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Real Estate Agent Commissions Explained

5-Minute Read
Published on January 17, 2021
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Whether you’re buying or selling your home, you may need to enlist the help of a real estate agent. Not sure if the cost of a real estate agent commission is worth it?

Let’s explore the value provided by a real estate agent and the cost of a commission.

What Value Do Real Estate Agents Offer?

Working with a real estate agent can help you navigate the home buying process smoothly. A real estate agent can provide a professional opinion on a home and help you negotiate for the best deal possible.

As you go proceed, you’ll find that the real estate agent will help with in the following ways:

  • Provide an objective opinion: This can be helpful because you may not see the flaws that could leave your house on the market for a long time. A real estate agent can point out which things need to be fixed to ensure a quick sale.
  • Price the property appropriately: A key service provided by a real estate agent is to determine the price a property should be listed for based on market conditions.
  • Preparing the property for listing: A lot of effort goes into the process of preparing a property for listing. A few of these things can include hiring professional photographers, staging the interior, and writing an enticing description of the property.
  • List the property: Once the property is ready to be listed, real estate agents can create a listing on the MLS which can get your home in sight of potential buyers. Since only licensed real estate professionals can access the MLS, this is a valuable service.
  • Market the property: The agent’s job doesn’t end with a listing. Instead, it is usually the beginning of a marketing campaign to get the word out about the property.
  • Showing the property: Through open houses and individual showings, the real estate agent takes responsibility for walking potential buyers through the property.
  • Handle the paperwork: A real estate transaction is a lengthy paperwork process. Not only can it be tedious, but it can also leave you open to potential legal issues if not completed correctly. An agent can guide you through the process efficiently.
  • Tackle the negotiations: In most cases, you’ll need to negotiate with the other party to strike a deal that works for everyone. But without sharp negotiation skills, it can be tricky. A great REALTOR® will make sure that you’re getting the best deal and will run the negotiations with your best interests in mind.

If you’re still on the fence as a seller, consider the fact that the median real estate agent-facilitated home sale was $295,000 in 2018. When compared with the for sale by owner (FSBO) median home sale of $217,000, it’s clear to see that working with a real estate agent can come in handy for home sellers.

But home buyers can also benefit from the professional help of a REALTOR®. After all, the home buying process can be confusing. With the help of a competent buyer’s agent, you should feel more comfortable tackling this major milestone. But it is more feasable to buy a home without a real estate agent than sell a home without one.

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How Much Commission Do Real Estate Agents Make?

Typically, a real estate agent will take 5% – 6% of the property’s sale price. Depending on the property, this may seem expensive. But a real estate agent also has business costs that they need to consider, including marketing costs, staging expenses (if it’s vacant or your decor is outdated), professional photographs of your home to show potential buyers, and more.

The amount of time that a REALTOR® spends on your deal will depend on a variety of factors. A few include the popularity of their business, the number of bids fielded, and their personal preferences. But in most cases, you should expect a real estate agent to be present and available in all parts of the transaction.

In some states, the real estate agent could even provide a dual agency for the deal. With that, the agent would be working for both the buyer and the seller.

Curious about what an actual commission will look like? Take a look at the table below:

Home Sale Price

Real Estate Commission At 6%

$100,000

$6,000

$150,000

$9,000

$250,000

$15,000

$500,000

$30,000

As you can see, the commission of a real estate agent can add up quickly. But as professionals, real estate agents can do a lot to create a smooth real estate transaction. With that, the right agent is worth every penny.

How Much Commission Does An Agent Keep?

Although 6% may seem like a hefty bite of the pie, the majority of agents will not keep the entire amount. Unless the agent owns their own brokerage, lists a property, finds a buyer, and closes the deal, the 6% commission will be split among others along the way.

In fact, most will see their total fee whittled down to a fraction of the original take. The specifics of the commission that an agent keeps will depend on the situation they have agreed to with the broker they work for.

First, the listing agent and the buyer’s agent will split the original commission in half, unless stated otherwise in the listing agreement. From there, the respective agents will split their remaining commission with the brokers they work for. However, if they own their brokerage firm, they can keep their entire portion of the commission.

In most cases, the agent-broker split is 60/40 with 60% going to the listing agent and the remaining 40% going to their broker. Yet, the more seasoned the agent is, the higher the split they typically receive.

Here’s a realistic example. Let’s say a property is sold with a 6% commission that totals $10,000. First, the listing agent and the buyer’s agent will split the commission in half. This gives $5,000 to the listing agent and $5,000 for the buyer’s agent. Next, the listing agent will need to give their brokerage a cut of the commission. If there is a 60/40 split, the listing agent will walk away with $3,000.

It is also important to consider the fact that the real estate agent may never see a commission. If the property doesn’t sell or a buyer can’t find a home they want to buy, the real estate agent may walk away with nothing.

Do Buyers Pay Commission To Real Estate Agents?

As a buyer, you will not write a check to the real estate agent. Instead, the real estate agent’s commission will come out of the seller’s profit.

With that, the buyer can enjoy a commission-free home buying experience. But a buyer’s agent will still be willing to help you because they will be paid through the overall commission.

The Bottom Line

A real estate agent can help you buy or sell a home with fewer headaches along the way. Remember, real estate agents live in the world of real estate transactions and can help you navigate the occasionally tricky waters with their seasoned knowledge.

With that, you’ll pay for that expertise when you finalize the sale of your home. However, it’s important to keep in mind that real estate agents don’t always walk away with a commission. Agents receive compensation only if they’re able to secure a buyer for their seller or a home for their buyer.

The right agent can make a world of difference in your real estate transaction. Take some time to explore our Rocket Homes® tool that can lead you to a REALTOR® who can help you today.

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Call our Home Loans Experts at (800) 251-9080 to begin your mortgage application, or apply online to review your loan options.

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