Most people understand when a home is sold through a real estate broker / agent, a commission is paid. Very few understand where that seemingly large amount of money goes, and who gets it in the process. How does the buyer’s agent (confusingly called the “selling agent”) get paid? How does the listing agent get paid? What about the brokerage(s) involved? Does a buyer pay their agent’s commission? What are average real estate commissions in the US? Although real estate laws and practices vary from state to state, we’ll answer those questions and others, so that when you’re ready to buy or especially, to sell, you won’t be at the mercy of whatever an agent tells you.
Average Real Estate Commissions
Despite what you might hear from people in the business, real estate agent commissions are negotiable. There is no set or industry-wide commission rate. Average real estate commissions can vary not only state to state, region to region, or company to company, they can vary significantly even among agents from the same brokerage. The typical real estate commission nationwide for residential properties usually falls somewhere in or close to the 5% to 6% range. If you’re paying less than five or six percent, don’t assume you’re getting a great deal (more on that in “the bottom line” below).
Does The Listing Agent Get The Whole Commission
In most residential home sales, the overall commission (the roughly 5-6% mentioned above) is divided between the buyer’s agent (aka “selling agent”) and the listing agent (the agent representing the seller). In most transactions, the agents are affiliated with a brokerage. The commission technically goes to the brokerage, the brokerage takes their cut and then the balance is disbursed to the agent. The percentage that goes to the brokerage vs agent is known at the commission split. New agents might only retain 50% or 70% of the commission, while top-producing agents might have more favorable splits approaching 90%. There are also “100% commission” brokerages that don’t take a cut, but instead charge their agents a variety of fees to be affiliated with that brokerage. Some discount brokerages actually pay a salary and no commission at all, and in those cases don’t necessarily expect your agent to be highly motivated, especially when it comes to expending money, time and effort to market your home broadly.
Finally, there are cases where the listing agent represents the buyer as well as the seller. In California that is legal as long as certain criteria are met, but some states do not allow dual agency. In most dual agency situations, the listing brokerage / agent makes the full overall commission rather than dividing it with another party representing the buyer.
Does the Buyer Pay Their Agent?
In the arrangement mentioned above where the listing agent shares the overall commission with the buy side, the buyer isn’t technically paying their agent directly. Instead, the brokerage / agent representing the buyer is paid from the overall commission the listing agent negotiated when he or she signed the listing with the seller. However when you think about it, that commission is coming from the money the BUYER paid to purchase the home. So who is really paying the buyer’s agent is a matter of perspective.
Why the Bottom Line Matters More Than the Commission Percentage
If you’re paying a “low” real estate agent commission, there’s a chance you’re under-incentivizing your own agent, and/or the agent potentially representing the buyer. A low commission won’t necessarily net you more in the sale if you’re being represented by an agent that isn’t invested in aggressively marketing your property and doesn’t negotiate well. If the commission being offered to agents representing buyers is below what agents in your area are accustomed to, you may find your home is receiving fewer showings and less exposure to buyers. Ultimately, the key question is what your bottom line will be (what you net from the sale), not just what real estate commissions percentage you are paying. In real estate, your biggest expense can be the money you don’t make on the sales price.
For more insight into real estate agent commissions, including details on how you can sometimes net MORE from your home sale by paying a HIGHER commission, visit this comprehensive article on commissions:
Fantastic article, thanks ever so much for sharing this 🙂
I’ve been involved with real-estate for quite some years now, having designed and constructed luxury ski apartments in Austria.
I think this is some of the most clear and concise information I have seen for quite some time, considering how technical the subject matter is.
Keep up the great work!!