6% Real Estate Commission - What You Need to Know
If you’re looking at selling your home, you know that there are a few key expenses involved. One of them, of course, is the 6% commission that you’ll pay to the real estate agent (or agents) who facilitate the sale. However, that 6% payout can really eat into any profit you might receive from the sale.
Even in today’s mostly-recovered real estate market, that fee could even result in an overall loss. So, are there any ways around paying that 6% fee, and why is it standard in the first place?
Who Pays Real Estate Commissions?
The standard 6% commission is paid by the seller to the real estate broker. Depending on how the home is sold, the brokerage often splits the fee between itself, the seller’s agent, and the buyer’s agent. Occasionally, this fee is even split with yet another agent on the seller’s side, if they had additional assistance with the listing.
Even if the seller’s agent sees only 3% of the total sales price in the end, that can still make for a very good living. Depending on the homes sold and how often a sale happens, good agents can easily make six figures or more each year in commissions. Better agents can negotiate better arrangements with their brokers, and receive even more than this share.
For the seller, though, this commission is a big expense. When selling a $400,000 home, for example (which is lower than the average home sale price in my area), the total commission amount would be $24,000. If you lower the cost of your home in negotiations, make improvements before putting the home on the market, and don’t have a significant amount of equity built up, this can easily eat into any profits you may have seen.
Luckily, some real estate agents are willing to negotiate on the commission. If the seller is willing to compromise with the agent–and perhaps do some of the legwork involved with the process–many agents will work with the seller to come up with a reasonable fee.
Negotiating Real Estate Commissions
If you’re vying for a commission lower than 6%, you’re not alone. In fact, Real Trends, a research and advisory company for the real estate market, found that in 2015, real estate commissions averaged only 5.26% across the country. This may be less than 1% of a difference, but that equates to thousands of dollars saved in the end.
One reason that agents are willing to negotiate the 6% fee today? It has become easier than ever for owners to sell their home without the help of an agent.
Let’s take a homeowner in New York state, for example. If a seller is just looking to post a listing and is willing to show the house without an agent, companies like RealDirect can help. They will charge a monthly fee of $395 or a commission of 1% for distributing the listing, making it visible to buyers and other agents alike.
Even with these smaller fees, though, the buyer’s agent must still be paid. So, there is an additional commission of 2.5 to 3% to consider. This is a better deal than going the standard 6% route with a seller’s agent–potentially saving you tens of thousands of dollars in the long run. However, it’s only worthwhile to sellers who are confident in their ability to close the deal.
Other low cost, do-it-yourself services–like ZipRealty–put pressure on agents to compete with lower prices as well.
If you’d prefer a full service broker, but still want a reduced price, be willing to shop around. Agents are typically more willing to reduce their commissions if your home has a high value, and if you’re willing to do some of the legwork. Talk to several agents from different brokerages and ask for a reduced rate from each. The more agents you speak with, the better chance you’ll have to find the rate you want while still getting the service you need.
There is a fine line: you want to save money on the commission if and where you can, but not at the expense of you home’s sale. If cutting expenses is important to you, just make sure that you’re not choosing a low-cost agent that won’t get your home sold (or won’t get the price you need).
What Is Possible?
By law, real estate commissions must be negotiable. Otherwise, the industry would be guilty of price fixing. However, the 6% commission is ingrained in the collective consumer consciousness–and that’s the way real estate brokers like it.
Even reducing a commission by one percentage point could save sellers thousands of dollars–and cost brokerages the same. As a homeowner, not exploring reduced commissions would be a sign of financial mismanagement. On a large transaction, a 1% point difference might seem negligible, but this is real money you can save–thousands of dollars–just by shopping around and negotiating.
Negotiating your commission fee by a percentage point (or even less) is not the same as saving two cents a gallon by driving across town to a cheaper gas station. This percentage point difference can have an immediate, and significant, impact on your finances. It’s always worth the effort to at least try, when you’re trying to sell your home with an agent.
As an attorney and someone intending to sell my house, I am deeply troubled by what I am reading about the whole commission situation. I do not understand how legally, a For Sale By Owner (FSBO) seller can be obligated to pay the buyer’s agent. The FSBO seller has no contract with the buyer’s agent and does not have to accept an offer that shifts the cost of the buyer agent onto the seller. I do not understand why legally (and I do mean customarily but only legally) a FSBO seller can’t offer his/her property for a certain price and say that the price does not cover the buyer’s agents fees. The fact of the matter is most buyers do not need an agent and if they have one they are still doing a lot of the buying work on their own by looking at properties on line and going to open houses. The day of needing buyers agent has passed. Unless there is some law that obligates sellers to pay buyer agents, the home selling/buying community needs to stop this nonsense of going along like lemmings and paying buyer agents. If a seller wants an agent to help them sell and market his/her home and the seller agent insists that the seller sign a listing agreement that provides that the seller will pay the buyer agent then there is a contractual obligation to pay the buyer agent. While that might raise price fixing issues, the seller agent can reasonably argue that promising to pay the buyer agent is the only way to get buyer agents to show the property to their clients. I understand that a seller refusing to pay buyer agent fees will discourage buyer agents from showing the seller’s house to their client but I am in a situation of not caring if it takes years to sell my house so the fact that a few buyers who rely solely on their agents and do no house shopping on their own never see my house is not enough to outweigh my concern about paying a 3% buyer agent fee on a $1,825,000 house (which is what my house is worth). CAN ANYONE POINT ME TO THE LAW THAT OBLIGATES ME (AS A FSBO SELLER) TO PAY 3% TO A BUYER’S AGENT?
