Are you thinking of buying or selling a home? Then the odds are that you will hire a real estate agent to help you with the process. According to recent NAR statistics, about 86% of buyers and sellers are assisted by agents when buying or selling homes.
However, hiring a real estate agent comes at a heavy price. An average US home seller spends $20,764 on realtor fees.
If you are a buyer, good news is that you do not have to spend a penny on realtor fees. However, if you are a seller, this will be, in fact, one of your most significant expenses.
The commission can vary from state to state and agent to agent and can be as much as 6% of the home sale price.
If you are selling a home and wondering what value amounts to the realtor fee in your state or region, then here’s everything you need to know.
Average Realtor Fee in the USA
On average, U.S. home sellers spend $17,000 and above towards realtor fees.
While the realtor fee is not standardized and is heavenly influenced by the location and market condition, sellers usually pay an average 5-6% in agent commission.
Nationwide, the average real estate agent commission rate is around 5.8%. This makes the average real estate commission cost about $20,764 ( considering the median home price of $358,000).
Here is the realtor fee breakdown for a variety of home prices (Considering a 5.8% commission rate)
|Home Price||5.8% real estate agent commission fee|
Below is the state-wise breakdown of realtor fees to give you an idea of how much you will have to spend.
Average State-Wise Realtor Fee:
|State||Median Home Price||Average Commission||Realtor Fees (Buyer’s +Listing agent)|
States with Real estate commissions greater than the national average
Average listing agent fee
The average fee for listing agents is around $10,382.
Listing agents usually receive 50% of the total commission as a fee against their services and expertise. So, if a home sells for $358,000 with a 5.8% commission rate, the average realtor fee amounts to $20,764. The listing agent receives 50% of this $20,764 and gets $10,382 in commission.
This commission is further split between the brokerage and the agent. During this split, the listing agent may have to give 25-75% of their share to their brokerage, making their average listing fee between $2596 and $7787.
Average realtor fee for buying agent
Similarly, the average fee for buying agents is also 50% of the total amount given out at closing. So keeping in mind the same calculation as above, the fee for the buyer’s agent will be $10,382.
This commission is further split between the buyer agent and the broker. On average, the buyer agent may receive only 25-75% of the commission, making the average buyer agent’s fee between $2596 and $7787.
How much do real estate agents make?
The actual take-home money for real estate agents depends on various factors, such as the number of transactions, commission rate, and the percentage split between the agent and the brokerage.
Side Note: Real estate agents are professionals who are licensed to buy or sell homes for clients. They arrange real estate transactions, connect buyers and sellers, assist them during negotiations and help them with all the neccessary paperwordk While agents can represent any side of the party, they cannot work independently. Brokers are independent real estate professionals who are liscenced to own a firm and hire a real estate agents as employees. All real estate commission is paid to the brokers. Once the broker receives the commission, they split the share with their real estate agents based on a pre-defined percentage.
Real estate agents are compensated through a commission— a percentage of the property’s gross sale price— which they get only if they successfully close a deal. That means if a real estate agent cannot complete the deal, they cannot charge you anything.
Note: Some brokerages charge a flat fee instead of a percentage commission.
Commissions are often split 50/50 between the listing agent and the buyer’s agent. Suppose the commission rate is 6%, the listing agent and the buyer’s agent would each earn a 3% commission at the end of the deal. For example, if you sell a home at $358,000, a total of 21,480 will go towards agent commission, with each agent receiving $10,740.
However, that’s still not your agent’s take-home money. Your agent would then have to share a part of their share with their broker for oversight, consultation, and direction.
This split could be 50/50, 80/20, 70/30, or 60/40. Let’s suppose both the agents have agreed on a 50/50 split with their broker, so taking the above example, each agent would make $5370, and each broker will earn $5370 as per above.
Here’s is how the breakdown looks like:
Seller’s broker (50%) – $5370
Seller’s agent (50%) – $5370
Buyer’s broker (50%) – $5370
Buyer’s agent (50%) – $5370
From that $5,370, an agent would be responsible for paying federal and state taxes, which could amount to 30% or more. After the tax deductions, the agent is left with a net of $3,759.
