

• Seller's market: There are more interested buyers than there are homes for sale — as a result homes sell quickly at or above their listing price.
• Buyer's market: There are fewer buyers than there are homes for sale. Because of this, home's sit on the market for a while and sellers may have to drop their listing prices.

In a seller's market a listing agent's job is easier and they may be more inclined to offer lower commission rates, while the opposite is true in a buyer's market.

Below, we've included a breakdown of three factors that can help you determine if the Minnesota real estate market is currently more favorable for home buyers or home sellers:

Months of inventory

The months of inventory — measured by dividing the homes listed for sale in the most recent month by the number of homes actually sold in that month — is a key indicator of how much supply and demand there is for houses in a market.

Generally speaking, when months of inventory is greater than six months it indicates a buyer's market, when it is less than five months it indicates a seller's market, and figures between these values indicate a more neutral or balanced market.

In Minnesota, based on the most recent data available, there is 1.1 months of inventory, here's how the numbers breaks down:

Source: Realtor.com data, September, 2020

Sale-to-list ratio

If homes in your area are generally selling for more than their listing price, that is a good indication that you are in a seller's market. This is measured by the sale-to-list ratio, which is calculated by dividing the final sale price by listing price.

Here's how sale-to-list ratios break down in Minnesota:

Source: Redfin, September, 2020

Median listing price

Increased listing prices indicate that demand for houses in your area is growing. Whereas if this figure is falling, then it's more likely that homes in your area are becoming less desirable.

Increased demand for homes in your area could mean that local real estate agents are more willing to accept reduced commission rates.

Here's how home values have been changing in Minnesota in recent years:

Source: Zillow data, September, 2020

Why agents sometimes offer reduced commission rates for high value homes

If your home has a particularly high value — relative to other homes in your area — you may be able to negotiate lower-than-average commission rates. The opposite is true for low value homes. In Minnesota here's how your home value may affect your commission rates:

Source: Zillow data, September, 2020

* Low value homes are considered to have costs between 5th and 35th percentile in the Minnesota real estate market

** High value homes are considered to have costs between 65th and 95th percentile in the Minnesota real estate market

Agents are more willing to lower commission rates for high-value homes, because they stand to earn more per transaction on these listings. In other words, the reduction in commission rate is offset by the increased earnings on these home sales due to the higher sale price.

For example, consider the following scenario where an agent lowers their listing commission by 0.5% for a high value home, compared to what they'd earn for a moderately priced home in Minnesota:

* Take home pay factors in a 60-40 split with the agents brokerage

Additionally, agents that have a reputation for selling high priced homes, are more likely to attract similar listings in the future. So lowering commission rates, to gain experience selling high value homes could pay off long term in the form of more high-value deals.

Methodology

Data on commission rates is based on a survey of 554 of our partner agents, in which we asked them to indicate the typical rates for both buyer's and seller's agents in their area.

Figures on how common it is for home sellers to negotiate commission rates in Minnesota was tabulated using the following criteria to categorize our survey responses to the question, "How often do home sellers in your area try to negotiate commission rates?":

• Common: We counted both "Almost always" and "Usually" responses
• Not often: We counted both "Rarely" and "Never" responses

Additionally, we utilized the following data from Zillow and Realtor.com:

• Home values, list prices, and sale prices: Based on Zillow data as of September, 2020
• Sale prices and sale-to-list ratios: Based on Redfin data as of September, 2020 (unless specified otherwise)
• Months of inventory: Based on Realtor.com data as of September, 2020

Additional Resources for Minnesota Home Sellers

Average Real Estate Commission Rates in Minnesota Cities

Minneapolis