Thanks for your this meaningful article. It is more helpful for us…
There is a lot of confusion when it comes to real estate commission rates, this article certainly helps in educating the consumers to get the right real estate deal.Recently, I used the same realtor to list my house to sell, plus I used her to find me a new house. Because she would be making money of my home purchase as well, she reduced her commission from 6% to 4.5%.
Hi Emily. Would you mind sharing your agent’s information? Thank you
There is a lot of confusion when it comes to real estate commission rates, this article certainly helps in educating the consumers to get the right real estate deal.
Has anyone heard of a lower negotiated commission as a disincentive to potential buyer’s agents. For example. If negotiated a 5% commission, with a 2.5/2.5 split between listing and buyer’s agents. Is there a chance that some potential buyer’s realtors would not show their client’s a listing because of the lower potential commission?
WENDI: None of the agents that looked at my property said anything about a fee. Did the realtor tell you ahead of time?
Lynn: No, the agents didn’t bother to talk about a fee while showing property to us as buyers. It was when we went to write an offer that we were presented with paperwork that we were to sign agreeing to pay paperwork retention and storage fees for the buyer agent brokers office.
I just signed a contract to buy a house in Topeka Kansas and the agent that showed us the house and wrote the offer presented us with a separate buyers agency contract in which we were bound to pay his brokerage office an additional $150. He is an agent with Great Plains Realty. He said the sellers were paying a 7% commission split between the Selling Office/Remax and the buyers agent’s office of Great Plains Realty. He said that he was sure Remax had made the sellers pay a 1
$150 records retention fee as well. I was a broker in another state and we always paid our own records fees to our broker, we never charged them over and above the commission to the customers. So I am wondering if you all are seeing these fees charged to you as well when buying and selling??
Don’t sign it! It is a little late for a Buyer’s Rep now. What is the agent going to do if you don’t sign? Yeah….that’s right…. nothing. Let him make his 3.5% that is already agreed upon. It is plenty.Those “sneaky fees” are just that… sneaky. There has been some legal issues with these type of fees and the RESPA regulations. I am an Agent in Houston Texas and I have always seen these fees as sneaky…. period!
Recently, I used the same realtor to list my house to sell, plus I used her to find me a new house. Because she would be making money of my home purchase as well, she reduced her commission from 6% to 4.5%. The other 1.5 she would make up on the buying end, which was paid by the seller of the house I purchased. Using one realtor for both transactions probably about $2,200.
I’ve sold by owner in the past too. It’s a pain.
SHELLYE: What made it a pain? I was thinking of doing that if I sell.
Read Cejay and free money mentor’s comments above, then add the time needed to get the appropriate paperwork done once the house sells (I work full-time so would need to take time off to do so), finding a title company to use, marketing the house. (BTW – make sure to take lots of GOOD pictures to put in your listing), setting up showings (especially if you work), basically becoming your own realtor. Good realtors are worth their weight in gold, if you ask me. Plus, they have access to the multiple listing service, which an owner doesn’t have, unless he’s an agent, too.
And in my original post, I meant to say “using one realtor for both transactions probably SAVED me about $2,200” in commissions.
Especially in this current market – a realtor can market your home in places that homeowners can’t. BTW – I’m not a realtor, and nobody paid me to write this. But I heart my realtor and recommend her to everyone I can. She’s well worth the money. Good luck.
The 6 percent commission was a bit to swallow for us but we had a good realtor and he did a very good job at the negotiations with a bank owned property. It took us 5 months to get the house after doing many tests for mold and working with contractors. If you have someone who isn’t going to fight for you and eager to just get rid of you and move on to the next customer then you won’t be getting your money’s worth. Our initial offer was 90% of the homes value with new appliances and home warranty. We met in the middle eventually but after it was all said and done, that 6% commission was well earned. He made over 100 phone calls during those 5 months, I often felt bad at how much work he put in.
At one time we used one of the Sell by Owner and let me tell you it was more trouble than it was worth. I think we had a total of three people even tour the house. And trying to showcase the house by our selves was a pain. While, I don’t think I would pay the 6% anymore, especially since I have became adapt at bargaining, I am willing to pay for a real estate agent. I guess I am just too attached to my home and took it personally when people criticized it.
thank you for the information. i had no prior knowledge regarding this topic.
