In this do-it-yourself, digital age, home sellers and buyers alike may be wondering whether they need a real estate agent or, more precisely, whether they should pay a commission to a real estate agent. How important are these agents to a successful real estate transaction?
Well, a good agent really helps. It makes sense to work with an agent, especially when buying a home. Agents have access to information you don't know about. It also takes time and expertise to research properties, find the best one for you, and make a strong offer. But we believe there are also many benefits for sellers, especially when it comes to figuring out the best asking price. Your home also needs to be staged, listed on the market, and displayed.
Let's take a closer look at how real estate brokerage fees work. There is one important caveat first. There is currently an ongoing legal battle regarding real estate agent commissions and how real estate agents are compensated. Until that is resolved (more on the lawsuit below), here's how the current fee structure works so that both homebuyers and sellers know what to expect. Share your information.
How much does a real estate agent charge?
Only a small percentage of real estate agents work for a salary. The fee-for-service model is much more common. For years, the prevailing interest rate was 6%, split halfway between buyer's and seller's agents. But that started to change with the rise of discount brokers and publicly accessible listings online.
Real estate commissions are now negotiable and typically range from 5 to 6 percent of the home's sales price. The exact terms of an agent's commission will vary from sale to sale, depending on your region and the company you work for.
Let's look at an example. The median home sales price in Cincinnati in December 2023 was $259,500, according to Redfin data. Add a 5% real estate commission to this price and you get $12,975. But in San Francisco, where the median was much higher at $1.17 million, a 5% fee would be $58,500.
Based on the sale price of the home and assuming a total commission of 5%, here's approximately what you can expect to pay.
| house sale price | Seller's agency fee (2.5%) | Buyer's agent fee (2.5%) | Total commission (5%) |
|---|---|---|---|
| $250,000 | $6,250 | $6,250 | $12,500 |
| $500,000 | $12,500 | $12,500 | $25,000 |
| $750,000 | $18,750 | $18,750 | $37,500 |
| $ 1,000,000 | $25,000 | $25,000 | $50,000 |
Seller and buyer fees
Sellers enter into a listing agreement with a real estate agent and agree to pay a commission after the deal closes. If you have an “exclusive sales rights” arrangement, you will pay a commission even if you find a buyer yourself.
The commissions for both real estate agents in a transaction are typically paid by the home seller. Both the buyer's and seller's agents are paid the proceeds from the sale of the home. These two agents typically split the total commission. So, for a 6 percent commission, the selling agent would receive his 3 percent and the purchasing agent would receive his remaining 3 percent.
The situation changes with dual agency, where one agent represents both the buyer and seller in a transaction. Laws regarding this vary by state. Some states do not allow dual institutions. In this type of scenario, pay special attention to the home appraisal to ensure you get a fair price. Agents have a fiduciary responsibility to their clients, but dual agency can blur the lines.
As Samantha Fish, an agent with Wesley & Associates in Grass Valley, Calif., points out, agents are expected to act in the best interest of their clients. “It's our ethics. It's in our contract,” she says. “If someone comes to my open house and they like it, but I don't have an agent, at that point I can say, 'Let me introduce you to an agent from my office,' and they can You feel like you're representing 100 people, and the percentages are the same.'' Still, buyers who deal directly with listing agents have the advantage of lower sales prices if the agent agrees to lower their commissions. There may be more room for negotiation as there is a possibility of agreeing to .
If you work with a buyer agent, “you'll need to sign a buyer agency agreement,” says Tim Noland, broker and owner of Great Mountain Properties in Murphy, North Carolina. “A true buyer's agent works for the buyer. They protect the buyer's investment, as opposed to a listing agent who works for the seller.”
broker's share
Real estate agents may also receive a portion of the commission. For example, brokerage firm RE/MAX uses a split commission structure where agents receive 95 percent of all sales commissions and 5 percent is returned to the firm.
“The broker has to set the policies and oversee, monitor and supervise everything the broker does,” said Patrick Duffy, broker and owner of Duffy Realty in Miami. “And if an agent does something dishonest or unprofessional, the broker can be sued.”
What does the real estate brokerage fee cover?
You may be wondering what kind of service you get for this price. One of the biggest ways buyers can benefit from working with a real estate agent is by gaining access to the Multiple Listing Service (MLS), the database that real estate agents use to review and list properties for sale. is.
This fee compensates the agent for the time spent answering questions and assisting with the process. Agents can also use their skills and connections to negotiate, find properties, and take you on tours of multiple homes.
Real estate agent fees also cover a wide range of costs for sellers, including marketing materials, staging and showing the property, coordinating open houses, and communicating with potential buyers' agents. When offers are received, listing agents negotiate on behalf of the seller and often make one or more counter-offers.
Home sellers may feel that real estate agent fees are too high, but listing a home requires a number of things, including:
- Create a comparative market analysis to establish competitive prices
- Arranging photography (including aerial photography by drone in some cases)
- Write descriptive listing copy to capture the interest of other real estate agents and potential buyers
- Providing guidance on staging
- Introducing the property multiple times to prospective buyers
- Open houses are often held on weekends.
- Providing garden signs
- Make sure your property is listed on all major real estate search websites
- Assist sellers in considering and negotiating buyer offers
Like most other costs associated with a real estate transaction, real estate agent commissions are not paid until the sale is completed.
