For the vast majority of U.S. homeowners, their home is their most valuable asset. That means that selling their home represents a rare and unprecedented windfall. But as the saying goes, it takes money to make money.
Many home sellers, especially first-time sellers, are surprised to find out how expensive it is to sell their home. Closing costs often range up to 10% of the final sale price; for a home that has the U.S. median value of just under $250,000, that’s $25,000 paid out, right off the top.
So where does that money go? Closing costs are a bundle of many smaller charges, but the largest one, by far, is the realtor fee, also known as real estate commission. Real estate commission typically comes to 6% of the sale price, and is split among agents and brokers on the buyer’s and seller’s side.
But what do sellers actually receive for that high price tag? Who pays real estate fees? And is there any way to avoid real estate fees? Let’s cover those questions, and many others, below.
- What Is the Typical Realtor Fee?
- Who Pays Real Estate Fees?
- Why Does the Seller Pay the Buyer’s Agent?
- How Do You Avoid Paying the Buyer’s Agent?
- How Can You Save On Real Estate Commission Fees?
- How Much Do Real Estate Agents Make?
- What Is a Fair Commission for a Real Estate Agent?
What Is the Typical Realtor Fee?
The typical realtor fee is 6% of the final sale price.
The commission is split evenly, with 3% going to the listing agent and their broker, and 3% going to the buyer’s agent and their broker. How that 3% is split between the agent and their broker can vary, depending on their prior agreed-upon rate. Generally, novice agents pocket less than half of that 3%, while more experienced agents pocket half or more. As a rule, each agent pockets around 1.5%.
Let’s look at an example. According to Zillow, the median U.S. home value is just under $249,000, so 6% of that is about $15,000.
In a typical transaction, each side would split $7,500 between the agent and their broker. That means each agent stands to make about $3,750 off a successful sale of an average home.
When you look at it that way, it’s not surprising that real estate commission can be a contentious issue; the seller sees it as paying $15,000, while the agent sees it as making $3,750. According to one study, the median income for an agent in the United States as of 2020 was only $42,246 – nowhere close to what sellers assume they’re making. It can be tough to align everyone’s expectations.
But there are alternative models to the traditional 6% commission. These range from full-service discount agents, which offer everything at 6% agent offers, but at a lower price point, to flat fee MLS listings, which cut the listing agent out entirely, along with their 3% commission.
Each of these approaches come with their unique set of trade-offs.
Who Pays Real Estate Fees?
Traditionally, the seller pays the commission.
Here’s how it works: The title company takes 6% out from the seller’s proceeds at closing, and pays 3% to the listing agent’s and buyer’s agent’s brokers, who in turn pay the agents.
This may not seem totally fair to the seller, but there are good reasons for placing commission costs on the seller. Let’s take a look at them in the next section.
Why Does the Seller Pay the Buyer’s Agent?
There are a lot of potential answers to this question: tradition, practicality, common sense, fairness.
Look at it from a practical standpoint. Buyers have expended a lot of time, effort, and money to close this sale; to make them pay commission on top of that would add to an already-significant financial burden. Adding a 3% commission on top of their massive purchase could prevent first-time buyers from getting into the real estate market at all.
On the other hand, the seller has just received a massive infusion of money. To put it simply, the seller can afford it.
Another way to look at it is that both agents are essentially working for the seller. In the listing agent’s case, this is obvious: they’re helping the seller with everything from pricing strategy, to open houses, to negotiation and closing.
But even the buyer’s agent is more or less serving the seller’s interests— after all, they brought a qualified, interested buyer into the deal. While a good buyer’s agent obviously looks after the buyer’s interests, primarily by negotiating down the price and bargaining repairs, the seller is a massive beneficiary of the buyer’s agent’s efforts.
In that sense, it’s a matter of fairness for the seller to pay the entire real estate commission.
This leads to the question of, can a seller refuse to offer a buyer’s agent commission? After all, in hot U.S. markets, most properties that hit the market immediately attract multiple potential buyers. And cutting the buyer’s agent commission out of the equation cuts that 6% down to 3% right off the bat.
It can be tempting to try to cut costs this way, and to be honest, it’s entirely possible. Sellers can opt to not pay commission to the buyer’s agent— but this would likely compromise their outcome.
That’s because this decision would almost certainly reduce their potential pool of buyers. Sure, some buyers would find the home online, and either view it themselves or insist that their agent show them the property. But most agents will be hesitant to show their clients a home that doesn’t pay a buyer’s agent commission, for the simple fact that if they did take their client to such a home, they’d be working for free.