However, $3,759 is also not the amount that the agent takes home. Agents do have to pay for marketing and other expenses to help facilitate a successful real estate transfer.
The Real Estate Agent Commission Explained
The real estate process is complicated, especially the commission bit. With so many variations in place, people who have even purchased or sold real estate in the past have no idea how commission works, how they are calculated, and what are they exactly paying for.
So, let’s understand the real estate commission in detail.
Generally, the commission fee is a pre-negotiated percentage of the home sale price. This percentage is listed on the listing agreement—a contract between the seller and the listing broker. The commission usually ranges between 4% and 6% depending on the market condition and micro-market trends.
Listing agents later split this commission with buyer’s agents, who help them find a potential buyer. Once the deal is closed, the listing agent receives the pre-negotiated percentage, which he shares with his broker and buyer’s agent.
Note that some agents charge a flat commission fee. These commissions are standard because there is no regulation on what agents can charge.
Few Things You Need To Know…
- Real estate agent gets paid through commissions.
Most real estate agents are compensated based on commission, which they receive only when they close a deal successfully. An Agent’s monthly or annual income solely depends on how many properties they sell during that period.
- Agents are not salaried.
Even though brokers employ agents, they never receive a salary. Their earnings depend entirely on their sales, and they never receive a fixed amount at the end of a month.
- Roles of the listing agent and buyer agent
The listing agent is the one who is responsible for selling the property. He is responsible for showing the house, marketing, setting up open houses, and listing the property on multiple platforms.
The buyer’s agent typically shows buyers suitable homes, helps with inspections, coordinates with a real estate attorney, and negotiates the home price.
- After selling a home, agents and brokers split their commission.
There are two types of commission agreements between a real estate agent and a brokerage:
- Gross commission split – The agent splits a percentage of their gross commission with the brokerage.
- One hundred percent commission – The agent takes every dollar of the commission, but they pay a monthly desk fee to the brokerage.
Are realtor fees included in closing costs?
Yes, the realtor fees (part of the real estate transaction) are included in the closing costs. Realtor fees can be regarded as the payment charged against doing business with the real estate agent and a broker.
The realtor fee is not an upfront cost but rather a percentage of the home sale price, which is paid when the funds are transferred to the seller. The buyer and seller’s agents receive part of the commission if the home is sold.
The sales commission can vary from Realtor to Realtor, Company to Company, and State to State. While there is no fixed realtor fee, it usually comes to around 6% of the home sale price.
Calculating Realtor Fee
You may wonder how realtors are paid when they help someone sell or buy a home. Real estate commissions might be tough to calculate because of their complex structures, agent fees, and varying rates. But it is essential to know how much you owe your agent.
Knowing the amount y to pay well in advance can help you make accurate financial predictions.
A realtor’s commission is usually expressed in percentages. Suppose the commission percentage is 6%, and the home sale value (V) is $358,000. For calculating the realtor fee or real estate commission, use the formula mentioned below:
|R = V*P/100|
Where R = Realtor fee, V = Home value, and, P = Percentage of commission
In our example, R = $358,000 * 6/100
= $21,480 (Total Realtor fee)
So, the real estate agents receive the total gross commission of $21,480, which is further split among the agents and brokers based on their predefined agreement.
It is important to note that the realtor fee is included in the home sale price and not an additional cost paid by the seller. The real estate owner or seller will receive a sum equal to the transaction value minus the real estate commission.
So, the seller’s income (I) is equal to
= $358,000 – $21,480
In the above example, the seller receives $336,520 for the home sale since the other $21,480 would automatically be deducted from the agent’s commission.
If the commission is further split between the agent and the broker, say 50/50 split in the commission.
There are two ways to calculate the commission split. One way is to divide the agent commission by 2. In this example,
|B = R/2|
where B = Broker commission
= $ 10,740 (Total Broker Commission)
So, the total broker commission is $10,740, divided between both brokers. So, each broker receives $5,370.
Another option to calculate each broker’s fee is half the total gross commission. If the gross commission were 6%, then the broker’s commission would be,
|B = P/2|
where P is the percentage of the commission
= (3/100) x 358,000
= $10,740 (Total Broker Commission)
The above figure ($10,740) is the total commission received by brokers. So, each broker gets $5,370 as their commission.
