If you’re in the market to buy a home, chances are you’ve wondered how realtors get paid. It’s a valid question! In most cases, the commission for both the listing agent and the buyer’s agent is split between the two parties. As the seller, you may be responsible for paying these fees out of the proceeds of the sale. Wondering how much you can expect to pay in realtor fees on your upcoming sale?
How Much Does It Cost To Hire a Real Estate Agent?
On average, realtor fees amount to about five or six percent of the final sale price of the home. So, if you’re selling a $300,000 house in your local real estate market, you can expect to pay approximately $15,000 in realtor fees. Of course, this number will vary depending on the market value of your home and the real estate commission rates in your area.
Not sure what your home is worth? The MLS Online’s free home value estimator can give you an idea of your property’s current real estate market value in just a few clicks! Simply enter your address and some basic information about your home to get started.
Real Estate Agents Don’t Get To Keep Every Dime You Pay Them
Some people get really upset when they see that their realtor is getting paid $15,000 on a transaction in one lump-sum check. They think to themselves, “Why the heck are they getting paid that much? They barely did anything!” Well, that’s where you are oh-so-wrong, for oh-so-many reasons.
There are tons of fees that real estate agents have to pay every year, every quarter, every month, every week, even every day just to make sure they have all of the proper tools in their toolbox, and all of their ducks in a row to be able to help you buy or sell a house! There is so much that goes on behind the scenes, and it takes money to make money in real estate!
Broker and Office Fees
For starters, all real estate agents have to pay a fee to the real estate brokers that they work for. This is generally a percentage of their commission. The average real estate commission percentage that goes to the broker is 30%-40%. So, for most real estate agents, if they get paid $15,000 in commissions on one transaction, they will most likely have to give about $5,000 of that to their broker. Ouch!
On top of that, most Plymouth real estate agents also have to pay fees to their office for things like:
- E&O insurance (errors and omissions insurance)
- Regional MLS dues
- Technology & software fees
- Office space rental & utilities
Real estate agents are also required to maintain an up-to-date license, which generally needs to be renewed every two years. The cost of renewing your real estate license can vary from state to state, but it’s definitely not cheap!
Most states also require that real estate agents complete a certain amount of continuing education credits every year or two in order to maintain their license. The cost of these courses can range from a couple hundred dollars to a few thousand, depending on how many credits you need and what type of courses you’re taking.
Some other things they have to pay for in order to get your house sold, or to help you find a house are:
- Clothing – you don’t want your realtor dressed like a scrub, do you?
- Office Supplies
- Advertising – Signs, internet ads, marketing campaigns, networking and community events
- Their time – Time is money, baby! If they put in the time for you, they deserve to be paid.
- Car payment and car insurance
- Cell phone
- Internet bill
- Gifts – you’ll likely get a gift at closing, and occasionally in the future as a follow-up
- Subscriptions – lockbox access, MLS access, local and national association fees, etc.
- Website design and maintenance fees
Do Buyers and Sellers Pay Real Estate Agent Commission Fees?
In most cases, no, the buyers and seller don’t both pay real estate agent commission fees. As we mentioned above, real estate agents get paid by the seller most often. However, there are some instances in which the buyer may be responsible for paying all or a portion of the buyer’s real estate agent’s commission.
For example, if you’re purchasing a newly constructed home from a builder, they may offer to pay the buyer’s agent commission as an incentive to attract buyers. In this case, you would not be responsible for paying any realtor fees at closing.
It’s also important to note that some sellers may try to negotiate who pays the realtor fees as part of the sales contract. If you’re a buyer in this situation, be sure to consult with your buyer’s agent to see if this is a good option for you.
What Is a Commission Split?
A commission split is the percentage of the total real estate commission that each agent will receive. The most common commission split is 55/45, meaning that 55% goes to the seller’s agent and 45% goes to the buyer’s agent. The listing agent has the advantage because they are the ones offering the home to the market, so they can generally set the asking percentage.
