Selling your home will bring one of the biggest windfalls of your life. So it can be surprising to learn, towards the close of the transaction, just how much money it costs.
First time sellers are often shocked at how many additional expenses go with selling a home— everything from repairs and pre-sale inspections, to closings costs and commission.
Of all these costs, real estate agent commission fees are almost always the largest expense for sellers, coming in at 6% of the final sale price. For the median U.S. home, valued at $248,847, that comes to $14,930. That’s a substantial chunk of money no matter how you look at it.
But what many sellers don’t realize is that there are many ways to reduce, negotiate down, and sometimes nearly eliminate your commission.
In this article, we’ll go over some of the basic facts about real estate commission, break down how it’s paid and to whom, and detail the best ways for sellers to reduce the amount of commission they pay.
Table of Contents
- How Much Do Real Estate Agents Charge?
- Who Pays Real Estate Commission?
- What is a Fair Commission for a Real Estate Agent?
- How Much Do Real Estate Agents Make and How Do They Get Paid?
- How Do Real Estate Agents Get Paid?
- 3% vs. 1% Commission Real Estate Agents
- Are Real Estate Commissions Negotiable?
- How to Negotiate Real Estate Agent Commission
- Beware of the Dual Agency Trap
- Do You Need an Agent to Sell Your Home?
How Much Do Real Estate Agents Charge? What is the Typical Commission?
The standard real estate commission is 6% of the final sale price. This commission is split between the listing agent, who works on behalf of the seller, and the buyer’s agent. Each agent’s brokerage often takes a cut of their commission, so in many cases, an agent doesn’t actually pocket that full 3%.
In reality, the average real estate commission has been falling for decades. In 1992, the average commission was 6.04%; by 2019, it had fallen more than a full percentage point, to 4.96%. That decrease is due to FSBO sales, which sell at reduced commission, and the recent emergence of low commission discount companies.
Who Pays Real Estate Commission?
Traditionally, the seller pays the entire 6% commission. Yes, that means the seller pays their own agent, as well as the buyer’s agent. The logic for this is that, while the seller’s listing agent helps prepare the property for the market, the buyer’s agent is also working indirectly for the seller, by bringing qualified buyers to see the property.
Six percent may not sound like much, but it’s more than you think. Let’s say you’re selling a $300,000 home. The numbers break down like this:
$300,000 x 0.06 = $18,000
Eighteen thousand dollars is a lot of money, and commissions are big business; according to the Consumer Federation of America, sellers pay about $1 billion in commissions every year.
With a fee this large, any reduction is going to save you a lot of money; if you could cut your commission in half, you’d save a whopping $9,000. The good news for sellers is that there are several easy ways to reduce your commission.
What Is a Fair Commission for a Real Estate Agent?
The problem with the one-size-fits-all 6% commission model is that each home sale is different. If you’re selling a pristine, modern home in a hot market, your agent probably won’t have to do much except field all the offers.
On the other hand, if you’re selling a unique home in a slower market, they may have to conduct extensive marketing, as well as weeks of showings, to find a buyer. In both cases, the sellers pay the same 6%, despite one agent doing far more work than the other.
And then there’s the fact that sellers have to pay for the buyer’s agent. Yes, the buyer’s agent is bringing a buyer to the property, which is a boon for the seller. But at the same time, the buyer’s top priority is almost certainly going to be negotiating the price down as much as possible. That means the seller is essentially paying the buyer’s agent to work against the seller’s best interests.
Clearly, there are a lot of flaws with the conventional 6% commission model.
How Much Do Real Estate Agents Make and How Do They Get Paid?
Earnings for real estate agents can vary widely, since they work on commission. Luxury agents typically take a lower commission (closer to 1%), because they’re selling multi million dollar homes. 1% of a $35M home is quite the pay day.
More importantly, top performing agents sell a lot of homes to earn their living.
The flip side of that is that if they don’t sell any homes, they don’t make any money. There are exceptions to this— for example, in-house agents at companies like Redfin draw a salary, and work for a much lower commission, or no commission at all.
But on average, U.S. real estate agents, as of February 2020, earn just over $42,000 a year. Interestingly, the median salary for the top tenth of agents was $64,101, while the median salary for the bottom tenth of agents was $40,321.
