When you start looking for a house or if you decide to invest in real estate, you’ll eventually have to collaborate with a real estate agent and the agency they represent. The same is true if you want to sell a property.
When it comes to real estate transactions unless you are a specialist in the field, it’s best to work with an agent. Still, some people feel the commission the agent takes as their payment is too big or unfair, which is why they would rather handle the deal themselves.
However, when you take a closer look at the commission and analyze all its component parts, it becomes clear that there are many factors involved in its calculation. It also lets you see that there are more people working behind the scenes – not just your agent.
In an attempt to explain the real estate commission and why agents charge it, we decided to reply to some of the most common FAQs out there:
#1: What percentage do most realtors charge?
While there may be slight variations, the typical real estate commission paid in the US is between 5% and 6% of the sales price. This commission is paid by the seller who can try to negotiate for a lower fee.
However, unless you have solid arguments chances to get a good realtor to accept a lower fee are slim. If you’re wondering what those arguments might be, here are a couple:
- a slow market where the realtor is a bit desperate for a project
- a high-priced listing where the realtor stands to make a lot of money anyways
Once the transaction is complete, the commission is charged by the real estate agency (or brokerage) that supports the realtor. Next, the agency has to calculate a standard commission split between the buyer’s agent and the agent representing the seller. It’s also important to know that the brokerage will take a cut for themselves.
Furthermore, the agent has to pay income and health insurance taxes on what’s left of the commission. This happens because real estate agents are independent contractors and have to file their own taxes.
#2: How do Agencies Determine Commission Fees?
This is the question many buyers have before deciding to sign with a specific agent. After all, it’s only natural to want to know how much of the selling price you won’t see.
Still, there are no strict rules when it comes to real estate commissions. The percentage can vary from agency to agency, from state to state, and the same agency can practice different commission rates for different clients.
However, no reliable agent will charge you an exorbitant commission since they don’t like getting a bad rep or losing hot leads. Of course, it helps to know the limits in your state and see what the agent proposes.
After all, the commission fee is negotiated prior to signing a contract, so you can walk out of the deal at any time.
#3: Do I have to pay estate agent fees if I decide not to sell?
It depends on what you agreed on the contract (which is why you have to read it carefully or have a professional look at it). In this case, you’ll want to find a reliable “no sale, no fee” agent – someone who won’t charge you if the deal fails or the buyer decides to skip on water heaters or other luxuries.
However, if you are the one who decides not to sell and want to back out of the deal, you may have to pay a fee (specified in the contract). This is to cover the agent’s efforts up until the time you decide to stop the process.
It’s also important to keep an eye out for extra fees such as marketing services or home improvement tips. These are already included in the commission so there’s no need to pay extra.
Wrap Up
The real estate commission is the agent’s salary and they do work hard for it. Plus, the commission can motivate an agent to try and get you a better price, since it also means their salary will increase. Overall, the real estate commission has a well-designed purpose in the transaction process.
