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1.5% Commission - Explained

If a broker offers to sell your home for a 1.5% commission, it might sound like too good of a deal to pass up. Before you commit, read the fine print and find out if it’s really in your best interest. Read on for an explanation of what’s involved in a 1.5% commission sale.
1.5% Commission - Explained

Sellers looking to maximize profits from their home sale may balk at the 6% commission paid out to realtors at the end of the deal. That equates to $12,000 on a $200,000 home.

When you see some brokers offering to sell a home for 1.5% instead, it sounds like a great deal. But not all deals are created equal, and signing on with one of these brokers may result in hidden fees or lower quality services.

Always weigh all your options before deciding how to sell your home – a 1.5% commission may not save you money in the end.

Reach out for a free, no-obligation consultationto discuss the best way to save you money on realtor commissions.

In the meantime, we have also broken down the basics of the 1.5% commission and how it might affect your pocketbook.

What is a typical realtor commission?

A typical realtor commission is 5% to 6% of the final home sale. The commission is divided between the listing agent and the buyer's agent.

In exchange for their services, a listing agent will oversee the finer points of a home sale, including listing the home on multiple MLS, marketing to prospective buyers, managing viewings, and handling the negotiations.

Likewise a buyer's agent will identify, arrange showings, and handle negotiations for their customers. The seller typically pays both commissions at closing.

What does a 1.5% commission mean?

Some real estate companies advertise a 1.5% commission for their services. Redfin is one such full-service real estate agency that advertises home sales for 1% to 1.5% in specific markets. The company's agents offer everything from photographing, listing, and marketing a home to managing the sale.

But before signing with any agency, it's important to read the fine print.

The 1% to 1.5% listing offer from Redfin is only available in some markets and the 1% rate is also only available to sellers who purchase a Redfin home within one year of the sale.

Sellers will also still be responsible for paying the 2.5% to 3% closing costs to the buyer's agent. If the buyer is unrepresented, Redfin will increase the listing commission by 1%. The company also requires minimum listing commissions that range from $3,000 to $5,500, with most falling around $4,500.

How do you calculate commision?

Real estate commissions are calculated by taking a percentage of the total amount of a home sale.

Divide the commission rate by 100 and multiply it times the home sale. For example, a home that sells for $250,000 sold at a 6% rate — 0.06 or 6/100 — breaks down to $15,000 in commission fees.

In most deals, the agents split 50/50. The seller will pay $7,500 to their listing agent with the remaining $7,500 going to the buyer's agent.

Can you negotiate realtor commission?

You will find the most flexibility in negotiations with a prospective listing agent. One way to do this is to work with the same agent when buying and selling your new and old home. You can ask if they would be willing to reduce their commission on the sale while guaranteeing them the typical 3% commission rate on the future home. However, if you ultimately do not purchase a home with the agent, you may find yourself in breach of contract, which can result in other financial penalties.

You can also interview around and look for newer real estate agents still building their business. They could offer more flexibility in their commission in exchange for you giving referrals and helping them drum up future prospects.

It is important to keep in mind that you will still be on the line to pay a commission to the buyer's agent. Buyer's agents are less likely to negotiate their deal, because they can steer their clients toward other properties with full commission payouts. Asking for a deal could leave your house on the market longer than anticipated.

> Learn more about negotiating realtor commissions here.

How can you save on commission?

FSBO

FSBO — a real estate acronym for “For Sale By Owner” — is a real estate deal that takes place without a listing agent. By selling without representation, a homeowner hopes to save more money by avoiding the cost of a listing commission, though they are still on the hook for paying the 2.5% to 3% commission to the buyer's agent. If a FSBO sells their home for $200,000, they will pay $6,000 in commissions rather than $12,000.

FSBO sellers also assume more responsibility for their home sale. That includes everything from researching market trends to determining the best listing price to marketing the home, giving showings, and managing the negotiations.

There are limited resources available to FSBO sellers. While a homeowner can control their public listing on websites such as Zillow or Trulia, they will still need to enlist the help of a licensed agent to include their home on local MLS services.

Flat-Fee MLS

A flat-fee MLS broker handles listing a home on a multiple listing service while leaving the rest of the rest of the home selling process to the homeowner. Only licensed real estate brokers can list a home on an MLS, which are typically operated by local realtor associations or the National Association of Realtors.

Homeowners can list their homes on an MLS by partnering with a licensed broker or agent. Flat-fee agents may also provide other limited support based on the agreement between the homeowner and the agent.

In most cases, these agents are paid in advance for their services.

Full-Service, Flat-Fee Agents

A full-service, flat-fee agent offers a full list of services throughout the selling process. The listing agent will help with staging and photographing the home as well as listing the house on various platforms — including MLS.

They'll use their expertise to price and market the home to get the seller the best deal possible. The agent will handle showings, manage negotiations, and run the listing until the ink dries on the closing paperwork.

If you'd like to maximize the profits of your home sale without sacrificing service, it might be time to contact the experts at Clever.

Clever partners with agents who are top-rated in their area and work for major brokerages. Partner Agents offer the same full services as other realtors, but they have agreed to work for a flat fee of $3,000, or 1% if your home sells for more than $350,000.

Reach out for a no-commitment consultation to find out the best way to save on commissions.

FAQs About 1.5% Commission

How is commission split calculated?

Once a commission is paid out by the home seller, it is typically split by the listing and buyer's agents. How it's split depends on the listing agreement the seller signed with their agent.

From there, the fee is often split between the brokerage and the individual agent. How this works varies from agency to agency. Some go with percentages, such as an 80/20 or 70/30 split with the agent receiving the larger portion. Other brokerages offer agents a flat fee, which allows them to keep more of their commission.

When working with a 1.5% commission, the listing agent has agreed to work for a lower rate while the buyer's agent will still typically charge the standard 3% rate. Some organizations that charge a 1.5% commission have minimum commission rates.

In some instances, this means they will only take on customers with homes valued over a certain amount or they will require the seller to pay a larger percentage. Some reduced commission rates also require sellers to purchase future homes from their agency.

What is a fair commission percentage?

If a homeowner is asking $300,000 for their home, then working with a 1.5% commission fee could save them money. At that rate, they will pay the listing agent $4,500 and $9,000 to the buyer's agent for a total of $13,500. In comparison, a traditional deal would require they pay about $18,000 in commission fees.

In this case, the seller comes out ahead as long as there is no fine print requiring them to purchase another home from the seller's agency in a set period to avoid paying a penalty.

What does gross commission mean?

The gross commission is the total commission paid by the home seller. In a $200,000 home sale, that amount typically comes out to $12,000, or 6% of the total home sale.

From there, the gross commission is split between the agents representing the buyer and seller and once again split between the agent and agency.

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Jamie Ayers
Jamie Ayers

Jamie is the Director of Content at Clever Real Estate, the free online service that connects you with top real estate agents and helps you save thousands on commission. In the past, Jamie has managed columns for clients in a variety of leading business publications, including Forbes, Inc., CEO World, Entrepreneur, and more. At Clever, Jamie's primary goal is to provide home sellers, buyers, and investors with the information they need to successfully navigate the ins and outs of the real estate industry.

See all Jamie's Posts
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