Selling a home is an opportunity to profit from the initial investment. Although you may have spent thousands of dollars upfront on the down payment and closing costs, plus all the monthly mortgage payments, your equity may be high enough to profit from the sale.
Although the selling process can be exciting because of the profits, it can also be expensive. Numerous closing costs will cut into your profits from the sale, even if the purchase price is much higher than your initial investment.
Homeowners often have to pay additional costs, such as realtor fees, during the closing process of a home sale, reducing profits. They may have to pay for a listing broker, other real estate fees that aren’t included, such as staging the house, home inspection fees, and more. One of the primary closing costs the seller will face is the real estate agent’s commission fee.
What is a Real Estate Commission?
In traditional real estate transactions, the buyer and seller will each hire their own real estate agent. This professional knows how to market homes, schedule showings or open houses, negotiate offers, and facilitate deals on closing day.
The real estate commission is a fee that pays the agents involved in the transaction for their services. Real estate fees are typically paid on closing day, so the upfront cost to hire a real estate agent is minimized. When closing day arrives, both the buyer and the seller’s agent will receive their agent fees.
Typically, potential buyers will pay an additional fee for their real estate agent and the seller’s agent will take their real estate commission out of the closing cost of the house. Buyers may pay for their fees out of their own personal finance account if the seller and buyer negotiate this deal. However, there are various options.
Typical Commission Rates
Although each real estate agent may charge a different amount, the average agent commissions are 5-6 % of home sale prices. If a home’s purchase price is $250,000, the real estate agent fees could be $12,500 to $15,000. Most real estate agent commissions are split evenly between the buyer’s agent and the seller’s agent.
In some cases, the selling agent may charge a lower rate if the home is a luxury property or located in a high-end neighborhood. The market can also determine commission fees. For example, a seller’s market may result in a faster selling process but higher fees.
Who Pays the Commission?
Most real estate transactions play out in similar ways. Once the sale price is agreed upon and the closing documents are signed, the seller will pay the agent fees for both parties. Even though the buyer’s agent will make 2-3% of the sale price in commissions, the seller usually pays that amount from the sale proceeds.
Ultimately, the party responsible for paying the agents is up for negotiation. If the seller only wants to pay a commission for their agent, they could offer a lower sale price to the buyer to compensate for their additional expenses. Likewise, the buyer may pay commission fees and raise the asking price to accommodate the fees.
Seller’s Responsibilities
Selling a home can be just as stressful as home-buying, even though you may walk away with a profit. The seller is responsible for paying commission fees, but other fees are also involved in closing. Homeowners should understand some seller responsibilities when preparing to sell their properties.
Listing Agreement
The listing agreement is a legally binding contract signed by the seller and the listing agent. It outlines the details of the agency relationship, the services the real estate agent will provide, property details, the listing price, and the commission rate. Both the seller and the agent must adhere to the terms and conditions of this contract.
Several listing agreements determine who has the right to sell the property. For example, an exclusive right-to-sell agreement means the listing agent will receive agent commissions no matter who closes the deal. On the other hand, an exclusive agency agreement allows the seller to search for a buyer, avoiding the necessity of paying the real estate commission if they successfully close the deal.
Commission at Closing
The real estate commission for both agents is typically paid at closing from the sale proceeds. If escrow is involved in the transaction, the escrow agent handles the transfer of funds from the buyer to the two agents and then the seller. The commission is always included in the closing costs, but it could be paid directly by the seller rather than extracted from the sale proceeds.
Buyer’s Perspective
Although the seller usually pays realtor fees once the deal is completed, buyers should still be prepared to handle the commission rate for their agent. Here are some considerations from the buyer’s perspective regarding realtor fees.
Buyer’s Agent Commissions
One would normally assume that the buyer and seller pay their agents after a real estate deal. Many first-time buyers or sellers may have this expectation. In most cases, the seller covers the buyer’s agent fees, but those costs are factored into the price of the home.
Factors Affecting Commission Rates
Although the average real estate agent fees are roughly 5-6% of the cost of the home, numerous factors can affect these prices. Let’s discuss some elements that may alter the cost of an agent’s services.
Market Conditions
The condition of local markets plays a major role in determining commission rates. Usually, if there are a lot of buyers and few sellers in a market, the commission rates will be higher since fewer transactions are occurring. In a more competitive market where there are fewer buyers than sellers, the commission rates tend to drop.
Property Value and Sale Price
Property values also affect the commission fees for both the buyer’s and seller’s agents. Even with a lower commission percentage, a home with a much higher sale price will generate plenty of income for the agent. For example, charging 2% on a home worth $600,000 will result in a payment worth $12,000 from one sale. For a house worth only $300,000, the agent may charge closer to 3% to make $9,000 on the cheaper property.
Agent’s Experience and Services
More experienced agents who offer additional services, such as working with a title company, could also increase their rates. Some agents will charge a flat fee for the entire process, including a page on a multiple listing service, social media marketing, print materials, and leveraging their network.
If the seller pays more for an agent, it could be due to that agent’s experience in securing great deals for their clients. They may have more knowledge regarding guidelines per the National Association of Realtors, work with a dual agency, handle the majority of the home buying process, or other additional services and qualifications.
Negotiation and Agreement
Before pursuing the home sale process, it is important to know your budget for paying an agent. The commission rate between the seller and the agent is ultimately negotiable. Perhaps you are willing to tackle some of the marketing tasks to negotiate for a lower rate in the agent’s contract.
Alternatives and Variations
If one agent is charging a rate that is too high for your budget, you could pursue other options for selling the home. This could save you a lot of money, but it may require sacrificing some of the quality services agents provide.
Discount Brokerages
Many brokerages exist as an alternative to traditional listing agents. These typically charge lower service rates so sellers can save on closing costs. However, you will not receive an individual agent’s broad range of services. If you are willing to do some of the work to market the property yourself, a discount brokerage could be a viable option to save money.
Flat Fee Services
Not all agents charge a percentage for their commissions. With a flat fee structure, the agent receives the same amount of money regardless of the sale price of the home. This could be a great option if you are confident your home will sell for a reasonable price and you can find an agent with an affordable flat fee.
For Sale By Owner (FSBO)
Many home sellers will forgo hiring real estate agents in the first place. Although they might still have to pay a buyer’s agent, there is no selling agent to cut into your profits. Selling a home without an agent can be quite challenging because of the additional paperwork and marketing efforts you must navigate to close the deal.
No Real Estate Agent Commissions When Selling to a Cash Home Buyer
Commission fees can cut into your profits and slow down a real estate transaction. When you sell to a cash buyer like A-List Properties, there is no need to hire an agent. This will save you 5-6% of the cost of the home. Our team can close deals within two weeks once you accept our offer, and we will take your house as-is.
Call us today at 972-526-7042 or complete the online form to request your free cash offer.
Zach Shelley
Zach Shelley is a seasoned real estate investor with a diverse network spanning across the nation. As the founder of his own real estate venture, Zach is committed to offering innovative solutions to homeowners facing various real estate challenges.. Through his dedication and strategic approach, Zach continues to make a significant impact in the real estate industry, providing homeowners with alternative pathways to navigate their property transactions.