Save Realtor Fee With This…
- MLS-only Service
If you are going the FSBO route and still need assistance to marketing your property, you can hire an MLS-only Service. With this service, you can list your property on the multiple listing service (MLS)—the main directory of homes for sale used by realtors and sites like Zillow—for a small fee, usually paid upfront.
Note: MLS is usually not accessible to private sellers. It is a network for agents so only agents are allowed to list properties on the MLS.
MLS-only service is best for sellers who have previous experience selling the house.
- Flat-fee Agents
People who want to save money on realtor fees can also hire flat-fee agents. As the name suggests, such agents can help you list homes at a flat price. Some brokerage charge this flat fee upfront, while others charge once the home sells. But, before working with a flat fee agent company, read their online reviews and understand their cost and terms.
What is covered in a realtor’s commission?
1. Listing the property
While it may sound pretty simple, listing a property can be painful.
Agents spend days gathering all the necessary information and documents to make a house listing-ready. This may include and is not limited to getting professional images, tabulating information like square footage and unique features, and noting potential problems that can factor into the final asking price.
Based on all the information available, the agent lists your property on the MLS (Multiple Listing Service) so that realtors and companies can Zillow can find it.
2. Marketing your home
Not many sellers realize that agents put a lot of effort into marketing. The marketing efforts can include:
- Taking professional photos
- Getting drone footage
- Getting virtual 3-D tours
- Promoting everything on social media and in print
- Running ads
Note that not only do these activities involve hours of effort, but they also require money.
3. Negotiate the right home sale price
Part of why you hire a real estate agent is because of their negotiation skills.
They can get you the best deal, whether you are a seller or buyer.
Agents can help you negotiate the sale price, timelines, closing costs, home warranty, leaseback, and repairs. A part of their job is to ensure that nothing is overlooked and you do not sign an agreement until you get the best deal.
4. Coordinate With the Opposite Pary After the offer is accepted
While most first-time sellers feel that preparing a house for sale, marketing it, and showing it is challenging aspects of a real estate transaction, they forget that the real work starts once you sign a contract with the buyer.
Agents ensure that both parties meet the contract timelines. They get all the paperwork done. They often manage each other’s processes to ensure everything is in place and on time.
5. Deal with inspection results
Real estate agents usually see home inspections daily as part of their work. They are well-versed in the nitty-gritty of inspections, which can be overbearing and sometimes overwhelming for buyers and sellers.
Real estate agents help ease fear and doubts about the inspection report by simply explaining the repairs. While listing agents assist with the repairs so that buyers can get maximum profits, buyer’s agents, on another hand, get quotes on sellers’ behalf for repairs and ensure that buyers aren’t paying more.
6. Coordinate the closing
Real estate agents ensure that all parties are available to attend the closing. Agents set up an appointment with the title company and lender as part of their commitment to the home seller.
Once the deal is closed, the real estate agent gets their commission.
Who pays realtor fees?
Typically, the seller pays the realtor fees.
However, here’s the catch. The seller usually bakes this fee into his asking price. He factors this amount into his final asking price. So, technically it is the buyer who pays for the realtor fees.
Is the commission negotiable?
The short answer is yes. While the commission rate is usually standard in a neighborhood or county, some agents are open to negotiations.
Agents can often be flexible. They can lower their commissions or add extra services like virtual tours to their list of deliverables. However, this entirely depends on your agent and use case. Most agents do not like negotiating their commissions. Some agents may even go to the extent of refusing and even backing out as your agent if you try negotiating.
To a certain extent, it makes sense. While people may fee agents make a lot of money and can take a pay cut for them, there are other expenses such as licensing, MLS fees, photos, videos, staging of the property, and marketing materials that agents need to take care of. As a result, they usually do not have much room to negotiate a commission.
It is also essential to keep in mind that a lower commission is never the best option. Less commission means that your agent can’t market your home aggressively. Hence, you might miss out on many potential clients and not get the necessary value.
