Many buyers may question why real estate agents need to be paid such high commission fees, yet this cost has always been included as part of the home sale price.
But this traditional arrangement may be changing due to a recent lawsuit filed against the National Association of Realtors (NAR). Let’s explore how and why this could impact home buyers.
What is a commission?
Commission is the fee paid to professional real estate agents for their services. In the United States, agents generally charge a percentage of the sale price as their commission. This can vary depending on location and property type. Sometimes buyers agents charge flat rates instead; such agents are sometimes known as discount agents.
As buyers prepare to buy homes, many will incur closing costs as well as property costs. It is therefore wise to save for both of these expenses before making offers; additionally, buyers may require saving for down payments and closing costs in advance. In order to make successful offers on property purchases, having an experienced buying agent available to guide home tours, negotiations skills and paperwork completion is helpful for making successful offers on properties.
Home sellers traditionally pay both seller’s and buyer’s agent commission fees when listing their home for sale; sometimes this cost can even be factored into its initial listing price, leaving potential buyers unaware they’re contributing toward agent’s commission when making offers on properties.
At times, properties listed for sale by owner (FSBO) can present unique challenges; sellers may not want to pay buyer’s agent fees; in these instances, however, experienced real estate agents often find ways around this obstacle and get the seller to cover this fee on behalf of their client.
There may also be times when agents agree to provide both buyer and seller representation – a process known as dual agency. While not legal everywhere, dual agencies provide both parties with benefits from real estate services provided by a real estate agent. When working under this model, an agent represents both parties while simultaneously negotiating on each’s behalf to reach an optimal deal that suits everyone involved.
How do commissions work?
Real estate commissions typically represent a percentage of the sales price and are paid to brokers who in turn pay agents; this is how most agents make money. There may also be flat fees attached, though this option is less prevalent; instead agents typically negotiate an acceptable rate with their broker.
Agents may be willing to negotiate lower commission rates in some situations, particularly if they represent both buyers and sellers, which is known as dual agency. A lower commission could also result if an agent has high-volume production capabilities that dominate specific markets. When hiring an agent to represent you when purchasing property, be sure to inquire about his or her commission rate as this can impact whether your offer is accepted.
Home sellers generally decide how the commissions for their listing will be divided, with many offering 50-50 splits; though other may opt for other arrangements. This information can then be included on their MLS listing page.
Real estate agents typically assess both their local market and experience when determining how much to charge their services, taking into account factors like reputation building. A newer agent who’s just getting their feet wet may charge less; additionally, some agents might prefer working on flat fees rather than percentage of sales price basis with clients.
Real estate agents frequently earn referral fees by suggesting other professionals to their clients. This provides extra income while making transactions more efficiently completed; sometimes the referral fee may even be calculated as a percentage of sale price.
The National Association of Realtors recently reached a settlement that will change the standard 6% commission charged by home sellers upon sale in 2024, offering significant savings for homeowners. If they sell their home at the national median sale price in February of $379,100 they would save $11,373 by not having to pay commission to buyer’s agents.
How do I pay my agent?
Real estate agents typically work on commission, though some receive base salaries or bonuses in addition to their commission. This is often true of newer agents trying to gain market share.
Commission is generally divided equally among buyer’s agent and seller’s agent; however, agents may negotiate different splits with their broker employer; typically this would be around 50-50.
Real estate agents in the US typically are compensated on commission, which means they receive a small percentage of the sales price of any given property they sell; an agent assisting in selling a $1,000,000 home would receive an average commission rate of $100,000, so it’s crucial that you find a broker with fair commission rates; otherwise you may end up overpaying.
Based on your location and home sale volume, commission rates of 5-6% could become significant. That is why it’s vitally important that you find a reputable agent with proven success to represent you when selling your property.
Many agents also receive referral fees from other real estate professionals for referring clients for services like mortgage lending, property management or relocation assistance. The agent receiving these referrals usually earns an extra monetary bonus in addition to their commission payment.
Home sellers frequently sign an exclusive right-to-sell agreement with their real estate agent, agreeing to pay their commission when their home sells – yet in some contracts this provision also stipulates that even if a sale falls through they still owe commission.
If you’re considering buying a home, it is wise to consult multiple agents on their rates. Keep in mind, however, that lower commission doesn’t always equate with better service; smaller commission may leave your agent less money to cover marketing expenses or other business costs.
How do I get a lower commission?
Trying to save on real estate agent fees? Negotiate with your listing agent! Real estate agents generally charge between 5%-6% of the selling price as their services fee.
Approach your negotiations with an open mind and be ready to compromise. Keep in mind that agents incur expenses related to marketing and showing homes, so commissions provide their primary source of income. By creating a compelling case for why you deserve a lower commission rate, you may convince your agent to make concessions on their part.
Initialize an assessment of your local real estate market. If it is predominantly seller’s market, your agent is more likely to accept a lower commission rate as they feel confident in selling your home quickly. On the other hand, in markets with mixed or favoring buyers conditions they may be less inclined to negotiate commission rates with you.
Conditions are another important aspect to keep in mind when selling your home. Making investments like repainting, decluttering or hiring professional pre-inspection can help your agent sell it more quickly for more money and make your home more appealing to buyers – increasing the odds that a higher offer comes your way.
Use the same agent for both purchases and sales for maximum efficiency in negotiations; they’ll already know your budget, making negotiations much less of a headache!
Be sure to have open communication with your agent, and clearly define the terms of your relationship in writing. This will protect both of you in case of conflict or disagreement later on, while being open about your finances and explaining why a lower commission rate may help make them more understanding.