Content of the material
- How much commission do Realtors get paid?
- What Do Closing Costs Include?
- What is a Fair Real Estate Commission?
- Fair Price: Listing Side
- Fair Price: Buy Side
- How much does a real estate broker make?
- How Real Estate Commissions Work
- How Commissions Are Shared
- How much do real estate agents make per year?
- Recent Articles
- Can I Use My 401k to Buy a House? (and if so – should I?)
- Buying a House in Delaware: Read This First
- Resources for Low Income Households Who Want to Become Homeowners
How much commission do Realtors get paid?
Only a very small portion of Realtors work on salary — the commission model is much more common. Real estate commissions can be negotiated, but they typically run about 5 percent to 6 percent of a home’s sale price. The exact terms of an agent’s commission vary from sale to sale, and can depend on region and which firm they work for.
Here’s roughly what you can expect to pay, based on how much your home sells for:
|Home’s sale price||5% real estate commission|
Realtor commissions are typically paid by the home seller, explains Patrick Duffy, who runs Duffy Realty in Miami. Sellers sign a listing agreement with a Realtor in which they agree to pay a commission fee.
Depending on your state, the buyer may not be responsible for Realtor fees at all. Instead, both the buying and selling agents are paid with proceeds from the sale of the home. These two agents typically split the total commission — so for a 6 percent commission, the selling agent would receive 3 percent and the buying agent would receive the other 3 percent.
That changes in the case of dual agency, when one agent represents both the buyer and seller. Laws about whether and how listing agents can sell the properties they’re representing to buyers vary by state. In a dual agency scenario, pay particular attention to the appraisal to ensure you’re getting a fair price. While agents have a fiduciary duty to their clients, with dual agency, the lines can get blurred.
If working with a buyer’s agent, “you have to sign a buyer’s agency agreement,” explains Tim Noland, a buyer’s agent with Great Mountain Properties in Murphy, North Carolina. “A true buyer’s agent works for the buyer. They protect the buyer’s investment, as opposed to the listing agent, who’s actually working for the seller.”
Real estate brokerages may get a cut of the commission as well. The brokerage brand RE/MAX, for example, has a split commission setup by which its agents receive 95 percent of the full commission from the sale, and 5 percent goes back to the company.
“The broker has to set the policy and oversee, monitor and supervise everything the agent does,” Duffy says. “And if the agent does something fraudulent or unprofessional, the broker gets sued.”
What Do Closing Costs Include?
The closing costs are normally between 8-10% of the house’s purchase price.
2-4% is paid for title insurance, taxes, appraisal fees, deed recording fees, loan origination fees, attorney fees, and discount points. The other roughly 6% makes up the commission which is divided among the real estate agents involved.
There are other smaller fees within the closing cost as well. These should be accounted for in the final contract. If you read the final contract carefully to know what the costs are (and why they are priced accordingly) it will benefit you greatly.
What is a Fair Real Estate Commission?
People often think real estate commissions should go the way of the dinosaurs, but in truth, there is a lot of work that agents do behind the scenes of a home sale or home purchase. Helping clients find homes, or find buyers for homes, is just one small part of the job.
A good agent will often make the process look effortless, but the average real estate transaction today now involves hundreds of pieces of paperwork, and home sales rarely close without any hiccups.
“If you limit your understanding of agent services to finding your next home, or finding someone to buy your home, then almost no fee is justifiable,” agrees Mucellin. “But if you come to understand all the steps and negotiation and knowledge and expertise needed to guide a client all the way through a sale of a home, then I don’t know how you could imagine ever doing it without an agent.”
Fair Price: Listing Side
When it comes to selling a home, there’s time, marketing, and negotiation expertise required. Overpricing your home can actually lead to a loss of profit, for example – so having an agent’s guidance is essential for pricing your home right and maximizing your profits. And professional photography, signage, and MLS postings all cost money.
“When it comes to listing: we believe it should not cost 3% to sell your house. It may have, once upon a time,” says Mucellin. “With the technological innovations we’ve seen, in this case, the marketplace is supported by multiple listing services online – so that portion of the work, the listing aspect, has been greatly reduced. The remaining work on the sell side, though, is still significant.”
Here are a few of the things (but not all) your listing agent will handle:
- Evaluating the home
- Coming up with the pricing
- Managing that listing process within the service
- Working through the contract
- Dealing with the results of the inspections
- Dealing with any issues on the title
- Handling communication with the buyer agent
“What happens if, midway, the buyer has challenges? Do you work with the buyer on that, or do you move on?” asks Mucellin. Often, there is no single “right answer” that home sellers can look up on Google, which is why the years of experience a listing agent brings to the table matters.
“Most people wouldn’t dream of doing their own plumbing – are you really going to trust the most important financial decision of your life to what you learned on the internet?” asks Mucellin. “You don’t want to do it yourself. Trust me, you want an experienced professional – which is also a vote in favor of Houwzer agents, because they’re trained, they’re supervised, they are monitored and they have plenty of deals so they’re not just fly-by-night hobbyists.”
Because of the work involved with every sale, Houwzer has landed on $5,000 as a fair fee for listing services.
“We don’t think it costs 3% to sell a house – that’s why we don’t charge 3%,” Mucellin explains. “But for the dozens and dozens of hours of work, and cost of things like professional photos and licensure, and to be on a professional listing service – we feel $5,000 is appropriate.”
Fair Price: Buy Side
Homebuyers often ask: “I did the work of finding the home, so shouldn’t I get a discount?” However, finding the home only represents a small fraction of what an agent does for their client. When it comes to buying a home, there’s time, local market knowledge, and negotiation expertise required. The average home buyer now views 10 homes before finding “the one” – and behind the scenes, your Realtor is researching these homes, communicating with the listing agent, and evaluating.
