The Real Estate Commission: A detailed explanation

Anna & Alex Carbonell Realtors
Published on October 10, 2023

The Real Estate Commission: A detailed explanation

Like any other service, when you enlist the services of a real estate broker or agent, there will be a fee. In the real estate industry, this fee is known as the “commission.” Some real estate consumers don’t believe that professionals are worth their fee so they attempt to sell the home themselves.

They typically end up losing more money on the sale than they would have paid for professional representation.

“FSBOs typically sell for less than the selling price of other homes; FSBO homes sold at a median of $225,000 last year [2022], significantly lower than the median of agent-assisted homes at $345,000.” (National Association of REALTORS® “Profile of Homebuyers and Sellers.”)

Paying for expert services, be it a plumber, an attorney or, yes, a real estate agent, saves you from losing money and gives you the security that the job will get done.

So, let’s dive into the whole real estate commission topic.

How much will it cost me to hire a real estate agent?

The answer to this question is, it depends.

First, it depends on whether you are the buyer or the seller. Buyers do pay closing costs just as sellers do, but the real estate commission is typically charged to the seller.

How much? It depends on where the seller lives. Brokers in different regions charge different fees, but typically you can expect to pay between 5% and 6% of the sale price of the home.

Here’s an example: Joe sells his home for $300,000. Let’s assume that the real estate fee (which the commission is generally called) is 5% of that price, which works out to be $15,000.

Yikes! Does my real estate agent make THAT much money from each sale?

Wouldn’t that be nice? But, no, there are others that need to be paid. The broker for the buyer’s agent gets half of the commission and that of the seller gets the other half.

Then, it is divvied up to the agents. How much the agent will get depends on his or her arrangement with the broker.

For instance, newer agents tend to make less of a percentage than seasoned agents, but each agent negotiates his or her cut of the broker’s fee, which generally ranges from 50% to 95%. According to most studies, the average commission split is 50/50.

If you still think this represents a big gob of money, consider this:

The “… median income for real estate agents and brokers was $48,770 annually in 2021, according to the U.S. Bureau of Labor Statistics,”

according to Kellye Guinan and Taylor Freitas,

What does the seller get for this money?

The typical listing agent faces a hefty outlay of money for each listing he or she takes. Here are a few of the ways the commission money is spent:

  • Lockboxes
  • Online marketing
  • MLS fees
  • Direct mail marketing
  • Photography
  • Signage
  • Fliers
  • Broker’s open expenses
  • Errors and Omissions Insurance
  • Brokerage fees
  • Association fees
  • Lead generation website to bring in buyers

That’s the shortlist. Depending on how challenging the market is or the attractiveness and condition of the home, the agent may spend thousands of dollars to help you sell your home.

What you also get for that money is a buyer for your home. Priceless, right?

Questions? We’re happy to answer them. Feel free to reach out!

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