Factors That Influence the Commission Rate in your Neighbourhood
1) Estimated sales price
If you are selling a high-ticket property, then there are good chances that your agent will negotiate the commission rate with you. That’s because he will earn a good commission even after he does that.
Suppose the home sale price is more than a million dollars. In that case, even if the agent gets work at a lower commission rate than usual, he will earn more.
2) Selling time
If the agent is confident that the home on sale will sell quickly, they may lower their commission.
3) Demand In the market
A strong real estate market helps agents sell a home faster, and they may reduce their commission rates.
4) Seller offloads some of the agent’s work
Sellers sometimes take some of the responsibilities carried out by the listing agent, such as putting together an open house. This helps the agent to lower his commission rates.
What is dual agency?
A dual agency is when a single agent or broker represents both seller and the buyer in a real estate transaction. Having one agent involved in the transaction might simplify the process, but there are possibilities that the agent may favor one party over the other. Dual agency is illegal in several states, including:
When can you pay less in fees to a realtor?
· buying and Selling the Home With The same Agent
If you buy a new home and sell your old one through the same agent, there are good chances that you can negotiate and reduce your realtor fee. As you would bring more business to their table, they would agree to reduce commissions in one of the deals.
· Hire a discount broker
Discount real estate brokers have in-house agents who offer the same traditional services at a significantly lower price. This is because they get a higher volume of businesses per agent which helps them cover the discounted rates. There are risks with hiring discount brokers, they may vary based on the company.
· For Sale By Owner (FSBO)
You can list your home without the help of a real estate agent and can save a significant amount on the agent commission. But unless you have a ton of real estate experience, your chances of getting the best price and terms are relatively slim.
· Hire a Flat Fee MLS company
Flat-fee MLS services can help you increase the FSBO listing exposure without burning your pocket. They will post your listing on local MLS, where agents hang out to find properties for their clients. You get more visibility with this method for a lesser price. However, the only downside to this method is that you will have to manage the entire sale by yourself.
What does the fee-structure look like for flat-fee realtors?
In a flat fee arrangement, you pay the agent a set amount. So, the amount at which you sell the home does not impact the fee you pay to the agents.
Flat-fee agents list homes for a set value and charge as low as 1% for listing a home.
While hiring a flat-fee broker can mean significant savings, it comes with considerable risks. Sellers should avoid working with flat-fee brokerages as they offer service trade-offs and give less support than traditional agents.
The Flat Fee realtor system can only work out for you if you are experienced and comfortable handling sales alone.
Is realtor fees tax deductible?
Tax deduction includes all the costs associated with the sale, such as legal fees, escrow fees, advertising costs, and agents’ commissions. So, yes Realtor fee is tax deductible; however, there is a catch1
You are only eligible for a tax deduction if you have lived in the home for at least 2 to 5 years before reselling the home. In a nutshell, you must be a primary residence of the property.
Commissions paid on investment properties are treated differently since IRS allows you to write off most property expenses.
For example, suppose you sell a house for $300,000 and pay a 6% commission to your agents and $3,000 on miscellaneous expenses. In that case, the IRS considers the net $279,000 as your actual selling price. From this sale price, the RS determines your profit.
The IRS lets you collect up to $250,000 of tax profit on selling your primary house if you are single or up to $500,000 if you are married and file a joint return.
It is important to note that you will not be able to take advantage of tax exclusions if you sell a house after you have held it for less than a year.
what is the Average Realtor Fee for rentals?
The exact realtor fee for rental varies depending upon the location and the property. A realtor’s most commonly charged amount is between 25 and 50% of one month’s rent. If you rent a house with a monthly rent of $1800, you may have to pay somewhere between $450 and$900.
If the realtor is the property manager, they can expect around 8% of the gross monthly rent as a management fee. A realtor can earn an additional $144 as a franchise or management fee.
The average commission usually hovers between 5% to 6% of the home sale price. The commission rate isn’t mandated by state laws and makes it technically negotiable. If you don’t want to pay commissions, you have other options like FSBO or MLS service to save money.
Real estate agents help you deal with all the selling or buying processes in a much more efficient way, for which they ask a commission on the sale. Hopefully, this article will help you determine which part of the transaction you can control to get the best price.