Merit Real Estate

Real Estate Commissions: What you need to know

Real Estate Commission

When a homeowner decides to sell their home, the cost of hiring a qualified Realtor will certainly be a major concern. Homebuyers often have questions about how their Realtor will get paid as well. Whether you are a buyer or a seller, working with an experienced agent can bring you great value. It’s important that you know how your agent expects to get paid for their services. Let’s take a look at everything you need to know about real estate commissions.

Who Pays the Real Estate Commissions?

The home seller almost always pays all of the real estate commissions. The seller will negotiate the amount or percentage of commission to be paid to the broker that lists their home for sale. The terms of the commission will be agreed to in writing and paid only when the home is sold.


Related article: For Sale by Owner: The True Costs.


How does a Buyer’s Agent get Paid?

Working with an agent rarely costs a buyer anything. The buyer’s agent only gets paid when they successfully sell a home. That is when they will earn a portion of the commission that the seller is paying. That means that home buyers are getting an extremely valuable service for free!

In rare cases, a buyer may pay their agent’s commission. This only happens when the buyer and agent execute a Buyer Representation Agreement. Such a contract may require a buyer to pay the agent a commission in case they buy a home from a seller that is not offering a commission to the buyer’s agent.

How Does the Commission get Split Between Agents?

If the buyer is represented by another Realtor, the listing agent will share the commission with that agent. The amount or percentage shared with a cooperating agent is predetermined by the listing agent and disclosed to all cooperating agents before they show the home to their client. A 50/50 split between agents is common, but 60/40 splits have become more prevalent in larger markets.

splitting Real Estate Commissions

What is the Standard Rate Real Estate Commission?

The truth is that there is no standard rate. The commission rate is always negotiable. This is why it’s important to interview several agents before hiring one to help you sell your home. By interviewing several agents, you will be able to negotiate the best commission rate. You will also be able to compare the experience, services, and marketing that each agent is offering in relativity to what commission rate they are requiring.

Real Estate Commission rate

Common commission percentages negotiated between home sellers and their agents are 5 to 7 percent of the final selling price. Discount and flat-rate brokers may offer their services for much less. The caveat to this is that their services are typically less robust in terms of marketing and exposure for your listing.

What if the House doesn’t Sell?

If your home doesn’t sell during your listing contract, you likely won’t be responsible to pay a commission. A traditional listing contract will allow for a specified time frame for the agent to procure an acceptable purchase offer for your home. Since your agent will have to sell your home in order to get paid, they will have an incentive to work hard and actively market your home. If you are working with a flat rate or discount broker, your listing contract may require you to pay the commission or fee upfront.

What does a Realtor do to Earn Their Commission?

real estate commissions

This question gets asked a lot! There is a common perception that real estate agents don’t do much to earn big commissions. The truth is that a good hardworking agent will provide extreme value for the commission they earn. The flip side to that is that some agents bring as much value for what they are paid. A top agent offers value in many ways. One major way is by guiding the home seller to properly price their home for sale. Properly pricing your home from the start can literally save a homeowner tens of thousands of dollars on their bottom line. Another major value that a good agent provides is a proven marketing plan.

A great marketing plan usually consists of producing professional photos, videos, property descriptions, printed materials, digital and social media advertising, direct mail campaigns, open house events, and spending hours prospecting for a buyer. All the money spent on marketing is paid for by the agent listing the home for sale. If the agent doesn’t sell the home, they aren’t entitled to receive a commission. It’s also likely they won’t recuperate any of the money they spent to market the property.  This is even more incentive for them to work hard to find buyers for their listings.