Redfin is another option. They operate in some major cities. They charge 1.5% for seller commision/ minimum $6000 and 2.5% for buyer.
I just had 4 agents over and each of them said the going rate was 7%, but they’d do it for 6%. I know the rate is 6%.
If I sell, it will be on my own. I can wait out the market. Plus I have what everyone in the country is now looking for – land and a small well maintained house.
Oh and I live in a Low cost area.
I purchased my last property using only a lawyer. He charged a reasonable flat fee instead of 3%, and the difference was applied at closing to cover all my closing costs, property taxes, and HODs for almost a year! It was also quite nice to have an actual lawyer reviewing my contracts and helping me negotiate the lowest price possible. I don’t think I’ll ever use a real estate agent again.
When I bought my first house, I used a selling agent and negotiated a cheap commission with him. He agreed to only take 1.5%, and wrote me a check for the remaining cut of his commission, which was the standard 3% (so I got 1.5%!). It worked out well!
Robert, although this is fairly common, it is against the real estate regs/laws in at least some states. Usually it is ok for a realtor to take a lower fee (on the buy or sell side) and “apply” that to lower the purchase price or increase the net sale proceeds, but they are not supposed to “kick back” cash from a commission.
That said, I do think 3% is way too high for the buy side of 90% of today’s real estate transactions.
A lot of big agencies are desperate to keep the 3%+3% arrangement in place. Some large agencies would blacklist smaller niche companies who offered reduced commission percentages or flat fees. Generally, the big agencies covering a given MLS would hide from their web site all listings of the “non-compliant” agencies. In many markets where a couple agencies dominate, having them hide listings on their sites would be devastating since most buyers start their house search via web listings. I’ve been out of the industry for a while and I know there were big lawsuits, so some of this may have been forcibly changed.
House prices are already so high, it seriously brings into question when buying is really the best option. Too many young people enslave themselves to excessive mortgage payments, which lines the pockets of bank shareholders and real estate agents. How long will it take for people to realize that overprices housing is not “living the dream,” but is actually a form of economic slavery.
Hmmmmm, this all gives one a lot of stuff to ponder. My agent had us list high and then kept encouraging us to lower the price—-he wanted a pretty quick sale. I think he gave us the high list price to get the listing, then lowered it to what it should have been in the first place once he had it.Hmmmmmmmmm.
Ceecee, this is also common. A lot of agency websites will highlight or move to the top listings that are heavily discounted. So it is also possible your agent artificially inflated the initial price in the MLS so that he could then quickly reduce it and show a big price drop to fall into the “hot deals” category. I don’t have an issue with that except 1) if everyone does it, the hot deals is useless and 2) the listing agent should tell his customer up front that is his plan.
Another trick smart listing agents will use is to constantly reduce the price by tiny amounts (say $50 or $100). Many MLSs and agency search tools only email new or changed listings and by making changes in price (albeit inconsequential ones) regularly, their listings will get in front of more eyeballs.
This is very informative. Thank you someguy.
Having worked in one of the biggest real estate companies for many years, I think the biggest secrets are not the commission, which is well-known if unfair.
Perhaps the biggest is for sellers. If you are selling, your listing agent has little incentive on your final selling price and really isn’t on your side in that matter. For example, if you have a $300,000 house for sale, it’s not big a big deal to your agent if your house sells for $25K less — it’s $750 or less to the agent. The agent just needs your house to sell, at essentially any price. Put another way, in this sample it may take the agent 10 hours of work to sell your home for $250,000 or 30 hours for 300,000. In the first scenario, they earn the equivalent of $750/hour while in the second they earn only $300/hour. I know of times when listing (selling) agents disclosed to potential buyers or buyers’ agents that the seller’s bottom line price was $X and that they thought the seller would even go Y% below that. One way to combat this is to negotiate a staggered commission schedule with your agent when selling. The closer to your target price they sell, the more they get in commission. To do this, though, you need to know what an honest/fair going price for your home is.
I’ve known about selling commissions and negotiating them but have never thought about a staggered commission schedule. That seems brilliant. Now to hope i ever remember that years down the road when i might need it.
Thanks for sharing your insight on real estate commissions!
For the record, I will negotiate anything including prices at retail stores, but that is another story. Negotiating a real estate commission can be a double edged sword! If your house is easily marketable and well priced, you probably don’t need a broker. That is a huge “if”! When the market was going up, you could sell anything, but now we are in a buyer’s market. It is much trickier. If you knock off a 1%, sounds great until you give up much more in price. There is no easy answer, so do your homework!
I flipped a condo a few years back, when they were flying off the shelves. My realtor took 2.5% and the buyer’s agent took 2%. Be careful not to drastically disincentivize one realtor or the other. This was an easy seller’s market and my realtor was my friend. That hampered my ability to get my realtor to take 2% as well. In today’s buyer’s market, I’d want to flip those commissions to attract the buyer’s realtor. You attract more bees with honey, which in this case is money.