What Is Realtor Commission?
At the completion of a home sale, the real estate agents involved collect a fee called “realtor commission,” “real estate commission,” or sometimes simply “realtor fees.”
Realtor commission is usually calculated as a percentage of the home’s sale price, in the 5-6% range. A nationwide survey of agents found that the average real estate commission cost is 5.45%, though it may trend upward or downward by region.
The money for the realtor commission comes out of the seller’s proceeds from the sale. This includes the realtor fees for both the seller’s agent (often called the “listing agent” because they list the home for sale) and the agent representing the buyer.
Below, we explain everything you need to know about realtor commissions, including how they work, their typical cost, and what services real estate agents provide to earn their fees.
How realtor commission works
Realtors typically aren’t paid a salary and don’t make money upfront when they take on a new client looking to buy or sell a home. Instead, they earn a commission on the home’s sale when the deal closes.
Commission rates are talked about as a single percentage — often between 5-6% of your home’s sale price. However, that is not meant to imply that you are only paying one agent; typically, the seller’s agent splits this fee with the buyer’s agent, who brings one of their clients to purchase the home.
Why a commission-based model?
Having agents take a percentage of the home’s sale price incentivizes them to sell your home for the highest price as quickly as possible to maximize their own earnings from the transaction.
Since realtor commission comes from the home sale proceeds, which otherwise would go to the seller, people usually say that the seller pays for both realtor fees.
So why would the seller pay for the buyer’s agent? Essentially, the buyer’s agent commission is a marketing expense to attract buyers.
Here’s how that works:
- As a seller, if you don’t offer a buyer’s agent commission, buyers who want to work with an agent will have to pay their agent out of pocket.
- That means buyers will have to bring 2-3% of the home’s price in cash to pay their agent on top of their down payment — which is much less affordable than similar homes nearby offering buyer’s agent commission.
- Buyer’s agents who see your home listed for sale will see that you aren’t offering any commission and may be less inclined to show their clients your home.
- HomeWise solves this expensive business model of giving up 6% of your home equity! They take an upfront fee instead of 3% leaving you with 50% of the commission cost in your pocket!
How do realtors get paid?
Realtors get paid at the end of the real estate transaction when the home sale is finalized. This occurs on the home’s closing date, known as settlement, when a title company transfers ownership and distributes the proceeds.
Agents don’t get to keep all of their commission. Realtors generally split the commission they earn with their broker, who is legally required to oversee the transaction.
The amount of commission agents have to split with their principal broker will vary but is typically 30–50%. If the listing agent’s commission was 3%, and the agent split it with their brokerage, their commission would be 1.5%.
Here’s an example of how much of your equity is absorbed by selling your home under traditional commission expenses.
Here’s an example:
|Listing broker cut||1.5%||$3,000|
|Buyer’s agent’s broker cut||1.5%||$3,000|
|Listing agent take-home pay||1.5%||$3,000|
|Buyer’s agent take-home pay||1.5%||$3,000|
The listing and buyer’s agent each make $3,000, and their brokers collect the same amount. The broker justifies their cut by providing their agents training, marketing support, and specific legal protection.
What does real estate commission cover?
Real estate commission is typically all-inclusive; it covers all aspects of the marketing and sale of your home.
Most agents will do the following to sell your home:
- Perform a Comparative Market Analysis (CMA) to help you correctly price your home
- List your home on the Multiple Listing Service (MLS)
- Promote your home on popular real estate sites like Zillow
- Pay for professional photos
- Coordinate showings
- Help you with legal paperwork
- Negotiate on your behalf
Realtors front the time and money needed to market your home; you don’t pay them anything until you sell. That means if your home doesn’t sell, your realtor is the one who takes the hit.
If you are a home buyer, the question of what commission covers is less critical. Buyers do not typically have to pay commissions; the seller pays for your agent’s fees from the home sale.
There is less variation in the services provided as almost all buyer’s agents will help their clients:
- Find homes
- Attend showings
- Submit and negotiate offers
- Handle the legal paperwork
While the services outlined above are what agents typically offer, the level of service will vary from agent to agent.
How To Choose?
How will you know what your realtor services will provide and pay for when selling your home?
The details of what your agent will do to sell your home are decided when you sign your listing agreement. They may provide this through a marketing plan, which presents the agent’s plan for attracting potential buyers.
Agents don’t pay out of pocket if you want more — such as staging, 3D tours, or social media advertising. If you want these things for your home, discuss this with your agent before you sign a listing agreement.
The Great News?
You don’t have to burn equity paying the traditional commission of 6% with HomeWise.
You receive all the same benefits as a traditional listing but pay half the commission collected at closing.
What is FlatFee? Flat Fee saves you half the commission!
If you have any questions please email Sharon or call: 614-432-7325Email: Sharon@homewisemls.com