Real Estate Agent Commission: How Do Agents Get Paid?
Most people who want to sell or buy a home enlist the help of a real estate agent, and for good reason. These licensed professionals provide a variety of services that simplify the real estate market for their clients.
They even sweeten the deal financially. According to the National Association of REALTORs® (NAR)’s 2021 Profile, agent-assisted homes sold for a median of $318,000. That’s $58,000 more than the median selling price of For Sale by Owner (FSBO) homes.
But if you want to benefit from their expertise, then you will need to pay your real estate agent accordingly. Here’s a breakdown of how real estate commission works.
What Is A Real Estate Commission?
When you find a real estate agent or REALTOR® to help sell your property, you don’t pay them by the hour. Instead, they earn their main income through commission from the property sale as compensation.
Agents charge their clients commission in proportion to the home’s sale price. So, the more a buyer pays for your home, the higher the commission your real estate agent receives.
How Real Estate Commissions Work
The contract between you and your agent specifies how your commission payment works. Commission is usually split between the seller’s listing agent, buyer’s agent and any respective real estate brokers.
You may even pay more than one agent or broker, depending on your situation. Some home sellers opt for a nonexclusive compensation agreement that allows them to work with more than one of either.
Who Pays The Real Estate Commission?
Home sellers typically pay real estate fees for both their agent and the home buyer’s agent as part of the closing process. The agents are paid when the sale is final.
Technically, an agent's commission is not included in a home’s closing costs. Closing costs for a seller can include things like appraisals, home inspections, transfer taxes, title insurance and the real estate purchase agreement.
Sometimes, the seller may include the cost of commission in the sale price of the home. That way, the buyer technically covers the fee in the end. Usually, though, the seller is the one to pay real estate agent commissions.
What Do Real Estate Agent Fees Cover?
A full service real estate agent or REALTOR® will offer professional, in-depth support to clients for a great buying or selling experience. When you pay them, you’re compensating for their skills and actions, including:
- Access to the multiple listing service (MLS) and creating your listing
- Time spent researching properties for buyers or marketing homes for sellers
- Showing homes or coordinating open houses
- Mediating negotiations for things like prices, multiple offers, timelines, and repairs
- Knowledge and experience within the market
- Assisting you with paperwork
Average Real Estate Agent Commission
The average real estate commission costs vary between 5% – 6% of the home’s sale price, with a national average rate of 5.8%, according to HomeLight. However, the exact fee you pay may be slightly lower or higher depending on your contract and completed home sale.
Here’s an example breakdown for different sale prices with a 6% real estate commission:
Home Sale Price
Real Estate Commission At 6%
FAQs About Real Estate Commissions
Still have questions about real estate commissions? Below are some answers to any you may have.
What is a fair commission for a real estate agent?
Real estate commission is often negotiable. So, what’s “fair” depends on the agreement you and your agent make. Generally, though, it’s recommended to stick within the 5% – 6% range.
Real estate agents provide a variety of services, including acting as intermediaries, facilitating negotiations, marketing, listing your home and more. So, it’s important to compensate them for their experience, work, and time.
Are real estate agent fees negotiable?
No law establishes a minimum commission rate, so you’re free to negotiate.
Occasionally, agents offer discounts if you both sell and buy through their agency. Or, you can ask for a lower fee if the agent provides fewer services than normal. For example, if you only hire them for one part of the sale process or the home is already move-in ready.
Can you avoid paying a real estate commission?
There are some ways for sellers to avoid paying real estate commission. Some alternatives to paying real estate commissions are to work with discount brokers, go the for sale by owner route or sell to a cash buyer, including investors or house buying companies.
Although FSBO sellers can cut expenses on commission, you are solely responsible for all marketing, negotiating and navigating documentation. You may still have to hire an attorney to review paperwork for closing. It’s generally advisable to work with a REALTOR® or agent. They offer valuable expertise and market insight that can net you a higher sale price.
Do you have to pay commission if your home doesn’t sell?
It depends on your situation. A home seller might only have to pay a real estate commission if the sale goes through. However, the contract signed between the seller and their agent might require payment regardless. It’s always a good rule of thumb to read through all of the fine print on your contract.
A seller may still owe their agent commission in certain situations, though, such as when the seller backs out of a contract. Or, if the agent still performed a service, like finding a prospective buyer.
What is dual agency?
Dual agency is when a real estate agent represents the buyer and a seller in the same transaction. It’s illegal in several states and is not practiced often since there is potential for a big conflict of interest.
The Bottom Line
Real estate agent commission fees can add up quickly, but most will find them worthwhile to pay. Navigating the real estate industry is complex, especially if you’re doing it alone. With such a large financial investment, you want to ensure you’re in good hands.
If you’re ready to begin your own home buying process, start the mortgage approval process today!