What Is A Realtor® Commission?


If you have never bought or sold a home before understanding the fees involved may be foreign to you. Even if you have been involved with a real estate transaction, it was many years ago and you don't remember how it works.

When you hire a Realtor® to buy or sell a home they get paid a commission to sell the property. Realtors rarely ever get paid a salary for their work.

A realtor® commission is a fee that is paid to a real estate agent for their services. The commission is usually a percentage of the sale price of the property that the agent sells.

You're probably wondering how much you will pay in commission and if the fees are negotiable. Let's take a look at everything you need to know about Realtor® commissions.

Realtor CommissionDeposit Photos

How Much is a Realtor's Commission?

The most significant expense in selling a home with be the real estate commission.

Commission rates vary from agent to agent and company to company. As a general rule in most areas of the United States you can expect the commission a Realtor charges to sell a home to be somewhere between 5-6% of the sale price of the property.

Is it possible the commission could be higher or lower? Yes it is possible. Real Estate commissions are completely negotiable.

Real Estate commissions are usually split four ways. The listing agency and listing agent will split half the commission and the buyer's agent and buyer's agents company will split the other half.

For example, if a house is selling for $400,000 and the commission charged is 5%, the total amount of the commission would be $20,000. The listing company would get $10,000 and the selling company would get $10,000.

Each company will then distribute the commission to their agent based on a certain split that has been worked out. Newer agents generally split 50/50 with the house, while more experienced producers will earn a higher percentage.

It is vital to understand that a Realtor® does not get paid unless they complete a sale. Many Realtors can spend countless hours working with clients on nights and weekends and never get paid anything. Not every buyer or seller goes through with buying or selling. Some change their mind, while others end up using another agent - sometimes through no fault of their own.

It can mean months of work with no pay. Life is not always roses when it comes to a Realtor's commission earnings.

Home sales can also fall apart for any number of reasons including a failed home inspection, low real estate appraisal, or the buyer not getting their financing. Sometimes you do double the work for the same pay.

When Do Realtor's Commissions Become More Negotiable?

While it is true that some Realtor's will not negotiate their commission under any circumstances, there are times where they should. Most Realtors will agree to some form of discount when they are doing multiple transactions with the same party.

For example, if you are selling your home with a particular Realtor and are also going to use the same agent for a purchase, it might make sense to ask for a shavings off the commission.

Many agents who are business savvy will agree to reduce their fees. Those who won't can easily risk losing a very good client. It is really shortsighted of agents who have a policy of not reducing their commission.

A Realtor Might Also Agree to Reduce Their Commission When Getting Both Sides of The Transaction

If a Realtor® is listing a house and also has the buyer go directly to them, they will be making the entire commission on the transaction. There will be no other agent involved to split the commission with.

It is vital to understand that this arrangement can bring with it dual agency which is not a good thing for either the buyer or the seller.

In dual agency, the Realtor becomes a neutral party and is not able to provide the same services they would if they were an exclusive seller's or buyer's agent.

What this means is the Realtor® will not be able to provide either party with guidance or advice. Doing so is a conflict of interest.

When selling a home, you should always insist your Realtor® remains as a seller's agent. A buyer can still work with a seller's agent without being a dual agent.

Interviewing Realtors is Essential

Whenever buying or selling a home it is vital to vet the Realtor® you plan on working with. The purchase or sale of a home is obviously a significant financial transaction.

Many consumers become dissatisfied with the services they receive. It stems from the fact that most people don't do a good enough job with interviewing an agent.

Keep in mind that with most things in life you get what you pay for. Some agents do an exceptional job and others do not.

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Bill Gassett is an authority on numerous real estate topics, including finance, mortgages, moving, home improvement, and general real estate. His work has been featured in numerous prestigious real estate publications.

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