Most buyers know that realtors charge commission fees, but exactly how that commission works is a mystery to many. Is there a flat fee? Do more expensive houses cost more? Is the buyer or the seller responsible for paying the fee? Can you really negotiate them down?
Fortunately, we're here to solve the mystery once and for all. In this post, we lift the curtain on realtor commission fees. We’ll tell you what they are, how they work, and if they're actually negotiable. Plus, give you a viable alternative if paying high fees Just isn't in the cards for you:
What is a typical realtor commission fee?
One of the most common misconceptions amongst home buyers and sellers is that realtors get paid is fixed percentage for their work. In reality, this isn't always the case. In fact, in most industries, setting a standard price for goods and services is actually illegal and known as "price fixing."
That said, in most states, real estate agents do end up charging a similar, common fee for their work. In most cases, it ends up being around 5-6% of the purchase price for residential and commercial properties.
However, in special cases like land lots, the fee may be higher to compensate for the extra time needed to find a buyer and money spent on advertising.
How realtor commission fees work
Typically, real estate agent fees are paid by the sellers as part of the closing costs on the deal. However, most sellers compensate for this expense by building it into the sale price for the home, so you could say the buyer shares some responsibility, too. Though, the buyer’s portion of the fees are usually rolled into his or her mortgage, rather than paid upfront.
Once the listing agent has been paid, he or she will split the commission fee with the buyer’s agent. From there, both agents' brokers (i.e. companies like RE/MAX, Keller Williams, Compass, or Open Listings) typically take a percentage of their splits to help cover administrative costs. Each agent will then take the remaining percentage as their own. However, keep in mind, that each agent also paid for things like advertising costs upfront out of his or her own pocket. Those costs come out of commission, as well.
It works like this. Let’s say, for example, that you’ve bought a $300,000 home with a traditional buyer's agent. The seller pays the listing agent 6%, which is $18,000. He then splits it with the buyer’s agent, leaving him with $9,000. However, before he can count the commission as his, his broker may take an additional 40% - 60% to cover his cost. All told, this leaves him with somewhere between $3,600 and $5,400, before accounting for marketing and advertising costs on the home.
Are realtor fees negotiable?
By law, commissions are always negotiable.There's no special rule book on how to negotiate them. All you have to do is ask.
The real question is, should you negotiate them down. In some cases, such as dual agency -- where one agent is representing the individuals on both sides of the transaction -- asking for a fee reduction may make sense. However, for the most part, you could be doing yourself a disservice by trying to cut a deal.
On the one hand, an agent who’s unable to negotiate their own fee with you may not be the best person to have in your corner when it comes to negotiating a deal. If they immediately reduce their fee when you ask, what do you think their going to do when the other agent starts playing hardball? On the other, if you’re the seller, a fee reduction could impact how much money is put toward the advertising and sale of your home, which could negatively affect how your property is seen by buyers.
The bottom line
Luckily, these days, if you don’t want to pay a standard realtor commission fee, you don’t have to. There are enough alternatives out there that you should be able to find a commission structure that works for you -- Open Listings included. Because of our ability to bring listings straight you and the technology we've built on the agents' side to make them more efficient, we’re able to offer a 50% commission refund when you buy with us and save our buyers an average of over $9,604.