Selling a home brings an unprecedented financial windfall for most home sellers— but it’s also a very expensive process. Those two statements might sound contradictory, but they’re equally true. The process of selling a home comes with some pretty significant costs that often take a 10% chunk out of the final proceeds.
Why? Well, it takes a lot of work to sell a home. The home has to be prepared for the market, marketed and publicized, and the agents have to negotiate a price that works for both parties. Then there’s the lengthy and complicated closing process, which involves everyone from title companies, to home inspectors, to real estate attorneys. All those people perform vital services, and all of them have to be paid.
Of course, the single biggest cost in a home transaction is almost always the realtor fees. Out of the typical closing costs, which average around 10%, over half of that, or 6%, goes to the agents involved.
Understanding what they do for that money, who pays realtor fees, and how that money is distributed between the agents, is the key to answering some of the even more pressing questions— i.e., can you negotiate realtor fees, and how can you reduce real estate commission.
Who Pays the Realtor When You Buy a House?
Good news for buyers: the seller pays the agents. Yes, both agents – they pay their own listing agent and the buyer’s agent. That’s right. Buyers do not pay real estate commission.
This may not seem like a totally fair arrangement on its face, but there are good reasons for putting the responsibility of the real estate fees on the sellers.
First of all, you could make a solid argument that both agents work primarily for the seller. The listing agent obviously works for the seller, as they help the seller bring the property to market, help negotiate the price up, and guide the property through closing.
While the buyer’s agent definitely acts as a counterweight to the listing agent, negotiating the price down on the buyer’s behalf, they still brought that qualified buyer to the table in the first place. That’s a huge benefit to the seller, and the entire point of the seller offering a buyer’s agent commission; to attract a qualified buyer.
On top of that, there’s the practical aspect. Buying a home is difficult, and the buyer has just put up a sizable down payment, acquired financing, and jumped through a lot of other hoops. Adding a commission on top of that financial burden could put the entire transaction into question. On the other hand, the seller has just received a huge payout, in the form of the sale proceeds. It’s much easier for the seller to pay the commission than it is for the buyer.
You can also look at it this way: in the big picture, the commission is baked into the price of the home. Sellers receive roughly 5.82% more money for a home when using an agent, compared to selling it on their own. If commission didn’t exist, the price of the home would likely be 6% lower. From that perspective, you could argue that the buyer is paying the commission, since it’s already been factored into the sale price.
In the next section, we’ll cover exactly when and how the realtor fees are extracted from the sale proceeds, and how they’re split among the different parties involved in the sale.
How Do Realtors Get Paid?
The vast majority of realtors work for commission only, meaning that they only get paid if they sell houses. According to industry data, only 1% of all Realtors work on a salary-only basis, and 12% or less work under some kind of hybrid salary-commission arrangement. That means that more than 88% of realtors rely totally or in part on commission to make a living.
So how do realtors get paid when you buy a house? The standard 6% commission is split equally between the seller’s side and the buyer’s side, with each side getting 3%. But most agents work for a brokerage, which takes a cut of the commission. Splits between brokers and agents average 50/50, but at some brokerages, they can range as high as 70% for the agent, while some novice agents may receive less than half.
Let’s look at how the numbers break down in a typical transaction.
If you sold a home for $250,000, the commission would look like this:
$250,000 x 0.06 = $15,000
At closing, that commission is withheld from the seller’s proceeds, and split among the two sides, with the listing agent’s brokerage receiving $7,500, and the buyer’s agent’s brokerage receiving $7,500.
The brokerages then pay the agents according to their previously agreed-upon split. If they use a 50/50 split, each agent will receive $3,750.
Breaking the numbers down like this reveals why commission can be such a contentious subject. For the seller who’s paying out $15,000, it can seem like an exorbitant amount of money. But the agent receiving $3,750 may feel underpaid, especially if they spent weeks or months on their end of the sale.
How Much Do Realtor Fees Cost?
Realtor fees average 5-6% in most of the U.S. For decades, the 6% real estate commission was the standard, but the emergence in recent years of various discount models has slowly brought the average realtor fees down below 6%. One recent study found that real estate commissions averaged a range of 5.06% to 5.86%.
How much of a difference does 1% make? Quite a bit, when you do the math. If you sold a home for $250,000, which is just about the median U.S. home value, and paid a 6% commission, that would come to $15,000.
However, if you paid a 5% commission, you’d pay $12,500. That’s a significant savings of $2,500.
And remember those discount commission models we mentioned above? Many of those services can halve your commission, or reduce it even more. But it’s important to note that when you pay less money, you often receive fewer services. Let’s cover a few of the most popular discount commission models, and what do— and don’t— offer at their respective price points.
