If you have ever needed to complete a real estate transaction, you probably hired an agent to help you through the process. Or, if you are thinking about buying or selling a home for the first time, you will probably be hiring an agent to help you. Real estate agents charge their clients for their services–these fees are known as real estate agent commissions.
How much is a real estate agent’s commission, and what is a fair commission for a real estate agent? Let’s discuss it.
Real estate agents render a number of real estate services to their clients based on their needs. Real estate agents work with clients to help set the right sales prices for properties and develop marketing strategies for those sales.
Agents also work with potential buyers by hosting open houses, negotiating the real estate deal, and, finally, closing the deal. Along with all these services, real estate agents’ experience and connections are part of the package. Realtors invest their days and nights studying the real estate market, and the agent’s commission remains their primary source of income.
If we talk about real estate norms, a real estate agent’s commission is usually 5–6% of the home’s sale price. However, the total commission doesn’t all go in one agent’s pocket. Instead, the commission is split in half with the buyer’s agent. The seller is typically obligated to pay the agents’ commission.
Don’t be naïve in thinking that the buyer is off the hook for paying fees though–the buyer has to pay other closing costs.
Let’s suppose you agreed to pay 5% of your home’s cost to the agent. Here is the actual amount you would have to pay:
|Home Sale Price||Real Estate Commission|
You might be calculating the actual amount of commission and wondering if the amount is too big to pay us a commission. Here is some food for thought: the agent cannot keep the total commission. Rather, the agent will only get to keep 1.5% to 2% of what remains.
Let’s break that down. Out of a 6% commission, half (3%) goes to the buyer’s agent. The remaining 3% is shared between the real estate agent and the broker. The broker takes anywhere from 1% to 1.5%.
So, if the agent earned $12,000 in commission on a real estate deal, he would only be able to keep between $3,000 and $4,000. That’s not too big of an amount considering the agent has to spend money on marketing as well.
There’s no standard real estate agent commission percentage–it’s what you both agreed on. If your agent is flexible on the percentage and is willing to work with you based on your budget, whatever rate the two of you agree on is fair enough.
From the legal perspective, there is no law that demands sellers pay agents a certain percentage of the sales price. Since there is no hard and fast law that addresses agent commission, the subject remains open for negotiation. But the industry best practice is to pay the agent 5% or 6% of the final sales price.
However, agents might agree to lower the commission percentage if they represent both the buyer and seller.
Having said all that, negotiating the commission with an agent is usually not in your best interests. The agent spends a portion of the earned commission on marketing, and if you reduce the percentage the agent may end up reducing the amount of marketing devoted to your deal proportionately. That means that potential buyers might never see your home listing.
Besides, the lower commission is little motivation for agents to go above and beyond to work for you.
The one-word answer would be no, of course not. You are obliged to pay your real estate agent when their job is done, which is when you buy or sell your home. If your house is still hanging in the market, you do not have to pay the commission.
However, your contract with your agent would determine what happens. Usually, the agreement with an agent is time-barred, meaning it’s only active for a certain period of time. So if the house is not sold towards the end of the time period, you are not supposed to pay the agent’s commission unless otherwise written in the agreement. If you agreed to pay commission regardless of the outcome of the deal during the signing of the contract then you will have to pay the agreed-upon commission.
It is worth noting here that if you sell the property after the contract ends, you still owe your agent a commission. In addition, if you as the buyer accepted an offer and backed away at the last minute, you still have to pay the agent’s commission.
Real estate agent commission is one of the largest closing cost expenses. Traditionally, the real estate agent’s commission rate is 6%, but that remains negotiable. If you can convince your agent to accept a lower percentage, the law does not prohibit you from doing so. Just make sure you both agree on the final commission rate.
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