Did you know that real estate agents charge a fee based on the value of your home?
If you’re wondering, what is realtor commission? It’s a very important question since these fees can be anywhere from 1% to over 5% of the value of your property.
Since these fees are taken out of the closing price of your home, they essentially come out of your pocket. This is why it’s important to understand these costs and how much you will have to pay to sell your home.
Want to learn more about realtor fees and the costs associated with selling a house? You’re in the right place. Here’s everything you need to know.
What Is Realtor Commission?
Having a real estate agent help sell your home is a popular service. This is because a dedicated real estate agent may come with the experience and time to help sell your home for you. While modern platforms have made the entire process easier, a real estate agent gives you their time to help handle the sale for you.
In exchange for this service, they will add a fee to the sale of your home. This is known as the realtor commission. Unlike payment for other services, this fee is not always fixed.
For example, you won’t necessarily be charged a flat rate of $5,000 to sell your home but rather a percentage of the total value of the sale.
Instead, you will sign a deal at the beginning of the process that outlines the realtor fee as a percentage. An example of this would be agreeing to a 5% fee based on the total sales value of your home. In this case, if your home sells for $100,000, you will have to pay the realtor 5% of that sum, which is $5,000.
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How Much Commission Do Realtors Get?
As mentioned above, real estate agents often get paid by commission. This means that they get paid based on the final selling price of your home. While there may be some benefits to this payment model, people often overlook a few downsides.
The clear benefit of this model is that you don’t have to pay for their services upfront. This helps as they can take their fee off the top whenever the home sells. In addition to this, the real estate agent is also incentivized to sell your home to the highest bidder since that is what will leave them with the biggest commission.
While these positives are clear, the negatives are also noteworthy. Since the real estate agent is incentivized to sell your home at the highest possible price, they may overlook deals that you’re perfectly happy with. For example, if you’re okay with selling your home for $100,000, but the real estate agent thinks they can get $110,000 for it, they may not close on the $100,000 offer.
This means that they are taking the risk of keeping your home on the market for longer in hopes that a better offer will come. If a better offer does not come in, you may end up selling your home for under that price in the future. At the end of the day, the future is unknown, and the added risk may not always be worth it.
Real Estate Commission by State
Regarding real estate commissions, the rate can vary from city to city and state to state. This is important to keep in mind when looking for a real estate agent to help sell your home.
Despite the national average being around 5%, some states can end up with commission rates closer to 6%. Iowa is often on top of this list with an average real estate commission of around 6.15% compared to 4.66% in New York. However, the lower rate in New York may be due to the fact that New York real estate is so expensive to begin with.
What Commissions Cover
Real estate commissions are usually shared between a number of parties. They are all involved in the sale of your home in some way. As with all agreements, these parties should all be listed in the initial agreement you sign at the beginning of the process.
There are usually four different parties involved in the sale of your home. This includes the listing agent, the listing broker, the buyer’s agent, and the buyer’s broker. The listing agent takes the listing directly from the seller while the listing broker is the brokerage that employs that agent.
A simple way to understand this is that the listing agent is the real estate agent that you’re working with, and the brokerage is the real estate company that they work for. However, it’s important to note that a portion of the fees goes to the buyer’s agent as well.
The agreement that you sign will also state the split. This outline stipulates what percentage of the commission goes to each party. In most cases, the fee will be split in half so that the seller’s agent and the buyer’s agent get the same amount.
Within each half, the fee splits between the agent and the brokerage. While younger real estate agents may get a 30/70 split, experienced agents can expect a 50/50 split or better. This means that the commission you pay has to get split in a few different places, incentivizing the agents to sell the home for as much as possible.
Do the Commissions Cover Closing Costs?
When you buy a home, there are closing costs to take into consideration as well. These closing costs can range from around 2% to 5% in some cases. However, it’s important to understand that these closing costs are entirely different from the realtor commission.
Closing costs can range from state to state and include many different fees and taxes. These costs include property tax, homeowners insurance, lender’s title insurance, inspection fees, appraisal fees, mortgage insurance, transfer tax, underwriting fees, and even a title search fee.
In most cases, closing costs are necessary to help finalize the sale of a property. The biggest chunk of these costs is the transfer tax applicable whenever a property changes ownership. However, these costs are added to the realtor costs, making the total cost even higher.
For a buyer, this fee is generally added to their mortgage. This means their monthly payments will increase based on the added 5%.
Do Realtors Get the Commission if the House Doesn’t Sell?
A commission is usually only paid when the property is sold. However, most real estate agents include clauses to help them get paid even if a sale can’t go through. This is because the seller is still technically liable for all commissions at the end of the day.
While these situations are rare, they can come up if you decide that you don’t want to sell the property anymore. In this case, you will still need to pay the real estate agent for the time they may have spent working on your sale. This is true even for cases where you and the buyer mutually agree to cancel the sale.
This is why the standard flat rate may be a better option for some people. The flat-rate model pays directly for a real estate agent’s time. However, this model does not incentivize them to sell your home fast, leaving you with a massive bill that you may find difficult to negotiate.
Is Real Estate Commission Negotiable?
When it comes to the commission that a real estate agent charges, these fees are generally flexible. This rate depends on several factors, with the value of your home being at the top of the list. The more expensive your home, the more likely you are to get a lower rate.
This is because the real estate agent knows that they will still get a massive commission at the end of the day.
Are Realtors Overpaid?
Realtors provide a service that essentially focuses on saving you time. This is why the question of pay is so complicated to answer. While these professionals can help take the stress off your shoulders, they also charge incredibly high fees for their time.
This is why you should always shop around before finalizing a deal with any particular agent.
How Realtor Commission Has Changed Over the Years
While you may think that technology has helped real estate agents sell your home a lot quicker, modern technology has actually increased the cost of hiring a real estate agent even more. This is because real estate agents leverage digital marketing to help advertise your home, adding to the costs of selling your home.
While you may think these costs are paid by the real estate agent, they tend to absorb these costs and make the money back by increasing their fees.
In some cases, real estate agents will bill you separately for the advertising they do for your property. If they organize a professional photographer to take photos of your home or even hire furniture for an open house, these costs could be added to your bill. This is why it’s important to read the fine print when you sign a real estate agent deal.
In most cases, your real estate agent will want to list your home on various classified websites and run ads for your home. This means added platform fees that you may need to pay directly. However, it’s important to understand that even if the real estate agent does not bill you for these individual things, they will still need to get that money back somehow.
This is why the cost of hiring a real estate agent to sell your home has steadily been on the rise over the last few decades.
Avoid Paying Realtor Fees With iBuyer.com
While real estate agents can help take some pressure off your shoulders when selling your home, these services come at a hefty price. This can add to the purchase price of your home or cut into your gains if you’re selling a property. However, iBuyer.com offers you an alternative.
Selling your home with an iBuyer can save you both time and energy. Interested in getting started? Start by creating an account and finding out what you could get for your home.