The fact that the overall median is weighted so heavily towards the average earnings of the bottom tenth implies that there are a few high-earning agents who make a ton of sales, and a whole lot of low-earning agents who make a handful of sales a year.
Spoiler: You want one of the high-earners.
How Do Real Estate Agents Get Paid?
Little known fact: the seller doesn’t pay the listing agent and the buyer’s agent directly. Instead, the listing agreement dictates that the commission is paid to the listing brokerage, which then forwards the agreed-upon split to the buyer’s agent’s brokerage.
Each brokerage then pays each agent their cut of the commission. How much the agent makes depends on the agreement they have with their brokerage; typical splits fall between 40-60%.
This means that, while the average 6% commission can be quite sizable, the average agent doesn’t walk away with as much as you might think. Let’s look at an example.
Let’s say a home is sold for $300,000. At the close of the sale, the 6% commission of $18,000 is paid to the listing brokerage, which forwards $9,000 of that to the buyer’s agent’s brokerage.
Let’s say each agent is working on a 50/50 split with their brokerage. That means each agent will receive $4,500 in commission. And keep in mind that they have to pay taxes and overhead out of that money. So while the seller has to pay quite a bit in commission, the agents involved somehow net only a fraction of that.
This commission model isn’t just broken for sellers; it’s also broken for agents. This is why upstart companies like Compass have been able to expand so aggressively by luring top agents away from their brokerages with much more favorable commission splits.
Same for discount companies like Clever Real Estate, where agents make a flat fee of $3,000 (or 1%, if the home sells for over $350,000) with a smaller referral cut.
For top agents who are tired of the old way of doing business, these new models can be very attractive. In the next section, we’ll break down how the low-commission model works, and go over advantages and drawbacks.
1% vs. 3% Real Estate Commission Companies
There are a lot of new real estate companies that will sell your home for 1%, instead of the standard 3%. However, in these models, the buyer’s agent generally makes their standard 3% no matter what.
Paying 1% saves the average seller a third on commission, overall; using the example above, of an $18,000 commission on a $300,000 sale, that equates to saving $6000.
That’s serious money.
But not all discount companies are created equal. The main difference between these companies is that they offer different levels of services.
On one end of the spectrum, you have the flat-fee 1% company, which lists your home on the MLS, maybe gives you a yard sign, and that’s it. All the other aspects of the sale, from pricing, to staging, to negotiating, to closing, are totally up to the seller. With these companies, you pay less, but you also receive much less.
At the other end of the spectrum are full service discount companies like Clever Real Estate.
These companies offer a full service sales experience at a lower price point. With Clever, for example, sellers are matched up with top local agents who assist them with their sale from start to finish, just as if they were paying full commission.
How is this possible? Well, companies like Clever act as a referral service, matching high quality, pre-vetted sellers with local agents. Since the agents know they’re getting quality leads, it makes sense for them to work for a flat fee instead of a percentage-based commission. And we demonstrated above how the traditional 6% commission actually isn’t that lucrative for agents, once everyone takes their cut. In a lot of ways, the full service discount company is a win for agents and sellers.
Pro tip: We’ve partnered with Clever to offer full-service agents that work for 1% or $3000. Clever saves homeowners an average of $10,000, and you can get connected with local agents in your area today!
Of course, between these two poles, you have discount companies that offer various levels of services. Some companies might pair you with an agent, but not help with showings. Others may offer a full spectrum of assistance, but only online. If you’re thinking of going with a discount company, always do your research to find out exactly what you’re getting.
Are Real Estate Commissions Negotiable?
Absolutely.
The simple answer is that in a real estate transaction, everything is negotiable.
The more nuanced answer is that, while everything is technically negotiable, the success of your negotiation is going to depend on how much leverage you have, and how well you negotiate.
How to Negotiate Real Estate Agent Commission
If you want to negotiate a lower real estate commission, you can either do it yourself, or you can sign on with a company who does it for you.
Negotiating Yourself
If you decide to negotiate yourself, it’s important to consider the agent’s perspective. They’re going to look at the transaction as an investment of their time and effort, and they’re going to want to be fairly compensated for that.
So when you begin negotiations, it’s not a good idea to simply ask for a discount because “6% isn’t fair” or because you simply don’t want to pay that much.
