When preparing to sell your home, choosing a real estate agent can be one of the most important decisions in the process. However, some sellers are shocked when they learn the cost. What’s included in Realtor commissions? Can a seller negotiate these fees with their agent? And what do you get for that cost, anyway? We’re answering your common questions about real estate agent fees.
Q: What’s the Average Realtor Commission?
While there is no set commission rate for Realtors, the average commission is about 5-7% of the home’s total sale price. That commission is then split between the sellers’ and buyers’ agents. However, homes represented by an agent typically sell for far more than those sold by the owners themselves. Hiring a real estate agent will likely pay for itself, and then some.
Q: Who pays real estate commissions?
Typically, the seller pays both the sellers’ and buyers’ agents. There is no universal rule regarding this practice, but if you’re the seller, you can expect to pay both commissions at the closing table. Because Realtor commissions run about 5-7% of a home’s total sales price, this can be a significant cost for most sellers. But remember: you were the buyer once, too. The seller paid this cost when you bought the property. And even after paying real estate agent fees, homeownership is almost always worth the investment.
Q: Why Are Realtor Commissions So Much?
As a seller, it can feel like you’re paying a lot for someone to sell your home. But there’s much more to selling a home than simply taking a few photos and listing it to the MLS.
The Realtor commission gets split between the selling agent and buying agent. It may or may not be split evenly, depending on the average commission percentages in your area. Then, a portion of the agent’s commission goes directly to the brokerage firm. Depending on your agent’s brokerage, experience, and a variety of other factors, your Realtor could end up paying as much as 40% of the total commission back to the brokerage firm.
After closing, many agents share a portion of the commission with others in the office who helped close the deal, such as associate agents and office staff. In addition, many real estate agents pay their own insurance and business-related expenses. Of course, the fees to list, market, and sell your home also come out of that commission. While 3% of the total cost might sound like a lot, your hard-working Realtor might only take home half that (or less) once all is said and done.
So, what does that Realtor commission cover, anyway? In short, it’s paying for experience and knowledge. Buying and selling real estate can be a complex and nuanced process. Real estate agents know how to navigate your local market and get your deal done as quickly as possible. They’re negotiation experts, making sure your interests are fully represented.
In a sellers’ market (like the one we see now), highly experienced real estate agents are worth their weight in gold. In many markets, buyers can expect bidding wars. The right Realtor will know how to write an offer that gets accepted, even when competing against dozens of others. On the other hand, the sellers’ agent can help clients wade through those offers and accept the one that meets their needs and makes the most financial and logistical sense.
Q: What’s Included in Realtor Commission Costs?
As mentioned above, your Realtor doesn’t exactly take her 3% commission and walk off happily into the sunset. She’ll share that commission with the brokerage firm, other agents, and possibly the office staff, too. Portions of the commission go to pay operating expenses, business marketing costs, and insurance.
However, real estate commissions also go towards marketing your home – the most important piece of selling your property. Before listing your home, your agent should tell you precisely what she plans to do to get your home in front of as many eyes as possible.
Using the expected commission from your home sale, your Realtor will create a marketing strategy. This strategy often includes a blend of social media marketing, open houses, professional photography, video marketing, MLS listings, and other components. Together, these marketing tactics can make the difference between a home selling in a matter of days versus several months.
An experienced real estate agent will design a comprehensive marketing plan that targets your ideal buyer quickly. But every piece of that marketing plan costs money. A lower commission rate means your agent has less money to spend on marketing, which ultimately means less exposure for your home and fewer interested potential buyers.
Q: Can I Negotiate my Agent’s Realtor Commission Fees?
When it comes to buying and selling real estate, it’s entirely appropriate to use the old adage “you get what you pay for.” By law, real estate commissions are negotiable. You’re always free to interview various agents, ask about their qualifications and marketing strategy, and ask if they will lower their commission. But a cut-rate Realtor may not have the experience, time, and dedication to market and sell your home effectively.
Be wary of agents who will gladly work for a lower rate. If you pay a bare minimum commission, you can probably expect bare minimum effort. Sometimes, this means your house may stay on the market for weeks or even months longer than it should, which can cost you thousands more in mortgage payments.
There are times, though, when negotiation is perfectly appropriate and acceptable. If you have bought and sold multiple properties with the same agent, you might ask if he would be willing to reduce his commission by half a percent or so. There’s also room for negotiation if you bring a buyer to the table, if you have a higher-end home that will generate a larger overall commission, or if you use the same agent for the sale of your home and the purchase of something else.
When negotiating, keep in mind everything we’ve already talked about above. Yes, your agent may end up with a 3% commission on the sale of your home. But that same agent may only take home 1.5% (or less) after paying all the brokerage fees, insurance costs, and marketing costs. No one works for free, and you shouldn’t expect your real estate agents to, either.
Q: Is Hiring a Real Estate Agent Worth the Cost?
You can opt to not hire a real estate agent and sell the home by yourself (known as a For Sale by Owner, or FSBO). But the data shows that spending the money to hire an experienced, knowledgeable real estate agent will pay for itself in the long run.
In a 2020 study, the National Association of Realtors found that FSBO homes in the U.S. sold for an average price of $217,900. During that same period, homes represented by an agent sold for an average of $242,300. Moreover, FSBO properties only save about 3% because most sellers will still have to pay buyers’ agents. When all is said and done, sellers who do not hire an agent will make less on their home – even without Realtor commissions – than they would by hiring an agent.
It’s also worth noting that real estate agents act as legal representatives in the home buying and selling process. Real estate contracts are often convoluted and confusing. One simple mistake could cause the whole deal to fall apart at the seams. When you hire a licensed real estate agent, you’re paying for the peace of mind that all contracts are completed and filed correctly.
Finally, your real estate agent can help you get the most for your home. Day in and day out, your agent sees homes that sell quickly – and homes that don’t. Your Realtor can give you expert advice about improvements you should make to get the most bang for your buck.
It’s been said that sometimes you have to spend money to make money. That’s definitely the case when selling your home. Hiring an experienced, top-notch real estate agent is not only worth the cost but will likely pay for itself in the end.
Have you ever negotiated a better rate with a Realtor? Or are you an agent who deals with clients wanting you to work for a lower commission rate? Tell us about your experience! Share your story in the comments below.
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