What Commission Should I Pay a Real Estate Agent?

As you get ready to sell your home, you have likely narrowed down your real estate agent options. One of the final deciding factors may be the cost, and the question is posted: what should you pay a real estate agent? As far as payment goes, real estate brokers work off of commission. Their commission rate incentivizes sales, both in essence and with regards to speediness. Wondering if there is wiggle room with regards to rewarding your estate agent for their selling time? Let's find out.

About Commission

Unlike your average employee, real estate agents do not get paid on an hourly nor weekly basis. They instead work off of a commission, which is a percentage of the home's final sale price that goes to them instead of the home seller. Homeowners currently in the process of selling their homes do not pay just for their estate agent. They actually finance the services of both their personal listing agent as well as the buyer's agent, assuming the home buyer likely has one.

Commission rates are settled when a homeowner signs a contract with their estate agent. Therefore, it is pre-agreed upon and should be fair to both the seller and the agent. The overall commission reflects both the value of the home as well as the time necessary to sell an asset. Typically, commissions are split evenly between the homebuyer's and homeowner's agents. With that said, it can vary slightly based on experience.

While the concept of paying your agent is sensical, it's often questioned what exactly commission covers. The commission is the price associated with agents' wide range of services at a certain level of expertise. This price covers accurately pricing the home, selling the property for the best price possible, and all of the marketing necessary to make a sale happen. Marketing includes adding the property to the international multiple listing service, posting about it on social media, and other forms of local advertisement. Additionally, commission pays agents for their time negotiating with home buyers as well as ushering a final sale through the closing processes.

Ideally, a good agent will alleviate the stress that comes with selling your home — and thus, the commission covers that as well!

Commission Structures

There's no one way to decide upon commission, and commissions can be delivered in a few different structures. Keep in mind that while the commission is a seemingly large amount of money, real estate agents work for months to achieve it. Moreover, agents don't receive any of that money until a deal is absolutely final. It's a big task to sell a home, and therefore commission is typically a fair price.

Fixed Percent

The first commission structure is fixed percent, which is the most standard. In this structure, homeowners pay 5–6% of the final home's sale price to the agents. This money is split amongst the two agents: that of the home buyer and that of the home seller. For an idea of how this is defined, imagine a home that sells for $350,000. Because individual agents take half, an agent would receive around 3% of that price, which comes out to $10,500.

Percent Ratchet

Percent ratchet is another form of commission structure, and may also be referred to as incentivized commission structure. In this format, any sale price above a certain predetermined number grants the agent a percentage to be taken. For example, an agent could set their commission percentage lower but agree that every $10,000 over listing price provides 6% in commission of said $10,000. This scenario often benefits both agent and seller and pushes for you to get top dollar for your home.

Percent Plus Fixed Bonus

One last version of the commission structure is a percent plus fixed bonus. Percent plus fixed bonus commission is similar to ratchet commissions, but instead of a percentage, it’s a flat bonus if a house sells over a certain price point. Similar to ratchet, it encourages your agent to work harder to earn more, ultimately benefiting both of you.

Splitting Commissions

There's no need to worry about the splitting of commissions as a homeowner. While commissions need to be split, that is not the seller’s problem nor should it be made their problem; agents should handle all of these responsibilities. There are some situations called dual agency where the same agent represents both the buyer and seller. In this case, they get the entire commission. Dual agency is a little dicey though, and it’s tough having to work to represent both people fairly. There are even some places that don’t allow dual agency sales due to the conflict of interest.

Go With the Price You’re Happy With

When choosing an agent, the commission price is only one factor out of many that should guide your final decision. Ultimately, it's up to you to work with an agent whose price you're happy with. While no agent is required nor obligated to reduce their commission, you can ask to negotiate. It's not harmful to do so, especially if you're in a tight financial situation and explain the circumstances. You may even benefit from a transactional agreement, where you don’t get the agent’s full services but have access to some of them for a flat fee or reduced commission.

You Get What You Pay For

While commissions typically stay in the 5–6% range, you will find agents that go higher or lower. Cheapest is not always best, regardless of your budget, but high commission fees don't guarantee results. Because the commission directly translates to the agent's marketing efforts, lower commissions can reduce the chances of your home selling or how quickly it does. With that said, “for sale by owner” (FSBO) homes generally sell for far, far less than agent-assisted homes, and a commission is nearly always worth it. On average, real estate agents will sell homes for nearly $50,000 more than FSBO transactions.

Use taelah For Finding Your Estate Agent

Searching for an estate agent that fits your needs, personality, and price range can require a lot of effort — but taelah can help. When shopping around for your real estate broker, use taelah's human-assisted artificial intelligence system for low-risk, no-commitment conversations with top realtors. With our platform, it's easier than ever to sell your home your way without breaking the bank! Sign up today for personalized assistance and ultimate home buying or selling advice.


10 Things To Consider When Paying A Real Estate Agent Commission

  1. Real estate agents work off of commission and are not paid hourly or weekly like traditional jobs.
  2. Commission is a percentage of a selling home's final sale price which is given to real estate brokers.
  3. Commission pays for the duties of the agent including pricing, listing, marketing, and selling the property.
  4. Commission comes in a few forms: fixed percent, percent ratchet, and percent plus fixed bonus.
  5. All forms of commission generally take a percentage of the home's price, and some add bonuses for incentive.
  6. The seller of the property is responsible for paying both the buyer's and seller's agents, and usually works out to 5–6%.
  7. You can ask an agent if they're flexible on their commission rate, or if they offer reduced services for a smaller fee.
  8. Splitting of the commission is not a homeowner’s responsibility, and brokers will handle the logistics of it.
  9. It's always worth it to use an agent; on average, brokers sell homes for $50,000+ than homes sold by the owner alone.
  10. Find a real estate agent with your ideal commission structure and price range by using taelah's artificial intelligence system!


tldr

Real estate agents are not paid traditionally but instead work for commission. Commission is a percentage of a sale, and brokers typically receive 5–6% of a property's final sale price. This percentage is then split between the agent of the buyer and the agent of the seller. This cost covers key real estate duties including pricing, listing, marketing, and selling the property, and it is possible to ask an agent to be flexible with their commission. Generally speaking, commission cost is always worth it due to realtors’ experience. Learn about different types of commission, and how taelah can help you find the right agent at the right price!