Content of the material
- What Is A Real Estate Commission?
- How is the commission divided between agents?
- How Real Estate Commissions Work
- How Commissions Are Shared
- 💰 Never pay the full 6% commission again
- Average Yearly Realtor Commission
- When Are Real Estate Fees Paid?
- How to avoid paying Realtor fees
- Who pays real estate commission fees?
- Find an Agent Worth Their Commission
- How to Calculate Real Estate Agent Commission
- Example Commission on Selling a House
- There is No Set Commission on Real Estate
- Seller’s Agents Will Often Split The Commission With a Buyer’s Agent.
- Home Buyers Can Pay Real Estate Commission Fees Too
- How commissions have changed over the years
- Who Pays Closing Costs in Florida?
- How Do Agent Commission Splits Work in California?
- How Can I Avoid Commissions?
- For Sale By Owner
- Use a Low Commission Platform Like SimpleShowing
- Related reading
What Is A Real Estate Commission?
When you hire a real estate agent or broker to help you sell your property, you don’t pay them by the hour. Instead, they earn their main income through commission from the property sale as compensation. Agents charge their clients commission in proportion to the home’s sale price. So, the more a buyer pays for your home, the higher the commission paid.
How is the commission divided between agents?
The commission paid for by the seller will be split among each agent and the brokerages through which they hang their real estate license. Let’s say you sell your home for $220,000 with a 6% commission rate. You pay a commission of $12,000 and each agent has a 70/30 split agreement with their brokerage.
Here’s how that might look:
- Listing agent: $4,200 (70% of their $6,000 commission share)
- Listing broker: $1,800 (30% of their $6,000 commission share)
- Buyer’s agent: $4,200 (70% of their $6,000 commission share)
- Buyer’s broker: $1,800 (30% of their $6,000 commission share)
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
💰 Never pay the full 6% commission again
The “standard” 6% commission predates the internet, when realtors had to work harder to find clients and potential buyers.
At Clever, we connect top-rated real estate agents with sellers like you at zero upfront cost to the agents — so they’re willing to pass savings along to you.
You’ll get full-service support for pre-negotiated listing fees of just 1% or $3,000, saving you thousands!
Average Yearly Realtor Commission
Do you know the average Realtor commission? Many people think they know how much real estate agents make in commission for some odd reason. Most people think that real estate agents make money hand over fist.
The national average for real estate agent commission is, in fact, not what you think.
While the top agents make an excellent income, the average agent does not. In fact, the average income is lousy!
According to The National Association of Realtors, in 2020, the average yearly commission was $43,330. Real Estate agent commission was down from the year before, which was $49,700. So the average commission was not very good for making a great living.
Income was generally in line with experience. REALTORS® with sixteen years or more experience had a median gross income of $71,000, while REALTORS® with two years or less experience had a median gross income of $9,300.
It is essential to note that unlike most businesses with an 80/20 rule, whereby 80 percent of the business is done by 20 percent of their members, it is 93/7 in real estate. Yes, you read that correctly – 93 percent of all real estate transactions are done by 7 percent of the agents.
The other thing that should be understood is that real estate commissions are usually split in four ways. The listing firm, the listing agent, the selling firm, and the selling agent typically split the commissions.
Consumers should also understand that there is a difference between a Realtor® and a real estate agent.
When Are Real Estate Fees Paid?
Real estate commissions are deducted from the sale proceeds at closing and paid directly to the brokers, who split them with the agents involved.
How to avoid paying Realtor fees
In 2019, just 11 percent of home sales were sold by owners without the help of an agent, according to the National Association of Realtors (NAR). In addition, NAR says, for-sale-by-owner homes (FSBOs) typically sell for less money than homes sold by Realtors. In many instances, FSBO sellers already know the buyers who end up purchasing their homes. Buying without a Realtor is also doable, but the jury is out about whether it’s a wise move — especially in this market.
When you shop around for Realtors, ask them from the outset what their commission is and compare the terms of each person you talk to. If you think the fee is too high, talk to them about lowering it.
“In certain situations where there’s a competitive environment for a prime or trophy listing, Realtors sometimes will negotiate the commission upfront,” Duffy says. “For example, if I’m listing a $4 million home at 6 percent, that’s a lot of money. In a situation like that there is greater flexibility to negotiate the commission — if you get $100,000 or $80,000 instead of $120,000, it’s still a good payday.” If the transaction is being handled on both sides by agents from the same brokerage, you might have more leverage as well.
