Traditional home-selling can be a complicated process. To make the process run more smoothly, many sellers choose to hire a real estate agent who can provide guidance and industry expertise to ensure the home sells quickly and at a fair price.
While real estate agents may provide you with plenty of valuable information, they may be less transparent about how they’ll be paid at the end of the process. Typically, real estate agents work on commission, meaning they’ll receive a percentage of the property’s selling price upon closing.
This begs the question: who pays real estate commissions? And how much do these fees usually cost? The answers may vary from agent to agent and in some cases may be negotiable.
Read on to learn more about real estate commissions, and find out how much—if any—of their fees you may be responsible for as a seller.
Real Estate Commissions: How Do They Work?
In most cases, real estate agents don’t charge by the hour for their services. Rather, they’ll take a portion of the home’s selling price after the deal is closed. As the seller, this potentially means their commission may be coming out of your pocket.
The exact percentage of the selling price an agent earns for their work will vary depending on the stipulations of their contract. If both you and the buyer are represented by agents, the fee will often be split evenly between the two of them. However, one may receive a higher commission than the other if stated in the contract.
Agents vs. Brokers
Real estate commissions are complicated by the fact that they do not go directly to the agents. Instead, the fee must first go through the listing and selling brokers.
Because real estate agents work under the direction of a broker, the brokers will take a portion of the commission for themselves. Part of this cut is responsible for covering any costs the agent may have incurred, including advertising and renting signs, and sometimes even office spaces.
After any costs have been recouped, the broker and the agent will split the remainder of the commission. The split may be an even 50/50, though it can be any previously agreed-upon division.
For example, a contract may stipulate that the real estate commission be set at 5% of the selling price. If an even split between agents and brokers is agreed upon, the awarded commission may look something like this:
- Seller’s agent: 1.25%
- Seller’s broker: 1.25%
- Buyer’s agent: 1.25%
- Buyer’s broker: 1.25%
If the home sells for $400,000, the broker and agent on both sides will each receive a $5,000 commission.
Who Pays the Real Estate Commission?
When it comes to who is responsible for paying the real estate commission, the answer can be somewhat complicated.
Traditionally, the seller is officially responsible for paying the fee. In fact, 77% of sellers reported paying the commission in 2020, according to the National Association of Realtors. However, in most cases, the real estate fees are incorporated into the price of the home. This means that it’s the buyer who ultimately pays the fee, just not directly.
As a seller, the practice of factoring estimated real estate fees into the listing price is designed to protect you. This way, you aren’t forced to manage an unexpected payment post-closing that ultimately takes away from the money made from the home’s sale.
The Cost of a Real Estate Commission
While it’s been established that a real estate commission will be a percentage of the home’s final selling price, you’re probably wondering exactly how much these fees will add up to.
The exact percentage of your agent’s commission will depend on what is stipulated in your contract. However, the national average is about 6% of the home’s final sale price.
For example, if your home sells for $400,000, a 6% commission will amount to $24,000. While you won’t know the exact cost of your real estate agent until the final price of your home is negotiated, factoring in an estimated amount to your listing price will ensure you’re prepared to cover the commission regardless.
What Do Real Estate Fees Cover?
With real estate commissions often making for a large sum of money, it’s natural to wonder what you’re really getting out of it.
This fee is particularly hefty because it covers all of the work your agent has put in since your partnership began. When selling a home, this can include a number of services such as:
- Readying your home for sale and crafting a strategic listing
- Taking attractive photos to entice buyers
- Holding open houses and showings to prospective buyers
- Crafting effective advertisements that garner interest in your home
- Negotiating with buyers and ensuring the offer you accept is fair
- Providing guidance and extensive knowledge of your local real estate industry
Plus, the real estate commission is split between agents and brokers on each side, meaning there are often as many as four separate parties relying on it. Though the fee may seem high, it covers a relatively wide array of services.
Negotiating Agent Fees
While it may surprise you, real estate commissions are always negotiable, thanks to antitrust laws at both state and federal levels. Because of this, many agents or brokers expect negotiations to take place before selling a home.
However, effectively negotiating a lower agent fee can be a challenge. Be sure to interview multiple agents before making your selection, and familiarize yourself with the state of your local market. If homes in your area are selling quickly at prices far above listings, your home will likely be an easy sell. In these cases, even a 5% commission may be too high.
In some cases, agents may offer to represent both you and the buyer in the same transaction—a process known as “dual agency.” Agreeing to a dual agency sale can lower the cost of your real estate commission, as it eliminates the need to split the fee with an agent and broker on the buyer’s side.
Avoiding a Real Estate Commission Fee
While most agents require payment in the form of a real estate fee, this isn’t always the case. Your agent may opt for a different payment method that won’t include a percentage of the home’s final sale price.
Additionally, you can avoid paying an agent entirely by opting for alternative means of selling your home. Read on to find out more about avoiding paying for costly real estate commissions.
Some agents charge a flat fee for their services, rather than accepting a commission. Though these agents are rare (only about 3% of all agents in the country), finding one could allow you to save significantly on real estate fees.
However, there are some drawbacks to opting for a flat-fee agent. Because they aren’t working on commission, they may have little incentive to sell your home for the highest price possible. Additionally, they’ll likely be working with a smaller budget and provide limited services, both of which can lower the sale price of your home.
Selling Without an Agent
You can avoid paying for a real estate commission entirely by choosing to sell your home without an agent. This can be done in multiple ways.
Opting to sell your home For Sale By Owner (FSBO) allows you to be completely responsible for the sale of your home. In fact, FSBO sales make up around 8% of all home sales in the country. However, as an FSBO seller, you’ll likely still be required to cover the buyer’s commission costs. Additionally, a portion of your commission savings will be needed to pay for the services a realtor would otherwise provide. This includes things like creating advertisements and holding open houses.
You can also sell your home without an agent by opting for a service such as iBuyer that will match your listing with local buyers and investors that are prepared to make an offer quickly. Not only does this eliminate the need for an agent, but it also saves you from time-consuming tasks like creating a listing and paying for home repairs.
Real Estate Agents: Are They Really Worth It?
After learning more about who really pays for real estate commissions, you may be wondering: is hiring an agent really worth it?
The answer depends on several factors. If your local area is currently experiencing a seller’s market, it may be easy to receive an offer well above your listing price.
In other cases, you may need to sell your home quickly due to an emergency or major life event, or simply because the home needs repairs that aren’t worth investing in. For these situations, opting for a service that can guarantee instant offers will save you money and time.
Avoid Agent Fees With Help From iBuyer
Sometimes, agents simply aren’t worth the expensive commissions. If you’re looking to sell your home quickly with minimal hassle, iBuyer can help.
Simply enter your address into the free evaluator to get an estimate on your home, and wait for the offers to come in. With iBuyer, getting a fair offer for your home has never been easier or faster. Enter your address and take the first step toward selling your home today.
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