If you hire a real estate agent to help you buy, sell, or rent a house, this professional gets paid through the average real estate commission. So how much do you pay, and what for? Is there any wiggle room to negotiate this fee or the closing costs associated with it?
Allow us to tell you everything you need to know about real estate commissions, from who pays what to where that money goes during a real estate transaction.
Who pays the commission?
Rather than getting paid hourly or weekly fees, most real estate agents earn money only when a real estate deal goes through. Plus, the process can mean weeks or months of work.
In the past, the home seller paid the full commission for the services of both their own listing agent and the buyer’s agent (assuming the buyer has one).
However, the National Association of REALTORS® recently reached a settlement that goes into effect Aug. 17. It includes several changes between the agent and buyer/seller relationship that benefit homebuyers.
In the past, sellers generally paid the buyer and seller’s agent fees. When the settlement takes effect, buyers will be responsible for compensating their agent.
However, as a seller, you have the choice of offering compensation to the buyer’s brokers. Why would you do this? As a way to make your listing stand out by making it more attractive to buyers.
What does the real estate agent commission cover?
Though people certainly have the option of selling (or buying) their house without a real estate agent, agents provide clients a wide range of services, including helping you price your home, marketing it (on the multiple listing service, social media, and other venues), negotiating with home buyers, and ushering the home sale through closing.
As trained experts, real estate agents can help you fetch top dollar for your house and put out fires—while also alleviating some of the stress that comes with selling a home. (It’s no picnic!)
Are real estate agent commission fees negotiable?
Commission standards can vary from state to state and among brokerages. There are no federal or state laws that set commission rates—meaning commission is negotiable.
In other words, if you’re a home seller, you can certainly ask your agent to reduce their commission, but be aware that they are not obligated to do so.
A factor to consider: Because the marketing dollars for a property generally come from the agent’s commission, a lower commission could mean less advertising for your house.
That being said, it doesn’t hurt to ask for a lower commission. Most agents won’t take offense, and the worst case is they say no. Or, if you’re truly tight on cash—say, because you’ve maxed out your budget buying your next home—you could opt for a transactional agreement, in which the listing agent will help you set an asking price, facilitate communication between you and the buyer, write the contract, and move the process along to closing for a flat fee or lower commission, but you won’t receive the agent’s full services. It’s not ideal, but it’s the right route for some people. However, not all agents offer transactional agreements, so you may have to shop around to find one.
Bottom line: Buying and selling a home are likely to be one of the biggest financial transactions of your life, so be sure you find an agent you trust to do a great job. This is not the time to shop solely on price.
Anything else I need to know about commission fees?
The contract you sign when you hire a real estate agent should outline all of the details about the agent’s total commission (and any transaction fees the agent charges). This is typically referred to as a listing agreement, and it also specifies how long the agent will represent you. (Listing agreements generally last 90 to 120 days.)
However, there are some exceptions. Firstly, rental agents work differently from purchase agents. It’s usually the landlord’s job to pay the rental agent’s fee, but that’s not set in stone.
Furthermore, commission is usually higher when selling a vacant lot (anywhere from 10% to 20%), since selling land often takes longer and requires more marketing dollars. Some auctions charge home buyers a 5% “premium,” or commission.
As a seller, you want a real estate agent who can broker the best sales price and terms for you, but good agents aren’t cheap. As with most things in life, you get what you pay for.
Michele Lerner contributed to this report.
