What Commission Percentage Do Real Estate Agents Make?

It's no secret that real estate agents earn a commission percentage from the sale or purchase of a home. However, these rates can be negotiated and vary depending on factors such as the broker, price...

It's no secret that real estate agents earn a commission percentage from the sale or purchase of a home. However, these rates can be negotiated and vary depending on factors such as the broker, price point of the home, market conditions, and more. In this article, we'll delve into the details of how commission fees work, answer common commission questions, and provide tips on how sellers and home buyers can save on commission rates and closing costs.

Understanding Realtor Commissions

The exact commission percentage that real estate agents receive varies across different markets. On a national level, home sellers can typically expect to pay around 5.75% of a home's final sales price in total commissions. However, it's important to note that in many markets, a commission of 5.25% or even 5.0% is common. On the other hand, some markets may see a standard commission rate of 6%. This percentage is usually split between the listing agent and the buyer's agent, with each party receiving their respective share. The agents then pay a "split" to the sponsoring broker, based on the compensation structure of the brokerage.

Nationwide, most big, national brokerages charge a total commission rate of 6%. For instance, if you sold your home for $300,000 with a 6% commission fee, your listing agent would earn $18,000 in commissions. This amount would then be split with the buyer's agent, leaving each with $9,000 in profits. However, it's worth mentioning that the national average commission percentage of 5% to 6% is not a fixed rule for all agents. Some may charge higher rates, while others may offer lower fees. Independent brokerages, like SimpleShowing, even provide sellers with the option of a low 1% listing fee. It's essential to do your research and shop around to find an agent with a commission model that works best for you.

Image Image: A house representing real estate agents' commission

Who Pays the Agents?

In general, real estate agents are paid by the seller. The commission is deducted from the proceeds generated by the sale of the home. The full 5-6% commission is combined for simplicity, and then split between the listing agent and the buyer's agent. The common practice is a 50-50 split, with each agent receiving 2.5% of the final sales price of the home. For example, if the total commission is 5% for a $600,000 property, each agent would receive $15,000.

You may wonder why the seller would pay the fee for the buyer's agent. It might seem strange at first, but it's important to understand that the buyer agent's commission fee is factored into the listed price of the home. In other words, if there were no buyer agent involved, it's possible that the home seller might sell the home for 2-3% less than the asking price since they wouldn't have to compensate a buyer agent. So, although the seller pays the commission fee, it ultimately reflects in the home's listing price.

Do Realtors Keep the Full Commission?

As much as agents would love to keep their full portion of the sale, commission fees don't typically work that way. Real estate agents rarely work independently; they operate through a brokerage. A brokerage refers to the company that the agent represents and whose branding is on their advertising material. In return for the support and expenses associated with real estate transactions, agents are required to give a certain percentage of their commissions back to the brokers. This percentage can range from 5% to 20% for large national brands like Keller Williams and ReMax. However, the percentage may vary based on factors such as the agent's tenure with the brokerage or if the agent has reached a predefined cap in terms of payments. On the other hand, there are also brokerages where the agent gets to keep 100% of their commission and own their brand.

Can You Negotiate Realtor Commissions?

While realtors deserve compensation for their work, it's worth noting that commission rates are often negotiable. Most of the time, you can discuss the commission rate with your agent or explore ways to lower or offset the commission fees. Sellers may have the opportunity to negotiate commission percentages in certain situations. For example, if you use the same agent to sell your current home and then buy a new one, you may be eligible for a loyalty discount.

Additionally, some agents provide discounted rates to repeat clients and investors who buy or sell multiple properties. Another scenario that opens up opportunities to save on commission is when only one agent is involved in a home sale. If you are selling your home and the buyer does not bring an agent into the transaction, you could potentially save up to 3% (or half the total commission). Furthermore, many buyer agents offer commission refunds to their clients in the form of a consumer rebate, which is encouraged by the United States Department of Justice (DOJ). Savvy home buyers can be rewarded with a commission refund for conducting their own showings or leveraging the agent on a limited basis.

Consider Independent Brokers like SimpleShowing

If your goal is to save money on the sale or purchase of your home, working with a low commission real estate agent might be your best option. With SimpleShowing, sellers can save thousands with a 1% listing fee, which automatically reduces the total commission to just 4% instead of the standard 6%. Not only do you save money, but you also receive the same exceptional service and features offered by mega brokerages. For buyers, SimpleShowing offers the Buyer Refund, allowing them to receive a portion of their agent's commission at closing. Whether you're buying or selling, just imagine what you could do with that extra cash in your pocket. Contact SimpleShowing today to connect with a local agent.

So there you have it! Understanding the commission percentage that real estate agents make can empower both sellers and home buyers to make informed decisions and save on costs. Remember, negotiation is often possible, and exploring alternative options like independent brokers can offer even more opportunities for savings.