Who pays real estate commission fees?
Typically commission fees are paid in full by the seller in the transaction. As explained by top real estate agent Rachel Moussa of Flower Mound, Texas, in most places, “the standard is for sellers to pay both the listing agent and the buyer’s agent’s commission. The listing agent puts on the MLS what percentage the seller has agreed to pay cooperating brokers.”
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How to Calculate Real Estate Agent Commission
If you choose to hire a real estate agent when you are selling your Florida home, you will want to closely read the contract that you sign with the agent. It is here that you will find the commission rate they are charging in exchange for their services.
You will also agree on a listing price as a part of this contract. However, during the course of listing you can choose to either raise or lower the price.
Real estate commissions can range between 5 and 7%, but 6% is standard in Florida.
Let’s say that you are listing your home for $300,000 in Florida. If you home sells for the listing price, you’ll pay $18,000 towards the real estate commission.
If the sale price gets negotiated down to $290,000, then you will pay $17,400 towards realtor fees. If the sale price gets bid up to $310,000, you will pay $18,600.
You can find out how much of your profit will go towards realtors and brokers by multiplying the total sale price of your home by .06 if the commission rate is 6%.
Example Commission on Selling a House
Let’s look at what a seller would pay to sell their home using an average real estate agent commission.
The home’s sales price is $500,000, and the commission rate is 5%. Under this example, a seller would pay $25,000 in real estate commission.
The commission paid is based on the final sales price of the home.
There is No Set Commission on Real Estate
As mentioned already, Realtor’s fees are one hundred percent negotiable between a real estate agency and its client. While there may be typical rates that arise in a particular area, there is no set commission rate, Realtor fee, or standard percentage.
Some people may wonder why that is the case, and it boils down to what’s known as the Sherman Antitrust Act. The act was put in place to prohibit businesses from getting together and barring competition.
Real Estate commission fees should not be fixed.
In essence, all the real estate agencies in a given area cannot get together and agree to set commission rates. Doing so would amount to collusion and setting real estate commission income. However, that does not mean a real estate brokerage cannot mandate that their agents charge a specific rate when listing a home for sale. Doing so is legal and at the discretion of the real estate agency.
In 1979 a lawsuit, United States v. P Foley, tied up real estate agent commissions with antitrust law. The case put real estate agent fees under a microscope and changed how real estate brokers conduct themselves related to clients’ compensation.
Due to the Sherman Antitrust Act, agents need to be careful about what they say about how much they charge for commission.
For example, a real estate agent should not say real estate fees in my town are X percent. Realtors’ commission rates should not be discussed among agents.
Seller’s Agents Will Often Split The Commission With a Buyer’s Agent
It is worth remembering that the seller’s agent will often share the commission with another agent – like when another Realtor® finds a buyer for the property.
So how is the commission divided between agents?
The listing broker will usually split the commission with the buyer’s agent fifty-fifty.
However, there are times when a commission split between the listing agent and buyer’s agent could be different. It is a mistake to discount the buyer’s agent commission when you sell a home in most situations.
Home Buyers Can Pay Real Estate Commission Fees Too
One of the popular questions consumers ask is who pays real estate commission. It’s not just the seller who pays Realtor fees.
It is also possible that a buyer’s agent could be paid directly by the potential buyers. There are a few common circumstances where prospective buyers could pay their buyer’s agent.
For example, if a buyer’s broker locates a home for their client for sale by owner. The FSBO may not be willing to pay a buyer’s agent. In this circumstance, the buyer pays their agent an agreed-upon commission.
Sometimes a buyer’s agent will have a buyer’s agency agreement that says they will get paid a minimum amount of Realtor fees. The buyer will make up the difference if the seller offers a lower commission rate than this amount.
When you sell a house, it is an intelligent move not to discount the commission that the buyer agent will be paid. Doing so could make your home harder to sell and net you less money, not more.
How commissions have changed over the years
Since the early 1990s, Realtor commissions have seen a fairly steady decline. In 2021, the average commission was 5.5 percent — down from more than 6 percent in 1991.
This isn’t to say the total amount Realtors earned decreased, however. In strong selling markets, home prices are high and sellers receive multiple offers. This allows more room for negotiation on the commission, so Realtors may accept a lower commission to earn a higher amount overall.
As the market slows down, Realtor commissions may rise again and become less negotiable. Even so, a seller with a high-priced listing may still be able to negotiate a lower commission more effectively.
