What Do Real Estate Agents Charge For Commission?
One question you hear a lot being, a real estate agent is, “What is your commission rate”? One thing everyone should know right from the start is that real estate commissions are entirely negotiable, and they are generally split, 4 ways, not including the split with “Uncle Sam” and we’ll get into that later.
There isn’t anything anywhere that says a commission needs to be a certain amount of money. So, what one real estate company or agent charges fora commission can be completely different from another firm or agent down the road.
In real estate franchises like RE/MAX, the real estate agent is completely empowered to decide what they will charge for a commission. However, with most real estate franchises, the owner of the franchise will determine what the agents will charge for a commission, and when if the situation arises where an agent is asked to reduce their commission, the agent will usually need to ask for permission from the owner of the franchise.
When using an experienced and reputable Realtor® they will make the home buying and home selling process much more comfortable, efficient, and productive for their clients.
Realtors® do need to be paid for their services, which usually means paying them a commission from the home sale of the property. There are people who feel like real estate agents are paid way too much, while there are others who think thatRealtors® do not make enough for all their hard work, long hours, and sacrificing time with their family to work. There are some consumers who will choose to sell their home for sale by owner without the help of a Realtor in the hopes that they will save money by not paying a commission.
Typically, the fees that real estate agents will charge will depend on the area you live in and the type of home you are trying to sell. It’s not possible to list all the commission rates for your area, but we can give a little overview of how real estate commissions work and what some common commissions are.
Real Estate Commissions – What You Should Know
Typically, The Seller Will Pay The Fee.
In most real estate transactions, it’s the seller who ends up paying the real estate agent’s commission. The reason being is that the seller paying the commission makes a lot more sense since the sale of their home will produce a large payout for the seller, and the seller’s agent has to do a lot of work to make that sale happen. Again, the listing agent's commission can vary and is negotiable, but often it will be somewhere in the range of 4% - 7%.
The most common commission you’ll pay to sell your home, depending on what part of Florida you’re located in, is going to be between 5-6% percent of the sales price.
Since the seller is the one who typically will be paying the commission, it is important that the seller do their due diligence before selecting an agent. If you are the one selling a home, you should interview at a minimum 3 real estate agents to find the one that fits your specific needs and, overall, the one who has a personality that you can work with and you feel comfortable with.
Once you hire the right agent, they will go to work for you to get your home sold and make sure that you get the best possible deal from the transaction.
There is No Set Commission
As previously, mentioned commission rates are one hundred percent negotiable between a real estate agent and their client. While there might be a typical rate in your particular area, there is absolutely no set commission rate, Realtor fee, or standard percentage. People may wonder why that’s the case, and it because of what’s known as the Sherman Antitrust Act. The act was put in place to prohibit businesses from getting together and barring competition.
Basically, the Act prohibits all the real estate agencies in a given area from getting together and agreeing to set commission rates. Doing this would lead to collusion and setting commission income. However, that doesn’t mean a real estate brokerage can’t tell all their agents to charge a specific rate when listing a home for sale. This is completely legal and is at the discretion of the real estate broker.
A lawsuit filed in 1979, was filed against 3 Real estate Brokerages & 3 Individuals, the case is United States v. P Foley which tied up real estate agent commissions with antitrust laws. The case heavily scrutinized real estate agent fees and changed how real estate brokers conduct themselves as it relates to compensation from clients.
Due to the Sherman Antitrust Act, real estate agents need to be careful about what they when it relates to how much they charge for commission.
Seller’s Agents Often Split The Commission With a Buyer’s Agent And Their Broker.
As previously mentioned at the start of this article, the commission is usually split four ways on a transaction. The seller’s agent often splits the commission with a buyer’s agent 50/50, then typically both the seller’s agent & the buyer’s agent will have to split their commission with their broker as well, which their split with their broker can range anywhere from 0-50% of the commission the agent received from their side of the transaction. After all, that’s said and done, then there comes the split no one can avoid, “Uncle Sam”, which as a rule the agent should set aside roughly 20-30% of their commission to pay their taxes at the end of the year.
As a seller, it is usually a good idea not to discount the commission that the buyer agent will be paid. Doing so could make your home harder to sell and net you less money, not more.
Sometimes Commissions Get Discounted
Another question often asked by sellers to real estate agents is whether or not there will be a discount if the listing agent procures the buyer themselves. More often than not, agents are willing to discount their fees if they do get both the buying and selling side of a transaction.
Another instance where real estate agents are typically willing to discount their commission is when they work with a client who is buying and also selling a home through them. You just need to ask! If an agent thinks clearly, they will agree with your request.
Flat Fee Entry Only Agents
It is worth noting there’s another type of commission arrangement that has popped up recently over the last decade or so and, is known as entry only flat fee commission. This is an arrangement, where a broker will list a property for a flat fee, put it in the Multiple Listing Service ( MLS ), and not to anything more than that.
This is usually used when you’re doing a “For Sale By Owner” or FSBO where the owner gets to sell their property on their own but also has the privilege of placing their home in the MLS. In this scenario, the seller does all of the work. The agent does none of the traditional marketing activities. The seller also has no representation. There are some significant pros and cons to marketing a home in this fashion.
Different Realtors® Get Paid in Different Ways.
So, to go back to how agents are paid and how commissions are split by an agent and their broker, here is a more in-depth overview. There are a variety of arrangements real estate agents make with each other and with brokers. Most real estate agents are considered independent contractors and solely rely on the commissions they earn. So, depending on what brokerage an agent works for, the brokerage's commission policy will dictate how the agent’s pay is calculated.