Average real estate commissions by state
Overall, the national average real estate agent commission in 2023 was 5.49 percent, according to data from Clever. In all but a few states, average fees ranged from 5% to 6%.
However, keep in mind that real estate agents may be willing to lower commissions on high priced homes in order to make more money overall. The real estate agent's pie may be smaller, but it's a richer slice. “In situations where there is a competitive environment for prime or trophy listings, real estate agents may negotiate commissions upfront,” Duffy says. “For example, if you're listing a $4 million home for 6 percent, that's a lot of money. In these situations, you have more flexibility to negotiate the fee. Instead of receiving $120,000, you might receive $100,000 or $80,000. Even so, it’s still a good payday.”
According to Clever, the average real estate commissions by state are:
| state | average commission rate |
|---|---|
| Source: Clever | |
| Alabama | 5.45% |
| alaska | 6.00% |
| arizona | 5.44% |
| arkansas | 5.99% |
| California | 5.11% |
| colorado | 5.62% |
| connecticut | 5.47% |
| Delaware | 4.88% |
| District of Columbia | 5.49% |
| florida | 5.37% |
| georgia | 5.81% |
| Hawaii | 4.78% |
| idaho | 5.50% |
| illinois | 5.35% |
| Indiana | 5.56% |
| iowa | 5.67% |
| Kansas | 5.58% |
| kentucky | 6.00% |
| louisiana | 5.56% |
| maine | 5.17% |
| maryland | 5.34% |
| Massachusetts | 5.45% |
| michigan | 5.92% |
| minnesota | 5.82% |
| mississippi | 6.07% |
| missouri | 5.58% |
| montana | 5.50% |
| nebraska | 5.25% |
| nevada | 5.80% |
| new hampshire | 5.25% |
| new jersey | 5.21% |
| new mexico | 5.90% |
| new york | 5.39% |
| north carolina | 5.52% |
| north dakota | 5.00% |
| Ohio | 5.99% |
| oklahoma | 5.95% |
| Oregon | 5.03% |
| pennsylvania | 5.48% |
| rhode island | 5.50% |
| south carolina | 5.62% |
| south dakota | 5.49% |
| tennessee | 5.58% |
| texas | 5.73% |
| Utah | 4.90% |
| vermont state | 5.49% |
| Virginia | 5.45% |
| Washington | 5.25% |
| west virginia | 6.67% |
| wisconsin | 5.15% |
| wyoming | 6.00% |
How to avoid paying real estate agent commissions
It's certainly possible to sell your home without the help of a real estate agent (known as “for sale by owner,” or FSBO for short). From July 2022 to June 2023, 7% of home sales were sold by owner without the help of an agent, according to data from the National Association of Realtors. But selling without the help of an agent requires a lot of work to do on your own, and you'll only save on one agent's commission. You still have to pay the buyer's agent.
If you don't want to go it alone, ask your agent about their fees from the beginning and compare the terms of each person you talk to. If you think the price is too high, talk to us about lowering the price. If the transaction is handled by agents of the same brokerage on both sides, you may also have more leverage to negotiate.
Alternatively, you may consider working with a low-commission real estate agent who charges a much lower commission than a traditional real estate agent (typically 1 to 1.5 percent of the home's sale price). However, since the commission they receive on each property is small, these agents typically focus on transaction volume. As a result, you may not receive as much personal attention as a traditional real estate agent.
There are also brokers and agents who work for a flat fee. In other words, no matter how much your home sells for, they receive a set amount of money, not a percentage of the sale price.
If you want to avoid real estate agent fees and sell your home quickly, you also have the option of selling to an iBuyer or a company that buys your home for cash. Both options allow you to close your home sale quickly and without paying broker fees. However, the offers from these buyers are lower than what you would get through a traditional sale, and some may charge a service fee equivalent to the amount you pay in commission.
Finally, remember that even if you're not paying your real estate agent's commission, there are still a number of other closing costs involved in selling your home. For example, you may have to pay title transfer fees, attorney fees, and property taxes.
A lawsuit that could change everything
A case currently pending in court could upend the entire real estate commission model as it currently exists. (That is, the seller pays both her agent and the buyer's bills, which usually total her 5 to 6 percent of the home's sale price.)
In October 2023, a federal jury found that the National Association of Realtors (NAR) conspired with several major brokerages to raise commissions for real estate agents. A judge ordered the companies to pay $1.8 billion in damages to the home sellers who filed the lawsuit, but that number could rise to nearly $5 billion. If the ruling stands, home sellers may not have to pay agents who represent buyers.
However, the situation is far from final. NAR has announced plans to appeal the ruling, and it could be years before the impact of the ruling (if it stands) is known.
FAQ
-
The traditional standard commission is 6% of the home purchase price, split equally between the agent representing the buyer and the agent representing the seller (3% each). However, the amount is negotiable and is usually lower, averaging between 5-6%.
-
Typically, the seller pays both his or her real estate agent's and buyer's agent fees. The situation may change if the lawsuits currently pending in the courts are successful, but it will be a long time before we see the impact (if any).
-
It depends on the specific terms of the agent's commission. Most fees are in the range of 5 to 6 percent of the home purchase price. On a $500,000 deal, 5 percent would be $25,000 and 6 percent would be $30,000.