“Sure, if you’re a buyer, you can look online,” Mucellin observes. “But, especially in today’s market, which is ultra-competitive, an agent will advise you on how to make an offer. Then once the home goes under contract, you have to do inspections – what is a fixable thing that you shouldn’t be freaked out by, and what’s potentially a real headache that fundamentally changes the value of that home? How do you navigate that? When should you give leeway to the listing agent if there’s a problem with the title? When should you walk away because you’re just wasting your time?”
Here are a few of the things (but not all) your buyer agent will handle:
- Finding homes
- Arranging home showings
- Evaluating the home
- Making a competitive offer
- Coordinating with the title company
- Coordinating with the mortgage company
- Communicating with the listing agent
- Navigating the inspection
In many ways, your real estate agent serves as a sort of insurance policy on one of the largest financial transactions of your life. You want someone who has extensive experience in evaluating homes and evaluating real estate transactions to represent you – otherwise, you’re liable to make expensive errors.
“You could google some of that stuff, or you could work with someone who’s done it dozens of times. If you’re making a $500,000 purchase/investment, do you really want to save $20,000 – which you’re not paying out of pocket anyway – to hope you get it right? You could spend $20,000 just replacing a roof or on any major issue with the house,” warns Mucellin.
This is why experience is essential: an agent knows how to interpret the inspection report and can advise you as to whether a hole in the roof is a cosmetic issue or a major problem.
For this reason, Houwzer has determined that a 2.5% commission for the buyer’s agent and a $5,000 flat fee for the listing agent is a fair real estate commission.
How much does a real estate broker make?
Brokers — who complete extra licensing requirements to either work independently or hire other agents under them — earn an average annual salary of $86,930.
In addition to keeping 100% of the commission from their own deals, brokers earn a percentage of the commission brought in by the agents who work for them.
Many brokers split commissions 50/50 with their agents, so if the commission from the sale is 3%, they make 1.5%.
Other brokers may not collect commissions but instead earn a salary for taking on a brokerage’s day-to-day operations and keeping a firm in compliance with state and national real estate laws.
How Real Estate Commissions Work
When a property is put on the market, the seller and the listing broker sign a listing agreement, which is a contract detailing the terms of the listing, including the broker’s compensation—usually a commission. It’s important to note that the commission is always negotiable. In fact, it is a violation of federal antitrust law for members of the real estate profession to attempt, however subtly, to impose uniform commission rates.
Commissions generally range between 5% and 6% of the final sale price, though they may be higher or lower based on market conditions. Unless the buyer and seller negotiate a split, it is the seller who pays the commission. Most sellers factor the commission into the asking price, so it could be argued that the buyer always pays at least part of the commission, either directly or indirectly (through a higher purchase price).
Both the seller's agent and the buyer's agent have agreements with their sponsoring brokers that specify the agent's cut of the commission. It can be a 50/50 split between the broker and the agent or any other split they choose.
How Commissions Are Shared
Real estate commissions are often divided among several people. In a typical real estate transaction, the commission is split four ways:
- Listing agent—the agent who took the listing from the seller
- Listing broker—the broker who employs the listing agent for the seller
- Buyer's agent—the agent who represents the buyer
- Buyer's agent's broker—the broker who employs the buyer's agent
How much do real estate agents make per year?
The U.S. Bureau of Labor Statistics puts the median annual wage for a real estate agent at $48,340 — meaning 50% of agents make more and 50% of agents make less.
|State||Per sale||Per hour||Per year|
|District of Columbia||$4,074||$30.97||$64,420|
While most agents work on a commission basis, you can calculate their earnings by adding up their entire take-home commissions over the year.
The typical take-home pay for an agent on a $350,000 home (which is close to nationwide median home value) is $5,250.
Median annual earnings / Average per sale earnings = Total number of annual sales
$48,340 per year / $5,250 per sale = 9.2 sales
Theoretically, a real estate agent needs to complete approximately 9–10 transactions a year to earn the national median income.
To break into the top 10% of agents earning $102,170 or more, you’d need to sell approximately 20 homes per year.What determines a realtor’s earnings?
A realtor’s annual earnings are affected by factors like: Location Number of sales Years of experience Hours worked Local real estate prices Out-of-pocket expensesWhat out-of-pocket expenses do realtors pay?
On top of commission splits, most real estate agents — unless they are salaried — will also need to cover: Transportation to get to and from listings Health insurance Taxes Professional membership fees Marketing costs (signage, photography, business cards, etc.) Continuing education
Can I Use My 401k to Buy a House? (and if so – should I?)
Posted on Jun 28, 2022
Right now the median listing price for a home in the US is $430,300, and by the time you read this it will likely have climbed higher. For homebuyers hoping to put 20% down, that’s about $85,000 – not including closing costs. Even for homebuyers putting down the minimum of 3.5%, that’sstill about $15,000.
Buying a House in Delaware: Read This First
Posted on Jun 22, 2022
Delaware is a popular state to move to, especially for residents of nearby Pennsylvania, New Jersey, and Maryland thanks to Delaware’s low tax rates and easygoing way of life. Delaware often manages to fly under the radar despite its affordable homes, beachfront property, and easy access to multiple east-coast cities.
Resources for Low Income Households Who Want to Become Homeowners
Posted on Jun 17, 2022
It can seem impossible – especially in this market – to buy a home if you’re part of a low-income household. Though it can be challenging, there are assistance programs and grants in place specifically to support low-income earners. It’s worth taking a look at these options because home ownership is one of the most reliable paths to building personal equity in the U.S.