Published by Bankrate

Written by: Kellye Guinan

In this do-it-yourself digital age, home sellers and home buyers might well wonder if they need Realtors — or, more precisely, to pay their fees. Seriously, how crucial are these agents to a successful home sale? Aren’t they essentially getting money for nothing?

Not necessarily. It makes sense to work with an agent if you’re buying a home: It takes time to research properties and put in a good offer when you’re buying. But sellers see many benefits, too. Your home will still need to be staged and listed on the market, at a competitive price.

So despite the shift toward virtual showings and even sight-unseen purchases, Realtors still provide a wide variety of services to sboth ellers and buyers that are worth the commissions they charge. Let’s look at how their compensation works.

How much commission do Realtors get?
Only a very small portion of Realtors work on salary — the commission model is much more common. For years, the going rate was a firm 6 percent. But it began to fluctuate in the last few years, with the advent of discount brokers and the rise of online, publicly accessible listings. Nowadays, real estate commissions can be negotiated, and 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 the 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
$100,000 $5,000
$250,000 $12,500
$500,000 $25,000
$750,000 $37,500
$1,000,000 $50,000
Breakdown of sellers vs buyers 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 after the transaction closes. If it’s an exclusive right to sell arrangement, they pay the fee even if they found the buyer on their own.

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.

In a dual agency scenario, buyers should pay particular attention to the appraisal to ensure you’re getting a fair price. But as Realtor Sam Fish of Grass Valley, California points out, agents are bound to act ethically in their client’s best interest. “It’s in our ethics, it’s in our contract, “ says Fish. “If someone comes into my open house and they like the open house but they don’t have an agent, at that point I can say ‘let me get you an agent from my office’ so they feel like they’re being represented 100 percent as well.”

Still, buyers working directly with a listing agent may have more room for negotiation because the seller may agree to a lower selling price if the agent agrees to lower their fee. If a seller already has a buyer, “we can come to the table and facilitate a contract with buyer and seller and negotiating terms so maybe the seller isn’t paying as much in fees and both sides are literally just coming to terms at a roundtable and negotiating, “ says Fish. “It just lends more creativeness to the transaction.”

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.”

The broker’s cut
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.”

How commissions have changed over the years
Since the early 1990s, Realtor commissions have seen a fairly steady decline. They did bump up in 2021 (for the first time since 2017) reaching an average national commission rate of 5.06 percent, according to research firm RealTrends. That figure is 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. And of course, when housing prices soar, agents benefit: Their piece of the pie may be smaller, but it’s a richer slice. Since the pandemic,  the decline in commission rates has been offset to a large extent by rising home prices.

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.

What commissions cover for sellers and buyers
You might wonder, what services does this fee buy me? One of the biggest ways buyers benefit from working with a Realtor is gaining access to the multiple listing service (MLS), the database Realtors use to see and list properties for sale. An agent is also able to utilize their contacts to negotiate, find properties and take you on tours of multiple homes. It also compensates the agent for time spent answering questions and helping you through the process.

The Realtor’s fee covers a wide range of costs for sellers as well, including marketing materials, staging and showing the property, coordinating open houses and contacting agents of potential buyers.

As with most of the other expenses related to homeownership, a Realtor’s fee isn’t paid until the sale closes. You’ll encounter plenty of other closing costs, too, from taxes to legal fees, so it will blend into the landscape of checks you’re making out.

Are Realtors overpaid?
The median income for real estate agents and brokers was $$48,770 annually in 2021, according to the U.S. Bureau of Labor Statistics. Median income represents the middle of the scale: Half of all Realtors made more, half made less.

Though home sellers may feel that Realtor fees are too high, Duffy argues that they’re not high enough. After all, a lot goes into listing a home, such as:

Performing a comparative market analysis to establish a competitive price
Arranging for photo shoots, sometimes including aerial shots via drone
Writing descriptive listing copy to attract interest from other Realtors and potential buyers
Providing staging guidance
Showing the property multiple times to prospective buyers
Hosting open houses on weekends
Providing yard signage
Making sure listings are populated on all major property search websites
Helping the seller review and negotiate buyer offers
When an offer comes in, the listing agent negotiates on behalf of the seller, often presenting one or more counteroffers. And with the volatility of the current market and record low levels of inventory, Realtors frequently deal with multiple potential buyers to help you get the most out of your property.

Average real estate commissions by state
Overall, the national average Realtor commission in 2022 was 5.37 percent, according to data from Clever, an online real estate agent network. In most states, the commission ranged between 5 and 6 percent. But in states like California and Massachusetts, where expensive properties abound, the commission was typically under 5 percent.

State Average commission rate
Alabama 5.44%
Alaska 4.99%
Arizona 5.43%
Arkansas 5.44%
California 4.91%
Colorado 5.52%
Connecticut* 5.12%
Delaware 5.44%
Florida 5.40%
Georgia 5.76%
Hawaii 4.99%
Idaho* 5.36%
Illinois 5.24%
Indiana* 5.66%
Iowa* 5.66%
Kansas* 5.66%
Kentucky* 5.66%
Louisiana* 5.44%
Maine* 5.12%
Maryland 5.11%
Massachusetts 4.85%
Michigan 5.65%
Minnesota 5.41%
Mississippi 5.44%
Missouri 5.72%
Montana* 5.36%
Nebraska* 5.66%
Nevada 5.02%
New Hampshire* 4.97%
New Jersey 5.13%
New Mexico* 5.59%
New York 4.97%
North Carolina 5.60%
North Dakota* 5.66%
Ohio 5.81%
Oklahoma* 5.59%
Oregon 4.99%
Pennsylvania 5.53%
Rhode Island* 5.12%
South Carolina 5.63%
South Dakota* 5.66%
Tennessee* 5.44%
Texas* 5.59%
Utah* 5.36%
Vermont* 5.12%
Virginia 5.22%
Washington 5.30%
West Virginia* 5.44%
Wisconsin 5.67%
Wyoming* 5.36%
SOURCE: Clever
*Due to insufficient data, commission rates in these states were inferred from regional averages.
How to avoid paying Realtor fees
In 2021, just 7 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, especially if they sell to online iBuyers. 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 a seller’s market like the current one.

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.

The bottom line on Realtor commissions
Realtor fees can cost quite a bit, it’s true. Going it alone is possible, but the services an experienced agent provides are valuable, especially in a hot and fast-paced market. Even in calmer ones, it’s tough to DIY when you’re already juggling other everyday responsibilities.

And don’t forget: Since Realtors don’t get paid until your home sells, they’re highly motivated to make sure your property brings in the best possible price it can.

https://www.bankrate.com/real-estate/realtor-fees/#avoid-fees

‍