If you have a Real estate agent to help you buy, sell or rent a home, this professional is paid through the average real estate commission. So how much do you pay and for what? Is there any leeway to reduce this fee or the Closing costs associated with it?
We tell you everything you need to know about real estate commissions, from who pays where the money goes in a real estate transaction.
Who pays the commission?
Instead of receiving hourly or weekly fees, most real estate agents only make money when a real estate deal closes, and the process can take weeks or months of work.
In the past, the home seller paid the full commission for the services of his own broker and the Buyer’s agent (assuming the buyer has one).
However, the National Association of REALTORS® recently agreed to a settlement that goes into effect on August 17th that includes several changes to the relationship between real estate agents and buyers/sellers that will benefit home buyers.
In the past, sellers typically paid both the buyer’s and seller’s brokerage fees. Once the settlement takes effect, buyers are responsible for compensating their broker.
However, as a seller, you have the option to offer compensation to the buyer’s agents. Why should you do this? To make your offer more attractive to buyers and stand out from others.
What does the brokerage commission cover?
Although people certainly have the option to sell (or buy) their home without a real estate agent, agents offer a wide range of services to their clients, including assisting with pricing your home, marketing (on the Multiple listing servicesocial media and other channels), negotiating with home buyers and accompanying the home sale through to completion.
As trained professionals, real estate agents can help you get top dollar for your home and put out fires – all while taking away the stress that comes with selling a home. (It’s not a walk in the park!)
Are the brokerage fees negotiable?
Commission standards can vary from state to state and broker to broker. There are no federal or state laws that set commission rates – that is Commission is negotiable.
In other words, if you are selling a home, you can of course ask your agent to reduce his commission, but you must be aware that he is not obligated to do so.
One factor to consider: Since marketing expenses for a property generally come from the agent’s commission, a lower commission may mean less advertising for your home.
However, it doesn’t hurt to ask for a lower commission. Most agents won’t take offense and will say no in the worst case scenario. Or, if you’re really tight on cash—say, because you’ve maxed out your budget to buy your next home—you can opt for a transaction agreement, where the agent will help you set an asking price, facilitate communication between you and the buyer, write the contract, and move the process forward to closing for a flat fee or a lower commission, but you won’t get the agent’s full services. It’s not ideal, but it’s the right way for some people. However, not all agents offer transaction agreements, so you may have to shop around to find one.
Bottom line: Buying and selling a home is likely one of the biggest financial transactions of your life, so make sure you find an agent you trust to do a good job. Now is not the time to just look for price.
Is there anything else I need to know about commission fees?
The contract you sign when you hire a real estate agent should contain all the details of the agent’s total commission (and any Transaction fees the broker’s fees). This is usually called a brokerage agreement and also specifies how long the broker will represent you. (Brokerage agreements generally last from 90 to 120 days.)
However, there are some exceptions. First: Rental agencies work differently by buying agents. It is usually the landlord’s responsibility to pay the agent’s commission, but this is not set in stone.
In addition, the commission on selling a vacant lot is usually higher (between 10% and 20%) because land often takes longer to sell and requires more marketing budget. Some auctions charge home buyers a 5% “premium” or commission.
As a seller, you want a real estate agent who can get you the best selling price and the best terms. Good agents aren’t cheap, though. As with most things in life, you get what you pay for.
Michele Lerner contributed to this report.
