What is Real Estate Commission?

If, like me, you’re building a real estate business, dealing with real estate agents come as part of the territory. Unfortunately, most of the ones I’ve dealt with have been pretty poor. This makes the good agents stand-out even more.This post, written by Ben Mizes explains the costs of using an agent.

If you are in the market to sell your home, a good real estate agent is an invaluable asset.

Agents help their clients navigate the market and find potential buyers, and in return for their time and expertise, they charge commission fees.

But what exactly is covered in agent commission fees? And what can homeowners expect to receive in exchange for these costs?

Read on to gain a full understanding of what real estate commission is, how much it costs, who pays for it, and alternative routes sellers can take if they are looking to save money.

What is the Average Real Estate Commission?

How much is the commission of a real estate agent?

According to a nationwide agent survey by Clever Real Estate, the national average is 5.45% of a home’s final sale price.

However, the actual answer to that question really depends on which state you’re in, as realtor rates are highly localized.

For example, in Florida, commission fees average 6%, split between the buyer’s and seller’s agents.

In Texas, on the other hand, commission fees average only 5.65%. Moreover, the rates in New York, California, and D.C. are all lower than the national average, at 5.29%, 5.02%, and 4.90%, respectively.

Note, though, that home sale prices in New York, California, and D.C. are also higher than the national average, potentially offsetting any cost-savings one might gain from lower commission rates.

Prices vary because agents all charge different rates, and some agents will charge lower rates if you negotiate with them.

Moreover, there are also discount brokers such as Clever Real Estate that negotiate with agents on their clients’ behalf for lower rates; but we will cover all of that later in this article.

Who Pays Real Estate Commission Fees?

Typically, it is the seller’s responsibility to pay real estate commission fees.

That means sellers pay for both their own agent for listing the property as well as the buyer’s agent.

Agents will usually split the commission between themselves, but the split can vary.

Sometimes, more experienced agents will get a larger cut than new agents. If an agent represents both the buyer and the seller, known as a dual agent, the agent will get paid both commissions.

Regardless, both the seller’s and the buyer’s agent fees are determined ahead of time in their respective contracts with their clients.

What Do Real Estate Commission Fees Cover?

Real estate agents charge a commission for their time, services, and expertise.

A good real estate agent will make the home-selling process much smoother and should have a large network of potential buyers to show your property.

They know their locality like the back of their hand and can potentially bring in multiple offers, especially in a seller’s market. And multiple offers means you may even start a bidding war, which will give you more leverage during negotiations.

Your agent will also take care of the minutiae of selling a home, such as listing it on the MLS, marketing it via different real estate channels, negotiating with potential buyers, and finalizing the closing process.

Using a knowledgeable and well-connected agent is also more likely to result in a higher sale price. A recent survey by the National Association of Realtors found that the typical FSBO (“for sale by owner”) home sold for $190,000, compared with $249,000 for agent-assisted home sales.

This enormous difference in the sales price and the amount owners save is why most people opt to use an agent.

Can I Negotiate Real Estate Commission Fees?

Yes, you can negotiate commission fees, and you should!

In the current seller’s market, agents know that clients can easily look elsewhere if they think their rates are too high.

And if you’re in a hot market such as Miami or San Francisco or if you have a desirable home that will sell quickly, then you should definitely try negotiating a lower rate.

Although you can ask your agent for a lower rate, they are not required to oblige your request. According to a 2019 report by the Consumer Federation of America, 73% of agents said they would not lower their standard rate if a client asked.

If you’re a glass-half-full kind of person, though, that study also reveals that more than one in four agents will lower their standard rate if a client asks. Therefore, it doesn’t hurt to try negotiating for a better deal.

Are There Ways Around Paying Commission Fees?

To avoid paying commission fees, homeowners can choose to forgo an agent altogether and use a local multiple listing service (MLS), which typically charges a flat fee between $99-$500.

However, the owner will be responsible for all of the responsibilities an agent usually handles, such as marketing their property, negotiating closing costs, home inspections, and more.

Selling a home as FSBO (for sale by owner) is not quite a walk in the park, which is probably why only 7% of sellers used this method in 2019.

Another option that owners can turn to if they are looking to reduce commission costs is working with a discount real estate broker such as Clever Real Estate, which charges a flat fee for their services instead of a percentage-based commission.

Clever negotiates better rates for their clients with top local real estate agents, offering a full-service sales experience for a flat fee of $3,000 or 1% if your home sells for more than $350,000.

These brokers can charge such competitive rates because they supply agents with a steady stream of revenue, allowing them to make up in volume what they sacrifice in commission.

Which Option is Best for Me?

When determining whether to use an agent or which type of agent to use, you must consider how much time and effort you personally want to spend selling your home.

If you are an experienced real estate professional who understands the market, then listing on a local MLS service might be the best route for you.

If you are like most home sellers, though, and aren’t a real estate guru, then using an agent is probably the better option.

If you’re curious about what it would cost to use a traditional agent versus a discount broker versus a flat fee MLS listing service, here is an example to demonstrate what you’d pay in commission for each instance on a home that sells for $211,000:

The Traditional Model Home price: $211,000 Seller Commission: 3% Buyer Commission: 3%   ($211,000 x 0.06) = $12,660 total commission paidThe Discount Broker Model Home price: $211,000 Seller Commission: $3,000 flat fee Buyer Commission: 3% Service Fees: $0   ($211,000 x 0.03) + $3000 = $9,330 total commission paidThe Flat Fee MLS Listing Model Home price: $211,000 Flat Fee MLS Service Fee: $299 Buyer Commission: 3%   ($211,000 x 0.03) + $299 = $6,629 total commission paid

As you can see, the cost savings on using a discount broker versus a traditional agent are significant.

That’s why many people opt for discount brokers such as Clever Real Estate. Clever offers its customers a full-service sales experience for a flat-fee of just $3,000 or 1%, and all of Clever’s agents are top-rated in their area.

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Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.

This article was produced by Wealth of Geeks and syndicated by Wealthy Living.

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