Updated May 11, 2019
What commission percentage do real estate agents make? This is a great question that should be on your mind as you choose the right agent to partner with to buy or sell a home.
Different kinds of agents work with different pricing structures, all of which vary by city and state, so it’s essential that you understand how (and how much!) your agent expects to be paid before you begin working together.
What Percentage Do Real Estate Agents Make?
The current going rate for Realtor commissions is between 5% to 7% of the home’s final sale price.
The full fee usually first goes to the agent who worked with the home’s seller, who receives 2.5% to 3.5% of the proceeds. Then, the selling agent will send the other 2.5% to 3.5% to the agent who worked with the buyer.
So, let’s say you sold your home for $250,000 and worked with an agent on a 6% commission fee.
This means that the agent who sells your house would earn $15,000 for their efforts. He would then typically split this profit with the buyer’s agent, meaning that each agent gets about $7,500 for their efforts.
It is important to note that while the national average rests between 5% and 7% of a home’s final sale price, individual real estate agent’s rates vary.
It’s always a good idea to shop around before committing to a specific person or agency, so you can find someone whose price (and personality!) is the right fit for you.
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What Does This Mean for Sellers?
It means that even though your home is worth $250,000, you would only receive $235,000 from its sale.
Because of this, many sellers take their home’s “assessed value” which is how much the local government thinks a certain property is currently worth for tax purposes, and build on it to arrive at the home’s “fair market value.”
For example, if a tax assessor says a home is worth $250,000 and you are working with an agent who charges a 6% commission fee, then highlighting the home’s amenities on all of the marketing materials and starting the asking price significantly higher might be a potential strategy.
Things like a newly remodeled kitchen, a view of the nearby mountains, and the ease of access to local public transportation are all things that can increase a home’s fair market value, which is what an unpressured buyer might be willing to pay for a home.
This means that if your home is worth $250,000, if your original listing price is at least 6% higher (roughly $265,000), then it is still possible to walk away from a sale netting the full value of your property.
Who Pays Realtors?
Real estate agents are typically only paid when they close a sale.
If you are selling a home, your agent receives a check when he finally partners with an agent who can introduce the right buyer into the equation.
As mentioned, when you buy a home, a portion of the selling agent’s fee goes to the agent who introduced you to the property. Unless you sign a buyer’s agency agreement, you only pay your agent if you decide to purchase a home through them. A buyer’s agency agreement is a contract outlining certain exclusivities in the buying process.
If you didn’t sign a contract, it should be pretty easy to “break up” with a bad agent if things are not working out.
Do Realtors Keep the Entire Commission?
Agents typically don’t work independently, but rather through a brokerage. A brokerage is a company whose name is on the sign in the front yard and all other advertising materials.
The brokerage provides coverage and support to the agent. It does things like paying the Multiple Listing Service fees, advertising costs, and other expenses associated with property transfer. Because of this, the brokerage requires its agents to pool their commission with them.
Newer agents might need to turn in roughly half of their earned commission, while agents who have been with the firm longer and have a track record for success might get to keep up to 75% of it.
Can you Negotiate Realtor Commission?
Sometimes you can negotiate a smaller fee. There are two common situations that make these negotiations easier.
The first would be if you are relocating locally, perhaps to a bigger house to accommodate a growing family, or maybe downsizing for retirement. In this scenario, it wouldn’t be unlikely that you would use the same real estate agent to sell your current home and help you find your new one.
The second situation in which negotiating a lower Realtor commission would be fairly reasonable is if you have an interest in purchasing a home and your agent is also representing the seller in the transaction.
Because there is only one real estate agent in both of these scenarios, it is possible to work with him to reduce his fee by up to 50%.
Using our previous example, if the home assesses for a value of $250,000, instead of charging a 6% fee of $15,000, you can ask for a flat fee of 3%, or $7,500. You can do this because the agent in question is BOTH the buyer’s and seller’s agent with no one to split the fee with.
What are Flat Fee Realtors?
Flat Fee Realtors, sometimes called Flat Rate Realtors, are agents who charge a set price for their services, instead of working on a commission from the sale. Usually, the set price is valid until a certain price point, after which the agent would charge a nominal fee, typically between 1% and 2% of the final sales price.
With Clever Partner Agents, you’ll get a flat fee of $3,000 or 1% with homes that list over $350,000. You’ll get a full-service listing agent for way less than traditional commission.
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