According to the National Association of Realtors®, some of the ways that real estate agent pay is broken down include the following:
- They have a graduated commission split. 23% of real estate agents do not have a set commission rate but they are paid more when they produce more sales for the brokerage.
- They have a fixed commission split. 36% of real estate agents have a fixed commission split with their brokerage they work with. For example, if the agent has a 60/40 split with their brokerage, the agent gets 60% of the commission, and the brokerage receives 40% of the commission.
- Full commission. 13% of real estate agents get a full 100% of the commissions they bring in. These agents usually have to pay their broker a desk fee or a transaction fee that ranges anywhere from $200 for each transaction all the way up to $2,000 a month.
- They have a capped commission split. 16% of real estate agents split their commissions with their brokerage until the point where they reach a specific dollar amount, that their brokerage has in place, then they get the full commission once they hit that dollar amount or cap.
- Other compensation structures. 12% of real estate agents participate in different types of commission structures, like getting a salary and a share of some of the brokerage profits, or a salary and a production bonus, or a commission and a share of the brokerage profits.
- Salary only. 1% of real estate agents work for just a salary. This being the rarest, it is used usually in unique situations where the brokerage charges a small commission – sometimes as little as 3% – and requires a minimum fee to cover all of the expenses of preparing the home.
How Much Does A Realtor® Make?
Do you know how much real estate agents make in commission? Many people think that real estate agents make a ton of money & drive Ferrari’s while lounging around the poolside all day. However, that is not the case. While top agents can make an excellent income, the average agent does not. As Feb.26th, 2020 the average yearly commission for a Realtor® was $42,183. This was up from $41,289 in 2019.
Income was generally in line with experience. So, Realtors® with 16 yrs. or more experience had a median gross income of $78,000, while Realtors® with 2yrs. or less experience had a median gross income of $9,300.
It is important to note that unlike most businesses that have an 80/20 rule, whereby 80% of the business is done by 20% of their members, in real estate it’s 93/7. Which is 93% of all real estate transactions are done by 7% of the agents.
Again, the majority of times commissions are usually split in four ways. The listing firm, the listing agent, the selling firm, and the selling agent typically split the commission in some fashion.
Consumers should also understand that there is a difference between a Realtor® and a real estate agent.
The Fees a Real Estate Agent Charges Will Vary Depending on Their Role.
Determining what a real estate agent does and who they work for can be confusing sometimes if you just go off of terms and titles – a good example, is sometimes the buyer’s agent can be called the selling agent, and a listing agent is a term used for the agent working for the seller. So, make sure you know what you are getting into, and ask the agent to clarify who they work for and if they charge any upfront fees.
As a seller, you’ll want a Realtor® who will work on getting you the highest possible sales price, or a combination of a high sales price or other contract terms that are desirable to you, such as a quick sale, so you can move to another area and buy a new home. As a buyer, you’ll want an agent that will work to get you the best possible deal on the house that you want.
What About an Agent Bonus?
There will be times, typically when the market is in favor of buyers, that some sellers will offer what’s known as an agent commission bonus to get their home sold. A while ago, before the emergence of buyer’s agents, doing so made more sense.
The reason for the agent bonus is that it was an incentive used to get agents to sell their property. With the arrival of buyer’s agents, it makes a lot less sense. Why? If you are a buyer’s agent, the commission that is being offered should have no effect on whether an agent shows a client a specific property or the advice they give you.
Realtors® Do A Lot For The Money
At first look at the fees that a real estate agent may charge, it can be a little shocking. After all, it is your house that you are selling, and you want to make sure you get as much from that sale as possible. In actuality, though, Realtors® tend to make less than you think after all the splits and fees are calculated in, not including the cost of marketing your home.
The money you pay for a great real estate agent is more of an investment. The real estate agent is motivated to sell your home for a great price because that means more income for them. Many people wonder what a real estate agent does all day. It is a lot more than most people think.
Here is a quick summary of what a great Realtor® does to earn their commission:
- Help you set a competitive price by preparing a detailed home valuation report
- Ensure that you get professional photos to attract buyers
- Write a listing description of your home that will draw in the people you want looking at your property
- Help you stage the house to make it look at it’s best
- Show the home multiple times to encourage offers
- Marketing your home through multiple marketing channels
- Helping you negotiate the best deal when the offers start coming in from buyers
Do You Pay a Realtor® if Your Home Doesn’t Sell?
Typically, the answer is no. Real estate agents are in a business that is a performance-based business. In our Florida, real estate contract there is language stating that a real estate agent will only get paid if and when the property closes. However, in some contracts, there will be wording that if a buyer is successfully procured and you as the seller break the contract, you will still owe the agency a commission.
When you’re signing a listing agreement, it is important to read over the fine print and know exactly what you are agreeing to. There are some occasions when a seller may want to fire their real estate agent for lack of performance and getting out of a contract might not be as easy as you think.
The same thing can be said if you hire a buyer’s agent and sign a buyer’s agency agreement with the buyer's agent.
No matter if you are buying or selling a home, it is important to interview the real estate agent you want to hire. If an agent does an excellent job, then the commission you end up paying will end up being worth it. However, getting stuck with a horrible agent, you’re likely to feel the exact opposite. Even though knowing how much a real estate agent charges for a commission is important it, should not be the only factor in making a hiring decision.