Who Pays Closing Costs in Florida?
Both the seller and the buyer have separate closing costs that they are responsible for. While sellers usually have to pay for things like title and lien searches, buyers usually have financing expenses to take care of. These include the cost of an appraisal and the loan origination fee.
How Do Agent Commission Splits Work in California?
How much do California real estate agents take home after each close? There are a few commission splits to consider.
First is the total commission paid by the seller. In California, it ranges anywhere from 1-6% of the sales price. The standard is 5-6%, but for high-priced properties (i.e. $1+ million) the commission may be more like 4-5%. The amount is negotiated between the seller and listing agent before a contract is signed.
Next comes the commission split between the listing and buyer agent. Typically, the commission is split 50/50. Every now and then you may see a listing that offers the buyer agent a higher split in hopes of attracting more leads. The opposite can also be true. The listing agent may take 3.5% to offset the expenses of selling the property and offer just 2.5% to the buyer agent.
Dual agency is another possibility. If the listing agent ends up finding the buyer and representing both then they receive the full commission.
Finally, the commission split between agent and broker. The broker will receive the proceeds from a sale, then pay the agent their cut. The agreed upon commission split can differ from agent to agent even within the same brokerage. New agents may receive a 50/50 split while seasoned agents can get upwards of 70/30 or 80/20.
There are also two other possible commission scenarios. You may pay a monthly broker fee and keep 100% of the commission. The broker may also offer a sliding scale commission split. In this case, the commission starts low around 40/50 or 50/50 and becomes more advantageous the more you sell.
Be aware there could also be additional broker fees per sale, month or year.
Data on commission rates is based on a survey of 630 of our partner agents, in which we asked them to indicate the typical rates for both buyer's and seller's agents in their area.
The data featured on this page is not meant to imply that commission rates are fixed — commissions rates are always negotiable. These figures represent ballpark estimates of what home sellers can expect to pay in real estate agent fees when they sell their home.
In addition to data from our survey, we also utilized home value data from Zillow, which was current as of May 2022.
How Can I Avoid Commissions?
After reading the above, you might want to avoid these commissions altogether. After all, is it worth $12,500 to sell your $250k house? That’s a lot of money to give away.
It’s tough to avoid real estate commissions entirely, but there are ways to reduce them. Here are two popular ones.
For Sale By Owner
If you’ve looked around the internet, you may have noticed some listings tagged as “for sale by owner.” These listings have no seller’s agent – the seller is doing all the work of advertising, showing the home, and typing up the contracts themselves. It’s perfectly legal to sell a home without the help of a real estate agent!
This tactic avoids the seller’s real estate commission because there’s no seller’s agent involved. It doesn’t, however, prevent the buyer’s agent commission. If the buyer comes with a real estate agent, the seller must pay the buyer’s agent commission if they accept the offer.
So the “for sale by owner” tactic only saves 2.5%-3%, not the full 5-6% commission amount. On a $250,000 home, that would be somewhere between $6,250 and $7,500. It’s not a small sum of money by any means, but not quite as impactful as saving the full 5-6%.
However, there are cons to this approach. Putting your home up as “for sale by owner” will save you money. The problem is that real estate agents do provide benefits for clients. For example, buyer’s agents know plenty of negotiating tactics to cut into the seller’s profit. Seller’s agents, of course, know these tactics and can advise clients appropriately. There’s a reason why homes sold by real estate agents tend to have higher prices than those sold by the owners.
Use a Low Commission Platform Like SimpleShowing
For most people, the problem isn’t using a real estate agent. It’s well-known that real estate agents bring a lot to the table when it comes to negotiations, legal liability shielding, and helping close deals. Agents tend to get sellers more money for their homes for far less work on the seller’s part than going it alone.
What if, therefore, the goal wasn’t to eliminate real estate commissions altogether but instead minimize them?
Fortunately, there is. SimpleShowing is a platform designed with this objective in mind.
Instead of paying a 3% listing commission, you’ll pay a 1% commission when selling. On a $250,000 home, that’s a savings of $5,000. However, you’ll still have an experienced, local agent selling your home. You’ll get all the benefits of a listing agent, just without the expense!
Buyers also receive benefits. They’ll get money towards closing costs with SimpleShowing, which incentivizes them to find your property on our search platform. It’s a win-win for everyone. You save on commissions, and the buyer saves on closing costs!
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