Frame it as an issue of fairness; for example, if your home is a desirable property in a hot market, you can argue that it won’t take the agent very long to find a buyer. Less time spent on the sale is a powerful argument for paying less commission.
This argument also works if your home is going to sell for a significantly above average price. An agent is more likely to be open to taking a smaller percentage of $1 million than of $200,000.
Use Proven Strategies
There are a few other tried-and-true strategies you can use to bring down your commission. Here’s a quick rundown.
Commit to Buying with Your Listing Agent
If you promise to use your listing agent to purchase your next home, they’ll often give you a discount, since they’re going to be making two commissions.
Use a Beginner
Agents who are just starting out in the business will often work for a lower commission just to gain some credentials and experience. Note: You’re taking a risk by using a beginner, and you might not be able to sell for what you want.
Refer Friends and Family
This works on the same principle as buying with your listing agent: if you steer more commissions to your agent, they’ll be much more likely to give you a discount on your sale.
Sell During Off-Peak Season
In most markets, the winter and post-holiday periods are the slowest times of the year. Many agents are trying to scrape together sales during this period, so you’ll have leverage to negotiate a lower commission.
Sell Empty
One of the most challenging aspects of a home sale is coordinating with the owner to stage and show their home while they’re still living in it. If you can offer the agent an empty, unoccupied home that they can show at any time, this is a valuable convenience.
Work with Clever Real Estate
Clever pre-negotiates with agents on your behalf to get you a full service sale experience for a low, flat fee of $3,000, or 1% if your home sells for more than $350,000. Clever only works with top local agents with proven track records; these agents agree to work for a lower commission because they know they’re getting high quality leads from Clever. Everyone benefits— especially sellers.
Working with a Clever agent means that all the hard work of negotiating down commission has already been done, so you can concentrate on having the best selling experience possible.
Beware of the Dual Agency Trap
Dual agency is when the same agent represents both buyer and seller.
In a traditional, two-agent sale, the listing agent represents the seller’s best interests, and the buyer’s agent represents the buyer’s best interest. The competition between the two parties produces the fairest deal.
But when one agent represents both parties, someone is always being underserved. In some cases, both cases are being underserved, while the agent pursues their own best interests. It’s a messy situation, which is why it’s illegal in many states.
If an agent offers you a lower commission in exchange for a dual agency setup in which they’ll represent both you and the buyer, you should decline and, if you’re in a state where dual agency is illegal, report them to the local board.
Do You Need an Agent to Sell Your Home?
Absolutely not. Many sellers opt for FSBO (for sale by owner) listings. In these cases, they don’t have to pay any commission to a listing agent; keep in mind, though, that if the buyer is represented by an agent, you’ll likely have to pay them 3%.
However, selling without an agent can be a difficult and unsatisfying experience.
Many FSBO sellers spend months trying to find a buyer, only to eventually sign with an agent; overall, only 7% of homes were sold as FSBO in 2017, according to the National Association of Realtors. In fact, half of sellers that started out FSBO ended up going with an agent.
Selling yourself means that you have to handle every aspect of the transaction, from pricing all the way through closing. This can be daunting for a novice.
Even when FSBO listings do sell, they sell for much less money than agent-assisted homes. In 2017, the average sale price for agent-assisted homes was $265,500, while the average price of FSBO sales was $200,000. That’s a massive 25% difference.
In the end, selling through an FSBO listing doesn’t make much sense. It’s not the difference between paying 6% commission and zero commission; since you almost always have to pay the buyer’s agent 3%, a FSBO sale means you’re paying 3% instead of 6%. And in exchange for that 3% discount, you’re taking a price that’s, on average, 25% lower than a conventional sale. That should change your calculations— a lot.
Now consider that for a flat fee of $3,000 or 1% if your home sells for more than $350,000, Clever Real Estate offers a full service sale experience with an elite agent. Clever Partner Agents are experienced, vetted agents who’ll make sure your home sells for its best price, and will guide you through every stage of the home sale experience, from staging, to negotiation, to closing. For that small fee, you’re going from doing everything yourself, to having a seasoned pro guide you through a five star, full service experience— for thousands less than you’d pay in a traditional 6% commission sale.
In the end, your goal shouldn’t be to get your commission down to zero, because that’s nearly impossible. It should be to get the best selling experience possible out of the commission that you do pay.
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