Imagine this: You’ve just sold your home for $500,000. After weeks of open houses, negotiations, and the paperwork frenzy, you feel relieved it’s all over. But when the final numbers roll in, you notice a hefty deduction: the real estate agent’s commission. At 5-6%, it’s a significant chunk of change, leaving you to wonder: “What percentage do real estate agents really make, and is it worth the cost?” In this article, we’ll explore the ins and outs of real estate commissions, why agents charge what they do, and whether the commission structure benefits buyers and sellers.
Understanding Real Estate Agent Commissions
What Percentage do Real Estate agents make: Real estate agents work on commission, meaning they get paid only when a property is successfully sold. The standard commission rate in the U.S. typically ranges between 5% and 6% of the home’s sale price. This commission is usually split between the buyer’s and seller’s agents. If you sell your home for $500,000 and the agreed commission rate is 6%, the total commission would be $30,000, with each agent receiving $15,000.
According to a report by the National Association of Realtors (NAR), the average commission rate across the U.S. in 2023 was 5.37%. However, this can vary based on the location, market conditions, and individual agreements between homeowners and agents.
How is the Commission Split?
The commission split continues beyond just the agents. Both agents usually work for a brokerage, which also takes a percentage of the commission. Here’s a breakdown of how a typical commission might be divided:
- Seller’s agent and brokerage: The seller’s agent and their brokerage typically split half of the commission. If the commission is 6%, the seller’s side gets 3%, which might then be split again between the agent and the brokerage (often a 70/30 or 60/40 split).
- Buyer’s agent and brokerage: The buyer’s agent also splits their 3% commission with their brokerage similarly.
For example, in a 70/30 split, the agent would keep 70% of the commission, and the brokerage would take the remaining 30%. So, out of a $15,000 commission, the agent might take home $10,500, with the brokerage pocketing $4,500.
What Do Real Estate Agents Do to Earn Their Commission?
At first glance, 5-6% might seem steep, but real estate agents provide valuable services that make this commission a worthwhile investment for many sellers and buyers. Some of the critical roles and responsibilities of real estate agents include:
- Market analysis and pricing: Agents provide insight into the local housing market, helping sellers price their homes competitively and assisting buyers in making informed offers.
- Marketing the property: Agents spend time and money promoting a property, from staging homes to taking professional photos, hosting open houses, and creating marketing materials.
- Negotiating offers: Real estate agents act as mediators between buyers and sellers during negotiations, ensuring that both parties reach a fair agreement.
- Handling legal paperwork: There is substantial legal paperwork involved in buying or selling a home, and real estate agents handle the contracts, disclosures, and other necessary documents to ensure a smooth transaction.
- Coordinating inspections and appraisals: Agents help buyers and sellers navigate the inspection and appraisal processes, ensuring any potential issues are resolved.
A HomeLight survey found that homes listed by agents sold for an average of 26% more than those sold by the owner directly (For Sale By Owner, or FSBO). In other words, while sellers pay a commission, they often recoup that cost through a higher sale price.
Regional Variations in Real Estate Commissions
Real estate commissions are unique across the country. Various factors, such as local housing markets, property values, and regional competition, can influence the commission percentage. For instance, in more competitive markets like New York City or San Francisco, the commission might hover closer to 5%, while in smaller, rural areas, it might rise to 6% or even 7%.
According to a Clever Real Estate study, the states with the highest average commission rates in 2023 included:
- Alabama: 5.63%
- Alaska: 5.40%
- Colorado: 5.46%
- Maine: 5.51%
- Wyoming: 5.48%
On the other hand, some states with lower average commissions included:
- California: 5.02%
- Massachusetts: 4.84%
- New York: 4.90%
The cost of living, property values, and local competition can all affect commission rates. Additionally, in high-demand markets, more agents may be willing to negotiate lower fees, while in slower markets, agents may be required to work harder to secure buyers, justifying higher rates.
Negotiating Real Estate Commissions
Many sellers need to realize that commission rates are often negotiable. While the industry standard hovers around 5-6%, sellers may be able to negotiate a lower rate depending on factors such as:
- Market conditions: In a seller’s market where homes are selling quickly, agents may be willing to accept a lower commission since they expect the property to move fast.
- Property value: Agents might be willing to lower their commission percentage for high-priced properties, knowing that a smaller percentage of a larger sale can still result in a substantial payday.
- Dual agency: If one agent represents both the buyer and the seller (dual agency), they may reduce their commission since they’re receiving the entire commission rather than splitting it with another agent.
In 2021, a Consumer Federation of America report found that only 32% of home sellers attempt to negotiate their agent’s commission rate, despite 73% of agents being open to lowering their rates under certain conditions.
The Impact of Commission on Buyers
While the seller typically pays the agent’s commission, these fees indirectly impact buyers. For instance, if sellers feel they need to cover a 6% commission, they may increase their listing price to accommodate that expense, resulting in a higher purchase price for the buyer.
However, many buyers feel the services a real estate agent provides are invaluable. From finding the right property to guiding them through negotiations and handling paperwork, agents help streamline what can be a complicated and stressful process.
Are There Alternatives to Traditional Commission Structures?
With the rise of technology and online real estate platforms, alternatives to the traditional 5-6% commission model are becoming more popular. Flat-fee services, discount brokerages, and FSBO websites offer sellers ways to potentially reduce or eliminate agent commissions. However, these options often come with trade-offs, such as reduced marketing services, less agent involvement, or the need for sellers to take on more of the process themselves.
According to a Redfin report, discount brokerages, which charge a lower commission (typically around 1-1.5%), have grown in popularity, especially in competitive markets. However, these services often rely on technology to streamline the home-selling process, offering less personalized service compared to traditional agents.
Conclusion: Is It Worth Paying Real Estate Agent Commissions?
While substantial, real estate agent commissions often come with a host of services that simplify the home buying and selling process. From pricing and marketing to negotiations and legal paperwork, agents provide invaluable expertise that can help sellers get the best price for their homes. While it’s possible to negotiate commissions or explore alternative models, the traditional 5-6% commission remains a standard in the industry, with most sellers finding that it’s worth the investment for the time and stress it saves.
Understanding how commissions work can help buyers and sellers make informed decisions that benefit their wallets and their peace of mind in a rapidly changing real estate market.
