Whether you decide to buy or sell your home, your real estate agent will receive a commission once you finalize the transaction. While commissions are a very common way of doing business, many buyers and sellers don’t understand what, exactly, a commission covers, who pays for it, and how the commission breaks down for the agent and broker.
Take charge of your home sale or purchase by understanding the mechanics of real estate commission, and where you fit into the puzzle as a buyer or seller.
What is real estate commission?
When you work with a real estate agent, you pay them once the transaction closes. This payment comes in the form of a commission, which is usually 4 – 6% of the value of the home, depending on your location and the deal you made with your broker.
While some homeowners avoid commissions by listing their home as For Sale By Owner (FSBO), it’s not always the best idea. This can shave off 3 – 6% off the price of your home, but you’re missing out on the benefits of hiring a real estate agent. It’s difficult to market FSBO, and many times these FSBO sellers lack the expertise to help you navigate legal and regulatory requirements.
Technically, the seller pays for the commission, since it’s part of the proceeds of the home sale. It’s common to see real estate agents agree on a 6% commission, splitting it 50-50 to the buyer and seller sides after the home sale.
For example, if a home sells for $100,000, the buyer and seller agents and brokers would split the $6,000 commission, earning $3,000 each.
When you pay for an agent’s commission, you’re getting all kinds of services and help to buy or sell your home, including:
- Marketing the home online.
- Marketing the home offline through open houses.
- Acting as the go-between with you and other parties.
- Presenting homes in a professional way, which often includes staging.
- Attending inspections and appraisals.
Commissions aren’t dictated by law, either. You can privately negotiate them with your agent before you sign a contract. While it’s tempting to go with an agent with a lower commission percentage, think carefully. Sometimes a lower commission (4 – 5%) can mean the agent is inexperienced or won’t offer critical services like marketing.
Breaking down your real estate commission
Now, don’t assume that your real estate agent is gleefully running off to the bank after your sale closes. Agents don’t earn 100% of the commission they bring in. In fact, you’re not allowed to pay agents directly: all commissions go through the agent’s broker first.
Buyer and seller agents will typically split commission 50-50, but once the sale is done, they further split those earnings with their internal team. Commissions are usually split between:
- The seller’s agent.
- The seller’s broker.
- The buyer’s agent.
- The buyer’s broker.
It’s not uncommon for a real estate agent to earn around 1.5% of the total 6% commission when it’s all said and done.
The bottom line
While it’s tempting to go with the cheapest possible options for buying or selling a home, remember that you get what you pay for. Agents charge commissions because they work hard to be in your corner. House-hunting and selling on your own can be perilous, so having a professional by your side is an asset.
Read your agent agreements carefully so you understand the commission structure moving forward. Get peace of mind when you’re in the thick of buying or selling a home, knowing your agent is hard at work on your behalf.
Curious about our commission rates? Get in touch with Ropal Realty and we’ll be happy to help you make the right decision for your family.