In some cases, the listing agent may offer a higher percentage to the buyer’s agent in order to attract buyers. For example, a listing agent may offer a 60/40 commission split, with 60% going to the buyer’s agent and 40% going to the listing agent. The reason this happens may vary, but many times it happens when a seller needs to sell their home fast, or if the house has been on the market for a long time, and the seller’s agent wants to offload the property from their workload.
Did You Know?
Generally, in Minnesota, listing agents get paid 3.3% of the sales price, and buyer’s agents usually take 2.7% of the sales price, for a total of 6% commissions being paid out to realtors. However, it is technically illegal to price fix.
There are federal antitrust laws that prohibit competitors from fixing commission percentages to make them uniform across the board as a way to make people pay more and take advantage of buyers and sellers. So, although most people can expect to pay a total of 6% commissions to realtors on a normal residential transaction in Minnesota, it’s illegal for brokerages to discuss and devise together to set a specific price. Real estate agents involved in price fixing can face termination, fines, or worse. This is to protect you, the buyers and sellers, and to keep greed in check amongst realtors.
Can I Ask My Realtor To Take Less Commission?
You can, but should you? It may disincentivize your real estate agent to give it their all if they don’t feel like they’re being fairly compensated. Remember, they’re taking a major risk every time they enter under an agency agreement or listing agreement with a buyer or seller because they don’t get paid for any of their time, efforts, or resources. Real estate agents get paid ONLY IF a sale goes through. And, depending on the market conditions, the condition and location of the home, and the asking price that the seller agrees to list at, that could take months.
Paying Your Realtor at Closing
In most cases, real estate agents get paid at closing, which is the final step in the home buying or selling process. At closing, all of the necessary paperwork will be signed and the final sale price of the home will be transferred from the buyer to the seller. Once all of this is complete, the real estate agents will receive their commission payments.
Are There Ways To Pay Besides Giving a Percentage of the Sales Price?
In some cases, you may be able to negotiate a different method of payment with your realtor. For example, if you’re selling a high-end property, you may be able to negotiate a flat fee rather than paying a percentage of the sales price.
You can also use a realtor as a facilitator, in which case they just pretty much do paperwork and interpret documents for you. In those instances, you can usually expect to pay less, since they aren’t providing a full ensuite of services, and they don’t owe you most of the fiduciary duties that a full-on exclusive representation agreement would get you.
It’s also important to keep in mind that some realtors work for themselves, while others are employed by larger firms. If you’re working with a self-employed realtor, they may be more open to negotiating their commission. However, if you’re working with a real estate agent who is employed by a firm, they may have less flexibility when it comes to negotiating their commission.
If you’re curious about how much it will cost to hire a realtor, be sure to ask about their commission structure upfront. This will help you budget for the costs of selling or buying a home and avoid any surprises down the road.
Now that you know how and when your listing agent or buyer’s agent will get paid, you may be wondering how to choose the right one. Check out our blog post on how to find a good realtor for more tips!
Do You Need Help Selling Your Home?
If you’re thinking about selling your home, we can help! Our team of experienced real estate agents are ready to assist you through every step of the process, from listing your home to negotiating with buyers and closing the deal. Contact us today to get started!
Typically, realtors are paid at closing, when the final paperwork is signed and the sale price of the home is transferred from the buyer to the seller. In most cases, the seller is responsible for paying the fees for both their agent and the buyer’s agent out of the proceeds of the sale. However, you may be able to negotiate a different method of payment with your realtor. If you’re curious about how much it will cost to hire a realtor, be sure to ask about their commission structure upfront.
Now that you know how realtors get paid at closing, you may be wondering how to choose the right one. Check out The MLS Online’s blog post on how to find a good realtor for more tips! If you’re thinking about selling your home, we can help! Our team of experienced real estate agents are ready to assist you through every step of the process, from listing your home to negotiating with buyers and closing the deal. Contact us today to get started!