The Flat Fee MLS Listing
For the seller who wants to reduce their commission down to the lowest level possible, while still getting a minimum level of assistance from an agent, the best bet is the flat fee MLS listing.
The average cost of a flat fee MLS service is $299, which is a huge reduction from the average listing agent commission of $7.500. (For reasons discussed above, the seller will almost always be responsible for a 3% buyer’s agent commission, since they brought the buyer to the table.)
For that $299, a seller gets their property listed on the local MLS, which is the main property listing directory used by real estate agents. From the MLS, the property is also populated onto huge real estate websites like Realtor.com, Redfin, and Zillow.
The seller may also receive features like yard signs and downloadable legal forms as part of their package, but that’s it (and often costs extra). While the flat fee MLS service gets their property listed online, these businesses don’t offer any traditional agent services. That means the seller will be responsible for staging their home, running open houses and showings, negotiating with the buyer’s agent, and navigating the closing process. For a first-time home seller, this is a daunting task.
While the flat fee MLS services can dramatically reduce your commission, you also receive a dramatically lower level of services.
The Discount Agent
The next tier up is the discount agent. There are two main types of discount agents: those who charge less money for the same full service experience that a traditional agent offers, and those who charge less money and offer fewer services.
The latter group can be what’s called “a la carte” real estate services, which allow sellers to pick and choose different services (for example, conducting open houses themselves, but having the agent to negotiate the sale price) and only paying for the services they request.
This can be a great option for sellers who bring their own skills and expertise to the table. For example, if the seller is a lawyer, they can probably navigate the closing process without an agent’s assistance. Or a seller who’s an interior designer or works in hospitality might not need help staging or holding open houses. With a discount agent, they can get help in the areas they need it, while not paying for unnecessary services.
One common example of the former group is the 1% commission agent. These agents generally offer a full service sale experience, but at a much lower commission— in this case, one-third of the usual rate. Although these agents may make less money on each individual sale, they make up for it in volume, since they generally handle more transactions at this lower commission rate. In a lot of ways, it’s a win-win for both parties— the agent gets more, and higher quality leads, and the seller gets to work with a proven, high-performing agent at a lower price point.
Can You Negotiate Realtor Fees?
In a word (or two): yes, absolutely. The truth is, everything in a real estate transaction is up for negotiation. That includes the closing date, the sale price, even who gets to keep the kitchen appliances – and, yes, the realtor fees.
Since realtor fees, at 6% of the final sale price, generally make up the majority of the total closing costs (which average up to 10% of the sale price), cutting commission is probably the best, most efficient way to reduce the costs of selling your home. Negotiating lower commission is easier said than done, though.
A real estate agent is an experienced negotiator, so it’s going to be difficult to convince them to do their job for less money. It helps if the seller has some form of leverage— for example, if the agent is representing both the buyer and seller in the sale. In that situation, the agent may be willing to take less commission, since they’re not splitting it with another agent. Similarly, if the seller is planning on selling multiple properties in the future, and is proposing a long-term relationship with the agent, that might convince them to give the seller a discount.
Another situation where an agent might be open to a commission reduction is if the sale was exceptionally fast and frictionless— for example, if the property was market-ready, sold within days, and required few negotiations. In this case, there’s a real argument to be made that lower effort should go hand in hand with a lower commission.
But in a typical transaction, it’ll be difficult to convince the agent to cut their commission. Fortunately, there are businesses that pre-negotiate lower commissions with top local agents, so sellers don’t have to. For example, companies like Clever Real Estate contract with pre-vetted elite agents to work for a flat fee of $3,000, or 1% if a home sells for more than $350,000, and pairs those agents with sellers.
Working with one of these flat fee agents can yield massive savings. On a home sale of $250,000, a traditional 6% commission comes out to $15,000— $7,500 for the listing agent, and $7,500 for the buyer’s agent.
But selling with a company like Clever Real Estate cuts that $7,500 listing agent commission down to $3,000— a $4,500 savings. (Unless the buyer is unassisted by an agent, the buyer’s agent commission is generally non-negotiable.)
And these agents offer a top-of-the-line, full service experience, meaning that sellers who work with them get the same level of services that they’d get from a traditional 6% agent— but at a fraction of the cost.
Real Estate Witch has partnered with Clever Real Estate to help our readers access a five-star sale experience at a steep discount. Clever pairs sellers with top local agents who’ve agreed to work for a flat fee of $3,000, or 1% if the home sells for more than $350,000. It’s a win-win for everyone involved, and one of the best opportunities available for any seller looking to keep more money in their pockets. Contact Clever today to find out how to get started!