Remember, the buyer isn’t paying the agent, and for the vast majority of agents, their entire paycheck comes from commission— only 1% of agents work exclusively for salary, and less than 12% receive any salary to supplement their commission-based earnings. That means there’s literally no financial benefit to them steering their clients to a home that doesn’t pay a buyer’s agent commission.
How does this affect the seller? Well, the essence of the real estate market is competition. Every seller dreams of a bidding war driving up their property’s sale price, but even in the absence of a heated auction, there’s a direct relationship between the number of interested buyers and how high the price rises.
Look at it from the buyer’s perspective: If they know that there are 30 other people bidding on the home, they know they’ll have to bid it up quite a bit to have a chance. But if they’re the only one interested, they won’t even offer the list price.
The seller doesn’t offer a buyer’s agent commission to attract just one buyer— they offer a buyer’s agent commission to attract as many buyers as possible.
How Do You Avoid Paying the Buyer’s Agent?
If you want to avoid paying any commission, you could sell your property as a FSBO (for sale by owner) listing. Note that to avoid paying any commission at all, a FSBO seller would not only have to sell unassisted, they’d also have to screen out any buyers who are working with an agent, or they’d be responsible for a 3% buyer’s agent commission.
This approach comes with a lot of added complications. The seller would be entirely responsible for marketing the home, and making it visible to potential buyers. This is a big task, and one that requires a lot more than a yard sign and some fliers. They’d also have to prepare the home for the market without any guidance, and set a list price by themselves. And that’s just the beginning— they’d also have to conduct showings, negotiate with potential buyers, and navigate closing alone.
Of course, the 6% savings represents a significant sum of money that stays in your pocket. But when you look at the big picture, most FSBO sellers actually end up losing money. According to the National Association of Realtors (NAR), the median sale price for FSBO listings was a staggering $64,900 less than the median sale price for agent-assisted properties.
Why? Well, competition is what pushes a home’s price up, and one of an agent’s main responsibilities is to market their clients’ homes. A good agent will make sure that as many prospective buyers as possible get to see a property.
They’ll also advise sellers on how to stage a home to make it as appealing as possible— if there’s one thing agents know, it’s what buyers are looking for. They also help set a price that’s enticing enough to bring interest in, but is reasonable enough that it won’t turn people away.
FSBO sellers have to handle all those tasks themselves, and they’re doing it for the first time. It’s not surprising they see subpar results.
For sellers who may be thinking of trying an FSBO listing first, and then hiring an agent if they don’t get the kind of offers they’d hoped for, NAR’s numbers show that listings that went from FSBO to agent-assisted sold for a median price of $227,900 – or $37,000 less than properties that used an agent from day one.
This is likely due to the “stale listing” effect— research has shown that, the longer a property is on the market, the more negatively it’s perceived by buyers. Some buyers assume stale listings have hidden problems and steer clear, while others think a high number of “days on market” gives them bargaining leverage. So when you let your FSBO listing sit on the market, and then pull it and relaunch with an agent, it’s now much more likely that buyers will either avoid your property or make lowball offers.
The upshot? It’s definitely possible for you to avoid paying the buyer’s agent— but it comes with added risk and headaches.
How Can You Save On Real Estate Commission Fees?
Sellers can still save on real estate commission fees without going full-on FSBO. The two most popular alternatives to the 6% full service and FSBO extremes are the discount agent model, and the flat fee MLS service.
The Discount Agent
A discount agent offers a limited level of services in exchange for a lower fee. How many services they offer and how much they charge can vary widely; some discount agents work for 1%, instead of 3%, and offer most of what a full service agent offers. Others charge only a few hundred dollars, and offer little more than a lockbox, a yard sign, and an online listing.
For sellers who are comfortable handling part of the sale process, these discount agents can make sense. For example, if the seller knows a lawyer who can guide them through closing, or feels comfortable hosting open houses without an agent’s guidance, they can probably find a discount agent who’ll offer them a price cut in exchange for skipping that part of the process.
But it’s important for sellers to find out, up front, exactly what services a potential discount agent does and does not offer, and to make sure they’ll address all your needs. Finding out, late in the game, that you aren’t getting everything you thought you were getting, could be more than just an annoyance. Errors in items like disclosure forms or closing paperwork can have real financial— or even legal— consequences.
