Real estate agents don't get paid for their work until a property closes. They are paid a commission for their work if they help you buy, sell or rent a house. Real estate commissions however, are not set percentages. In fact, some real estate brokerages set a minimum amount of commission required rather than a set percentage. Every real estate brokerage sets their own requirements in regard to commissions. Commissions are not set in stone across the industry. An informative article on realtor.com, The Real Estate Commission: How Much Are Realtor Fees?, discusses commissions in a way consumers can better understand.
Real Estate Commissions are Negotiable
It is important to understand that real estate commissions are negotiable. This is especially true if you have a high-priced home. Home values have been rising and many real estate agents are benefiting from this. When homes sell at higher prices, real estate brokerages make more money. Real estate commissions are typically paid by the seller in a transaction. The commission is usually split between the listing brokerage and the selling brokerage. Once the brokerage gets paid, the real estate agent gets paid an agreed-upon percentage from its broker. There is also a lot of competition between real estate agents and brokers these days. Since there is a lack of inventory of homes on the market for sale, there are less agents and brokers getting listings. Since there are fewer listings, there are fewer buyer sales as well.
Commissions can also be variable. For example, if you are selling your home, you can ask your real estate agent to have a separate commission percentage or amount due if you find the buyer. In other words, if you do some advertising of your own and find the buyer for your home, you will pay your real estate brokerage less. You can go one step further since real estate commissions are split between the seller's broker and the buyer's broker. You can ask your real estate agent to pay less if he finds and represents the buyer himself. This is called "dual agency." Some brokers will take less money if they are representing both the buyer and seller in a transaction. They are transacting both sides of the deal and both sides of the commission split.
Commissions in Terms of Home Prices
In some areas of the country, 6% commissions are a thing of the past. Many real estate agents are focusing more on the amount of their commissions than the percentage. For example, in Los Angeles the median sales price of a home is $945,000, according to an article on forbes.com written by Andrew DePietro on March 30, 2022. A 6% commission on a $945,000 home is $56,700. On the other hand, in a recent article on Median Home Price by State 2022, on worldpopulationreview.com, "Mississippi is the cheapest state to buy a home in with a median home value of $114,500." A 6% commission on a $114,500 home is only $6,870. A real estate agent in California is much more likely to negotiate his commission lower than 6% than an agent in Mississippi is.
Listing agent commissions can be tricky to navigate. Always feel free to ask your real estate agent if they will consider negotiating the commission or offering a variable commission structure. With home values rising and the market the way it is today, most agents are working with their clients, so it is a win-win for both their clients and their companies.