What Is Realtor Commission?

By 

Bailey Peterson

Updated 

September 25th, 2020

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At the completion of a home sale, the real estate agents involved collect a fee called "realtor commission," "real estate commission," or sometimes simply "realtor fees."

Realtor commission is usually calculated as a percentage of the home’s sale price, in the range of 5-6%.

The money for realtor commission comes out of the seller's proceeds from the sale. This includes the realtor fees for both the seller's own agent (often called the "listing agent" because they list the home for sale) as well as the agent that represents the buyer.

Below, we explain everything you need to know about realtor commissions, including how they work, their typical cost, and what services real estate agents provide to earn their fee.

How realtor commission works

Realtors typically aren't paid a salary and don't make money upfront when they take on a new client looking to buy or sell a home. Instead, they earn commission on the home's sale when the deal closes.

Commission rates are talked about as a single percentage — often between 5-6% of your home's sale price. However, that is not meant to imply that you are only paying one agent; typically, the seller’s agent splits this fee with the buyer’s agent, who brings one of their clients to purchase the home.

Since realtor commission comes out of the proceeds from the home sale, which otherwise would go to the seller, people usually say that the seller pays for both realtor fees.

So why would the seller pay for the buyer's agent? There are a couple ways of looking at it, but essentially, the buyer's agent commission is a marketing expense to attract buyers. Here's how that works:

  • As a seller, if you don’t offer a buyer’s agent commission, buyers who want to work with an agent will have to pay their agent out of pocket.
  • That means buyers will have to bring 2-3% of the home’s price in cash to pay their agent on top of their down payment — making your home much less affordable than similar homes nearby that are offering a buyer's agent commission.
  • In addition, buyer’s agents who see your home listed for sale will see that you aren’t offering any commission and may be less inclined to show their clients your home.

How much are realtor fees?

Home sellers should expect to pay 5-6% of their home's sale price in realtor commissions; however, these rates are 100% negotiable.

» More: Average Realtor Commission Rate

A home seller and their real estate agent typically agree on a commission rate when they sign a contract to work together. This contract — called the listing agreement— outlines the payment, duration, and other terms of the realtor-seller working relationship.

How do realtors get paid?

Realtors get paid at the very end of the real estate transaction when the home sale is finalized. This typically takes place on the home's closing date in a process known as settlement when a title company officially transfers ownership of the home, and distributes proceeds from the sale.

Agents don’t get to keep all of their commission — which is important for you to keep in mind if you’re trying to gauge how much your realtor will make from your sale. Realtors generally split the commission they earn from a home sale with their broker, who is legally required to oversee the transaction.

The amount of commission that agents have to split with their principal broker will vary but is typically in the range of 30–50%. For example, if the listing agent commission on a home sale was 3%, and the agent had an agreement to split the commission 50-50 with their brokerage, the agent’s take-home pay from the sale would be 1.5%.

Here's an example of how that works for a home that sells for $200,000:


Percentage
Dollar amount
Total commission
6%
$12,000
Listing broker cut
1.5%
$3,000
Buyer's agent's broker cut
1.5%
$3,000
Listing agent take-home pay
1.5%
$3,000
Buyer's agent take-home pay
1.5%
$3,000

The listing and buyer’s agent each make $3,000, and their brokers each collect the same amount. The broker justifies their cut by providing training, marketing support, and certain legal protection to their agents.

What does real estate commission cover?

Real estate commission is typically all inclusive; it covers all aspects of the marketing and sale of your home.

Most agents will do the following to sell your home:

  • Perform a Comparative Market Analysis (CMA) to help you properly price your home
  • List your home on the Multiple Listing Service (MLS)
  • Promote your home on popular real estate sites like Zillow
  • Pay for professional photos
  • Coordinate showings
  • Help you with legal paperwork
  • Negotiate on your behalf

Realtors front the time and money needed to market your home; you don't pay them anything until you finalize the sale. That means if your home doesn't sell, your realtor is the one who takes the hit.

If you are a home buyer, the question of what commission covers is less important. As we mentioned previously, buyers do not typically have to pay real estate commission; your agent's fees are usually paid for by the seller out of the proceeds generated by the home sale.

Furthermore, there is less variation in the services provided by buyers' agents as almost all buyer's agents will help their clients:

  • Find homes
  • Attend showings
  • Submit and negotiate offers
  • Handle the legal paperwork

While the services outlined above are what agents typically offer, the level of service will vary from agent to agent.

So how will you know what your realtor is willing to do and what services they'll pay for when selling your home? Typically, the details of what your agent will do to sell your home is decided when you sign your listing agreement. They may provide this in the form of a marketing plan, which presents the agent's plan for attracting potential buyers.

If you want more expensive marketing — such as staging, 3D tours, or extensive social media advertising — your agent may refuse to pay out of pocket. If you know you want these things for your home, make sure you discuss this with your agent before you sign a listing agreement.

Is realtor commission negotiable?

Realtor commission is completely negotiable, and negotiating can be a really effective way to save money when you're selling a home.

Just because commission rates are negotiable, that doesn't mean that an agent will lower their fees for you. To successfully negotiate for lower commission rates, you'll likely need to convince your agent of one of two things: your home will be easy to sell, or it will make your agent more money than they'd typically earn on a sale.

Things that show your home will be easy to sell
Things that show your home will make your agent more money than normal
Homes in your neighborhood are selling fast
Your home has a high value relative to others in your area
You can vacate your home right away
You don't need expensive marketing for your home
You'll pay out of pocket to have the home staged
You'll use them to buy a home in the future
Your home is in excellent condition
You'll refer them to your friends who are looking to buy or sell soon

You also may be able to get lower rates just by shopping around and comparing agents. Some agents will be more willing to offer you low rates than others. Just remember that commission rates aren't the only thing you should consider when choosing an agent: their experience in your neighborhood and price range, customer reviews, and your personal rapport with them are important as well.

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Do you have to pay realtor fees if your home doesn't sell?

Most of the time, if your home doesn't sell, you don't have to pay realtor commission. However, the specifics of whether or not you owe realtor fees depends on what you agreed to with your agent.

Home sellers only have to pay realtor fees if their agent fulfills the terms outlined in their listing agreement, which specifies exactly what they have to do to get paid. Usually, listing agreements require that the agent finds a buyer and sells the home within a set time frame.

There are some cases where sellers might owe realtor fees even if their home doesn't sell. A listing agreement might stipulate that if the listing agent brings the seller an offer for at least the full asking price of the home, they’re owed a commission. So in this case, if the seller chose to reject a full price offer, they'd still owe realtor fees.

Additionally, your listing agreement might say that if you choose to take your home off the market before the listing term ends, you must reimburse your agent for some of the marketing expenses they incurred.

Read the fine print of your agreement carefully.

How realtor commission works on rentals

Realtor commission works differently on rental properties than it does for most home sales. The main difference is that typically the landlord pays the agent's commission when they find a tenant.

If you're using a rental agent to help you find an apartment, you're probably off the hook in terms of paying commission.

One notable exception to this is New York City where the renter usually pays the rental agent's commission.