The Flat Fee MLS Listing
The flat fee MLS listing is the most minimalist approach to home selling, aside from FSBO. For a flat fee, usually around $299, the flat fee MLS service will list your home on the local MLS. They usually allow photo uploads, and provide very minimal support, like downloadable forms— but aside from that, the seller is on their own.
Getting your property listed on the MLS solves the problem of exposure. From the MLS, the property is populated onto sites like Zillow, Realtor.com, and Redfin, which draw millions of visitors.
The being said, the seller still has to tackle the staging, showing, pricing, negotiating, and close by themselves. If they’re an experienced home seller, that may not be such a tall order. But for the first-time seller, it’s a ton of work, with a lot of potential for error.
Still, the $299 fee for a flat fee MLS service is less than a twentieth of the average listing agent commission, so this is a legitimate avenue to savings.
Negotiating with Your Agent
It’s an open secret in the real estate world that everything is up for negotiation— including the real estate fees. But real estate agents are seasoned, expert negotiators. That’s a great thing when they’re going to bat for you against the other agent; but when it comes to you, a first-time seller, negotiating a lower commission, going up against that level of expertise means it’ll probably be an uphill battle.
What you might not know is there are services that pre-negotiate lower commission, so you don’t have to. Companies like Clever Real Estate, for example, pair sellers with local, pre-vetted agents who have agreed to work for a flat fee of $3,000 or 1% if your home sells for over $350,000.
This represents real, substantial savings. If you were selling a house for the average U.S. median value of around $250,000, you’d pay $15,000 with the traditional 6% commission model.
At this lower level of commission, you’d pay $3,000 to the listing agent, and $7.500 to the buyer’s agent, for a total of $10,500 in commission. That’s almost $5,000 in savings, which is especially appealing when you consider you’re getting the same level of services you’d get from a full commission agent.
How can these lower commission agents offer a top-quality experience for so much less? Well, this model works because these agents are getting quality, pre-vetted leads that they sell quickly and effectively. Even though they’re making less on each individual sale, they make up for it in volume. So the model helps agents bring in new leads and find referral opportunities, while providing sellers with a sweet discount.
P.S. We’ve partnered with Clever to offer top-rated agents in your area. Find out how you can save thousands in commission and still receive the high quality service you deserve.
How Much Do Real Estate Agents Make?
In 2019, the average annual earnings for a real estate agent was $41,289.
Note that we didn’t use the term “salary.” That’s because the vast majority of real estate agents aren’t salaried employees who receive a regular paycheck; most agents work for commission alone. That means that if they don’t sell any houses, they don’t make any money.
There’s not much data out there on the amount of the average real estate commission that an agent earns, but we can roughly extrapolate that from home prices. If the median U.S. home value is around $250,000, the average 6% commission is around $15,000. That commission is split between the seller’s and buyer’s side, with each side getting $7.500. And since each side usually splits the commission between the broker and the agent, the average amount actually received by an agent for a sale is around $3,750.
Data shows that the average U.S. agent closes 12 deals a year, which would put the average yearly income at $45,000— which is quite close to the average income quoted above.
It should be noted that some companies, like Redfin, use a salary-based model. Redfin agents make a standard salary, and receive no commission on the sales they close. That gives them a more predictable income, but many critics of this model claim that doing away with a percentage-based commission reduces an agent’s motivation, since they make the same money whether they close eight sales a month, or one.
What Is a Fair Commission for a Real Estate Agent?
“Fair” is a relative term. From a practical perspective, “fair” is whatever you and your agent agree on in the contract. But it’s also true that, as cheaper alternative models emerge, a traditional 6% commission can feel less and less justified.
The main pitfall is that, as you pay less, you often receive fewer services— or, worse yet, lower quality services. The key is to find that point where the level of services you receive feels in line with how much you’re paying. Or you could simply receive a full service, top of the line sale experience, for much less than 6%.
But home sellers can get the best of both worlds.
Clever Real Estate offers the same full service experience as a 6% agent, for a low flat fee of $3,000, or 1% if your home sells for more than $350,000. Clever pairs sellers with top local agents who are intimately familiar with the local market. These agents know exactly what local buyers want, and how much they’re willing to pay.
Real Estate Witch has partnered with Clever Real Estate to help our readers access the five-star sale experience they deserve, at a fraction of the cost of a traditional agent. Contact Clever today to get your real estate journey started!