Real estate brokers and agents who work with buyers and sellers of residential real estate are compensated in different ways. Their commission, or fee, is the most common method of compensation.
Essentially, this means that the real estate agent gets a set percentage of the home’s selling price. The way you negotiate this will affect how much your Realtor gets paid. They can get as little as 1% and up to 7%.
This can greatly impact your bottom line, especially if buying or selling multiple properties. Here is what you need to know about realtor commissions before you buy or sell a home:
Negotiating Real Estate Commissions
The first step in the process is to find out how much your Realtor earns when they sell a house. This is called the commission. The commission is typically a percentage of the sales price. The percentage varies widely by region.
For example, in Boston, real estate agents typically earn 6% on the sales price. In Miami, agents earn 9% on the sales price. Some agents work on a flat fee rather than a percentage of the sales price. Others charge a combination of fees and a percentage of the sales price.
Another option for home sellers is to use a discount real estate broker. These brokers offer everything from a full-service plan to a condensed package with just a few services.
Although the rate they charge may vary, you can expect them not to charge more than the 3% to 2% average or even 1%. This is a great way to save thousands on your home selling costs.
The next step is to find out whether your agent’s commission is based on the sales price of the house or its purchase price. Some agents receive half of their commission when the house is listed for sale and the rest when it is sold. Others receive a percentage of the sales price.
Seller’s Rep and Buyer’s Rep
Most people think agents work for the seller and earn their commission from the seller. But that’s not always the case. It’s possible to have a “buyer’s agent” who works for the buyer, at least until the buyer finds a house and puts down a deposit.
Once the buyer has earned his or her “seller’s agent”. Generally, buyer’s agents earn less than seller’s agents. The commission is usually based on the sale price of the house, not the purchase price, and is usually lower than the seller’s commission.
Fee-Only Realtors
Fee-only Realtors do not get commissions from the seller or the buyer. Instead, they charge a fee calculated on an hourly or flat rate. For example, it might be $400 to prepare a Comparable Market Analysis (CMA) for every property you are considering.
Another fee-only Realtor might charge $500 for a Comparable Market Analysis (CMA) and $500 for an Offer to Purchase (OTP) that includes the COA or other inspections and paperwork. The advantage of fee-only Realtors is that you don’t have to worry about whether they are showing houses that would benefit them more than you. They are paid the same no matter which house is sold.
Bottom line: Who Chooses How Much My Real Estate Agent Gets Paid?
Ultimately, you and the seller will decide. If you negotiate a lower commission rate, the seller may choose to increase the price of the house to make up the difference. Since the seller pays the commission, they get to choose whether to adjust the price of the house or reduce their profit.
If the seller has a particularly low-cost agent, it may make sense to lower the price. However, if the seller has a high-cost agent, but you have a low-cost agent, it might make sense to leave the price alone.
Finding out how much your Realtor gets paid – and how to negotiate it!
There are a few ways you can find out how much your Realtor gets paid. If you’re working with a real estate agent you can ask them for a breakdown of their fees. If you don’t have an agent yet, you can search the Multiple Listing Service (MLS) for the sales in your area and see what the commission rates are.
You can also visit the National Association of Realtors website and enter your state to see what the standard commission rates are. Armed with this information, you can negotiate a lower commission rate with your Realtor.
