What are the benefits of paying 6% commission over 5% for a real estate agent?
Are there any at all? We are here to tell you.
Realtor commission can be one of the biggest costs associated with purchasing a home. This is because on a $200,000 sale, a 6% commission is $12,000. That’s a pretty big chunk of change! Sums this big can really cut into your profits, especially if you would like to purchase a new home soon after.
If you can lower the commission even to just 5%, it’s only $10,000. With $2,000 on the line, it’s no wonder you’re wondering if you really need to pay your Realtor 6% for good service.
And the short answer? No. You don’t need to pay such a large commission.
Here is why:
Is There A Benefit To 6% Commission?
Here is everything you need to know about Realtor commission (and why you are probably paying too much if you pay 6%):
Why is the Average Commission 6%?
Way back in 2002, two economists by the names of Natalya Delcoure and Norm Miller did a study. This study looked at real estate commissions in different countries around the world. The study found that most 1st world, industrialized countries, Realtors only charged a commission rate of 1% to 5%.
Can you imagine only paying 1% commission for a full service Realtor? How amazing! So why is America’s so high?
Well, it’s all in the history.
The standard of charging an average of 6% commission first started in the 1940s. This is when the National Association of Realtors began to engage in something called fixed pricing. Later, the Supreme Court ruled that fixed pricing was illegal, but nothing changed.
This is because local property boards and real estate associations continued to suggest a commission of 6%. Since they did not officially fix the commission, they were not technically breaking the law. In the 1970s, many upset people filed lawsuits against these boards, but there was still no impact. The standard commission stayed at 6%.
In modern times, unpredictable markets can cause the commission to vary as Realtors would prefer a smaller sale to no sale at all. However, the average commission still hovers between 5-7% of the final sales price.
How Does Realtor Commission Work?
A Realtor’s commission is his entire salary. Agents do not receive a base pay. They only receive money if they sell houses. Because of this, sellers can assume that the promise of commission motivates agents to sell the house quickly and for a good price. This is because their livelihood depends on it.
Something to note is that even with the average commission of 6%, the seller’s agent does not get to keep all of it.
Let’s continue to use the example of 6% on a $200,000 sale. When the seller’s agent takes the $12,000, the first thing he does is split it with the buyer’s agent. This is because without the buyer’s agent, there is no sale. The seller’s agent must pay the buyer’s agent for introducing the customer into the situation.
If the seller’s agent is working with a broker or larger real estate firm, then those teams would get a portion of the commission as well. Then, before the balance goes into the Realtor’s pocket, he needs to pay off the selling costs.
This could be things like marketing your home and hosting the open house. However, sometimes the sellers pay for these things on top of paying the commission fees.
All of this to say, Realtors deserve to be compensated for the good work that they do. However, 6% commission is an arbitrary number decided on over 70 years ago. Because of this, there is really no difference in service between an agent who charges 6% and 5%.
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Are There Full Service Agents that Don’t Charge Commission?
What are the benefits of paying 6% commission over 5% for a real estate agent? None, really. With so close a commission, you are likely to get an engaged, professional Realtor at either price point.
However, there is even better news! You can get the same service for a fraction of the cost if you work with a flat fee Realtor.
For example, an agency like Clever only charges a $3,000 flat fee to sell homes and a 1% fee on homes over $350,000. Let’s apply this to that $200,000 sale. With 6% commission, you automatically lose $12,000.
But if you list with Clever, you only pay $3,000 to sell your home! That is $9,000 of immediate savings – just through your choice of Realtor.
Flat fee agents are breaking through the antiquated notions of 6% commissions. They are selling high-quality real estate quickly and professionally. If you pick a flat fee Realtor, what will you do with all of your instant savings?
Are you ready to sell your house and not break the bank on commission? We are too! List with Clever and pay only one flat fee for full service support. Call us today at 1-833-2-CLEVER or fill out our online form to get started.