Who pays commission on a home sale, the buyer or seller? In almost all cases, the seller pays the entire commission fee for the listing agent and the buyer’s agent.
You work hard for your money, and the cost of agent fees is a concern. Thus, you want to make sure the money you spend on real estate agent fees is well spent. For instance, you would like to ensure that your agent sells your house for the most profit possible.
According to the most recent trend report from the National Association of Realtors (NAR), most home sellers worked with a real estate agent, sold their homes for a median of $66,000 more than they purchased them, and were “very satisfied” with the selling process.
The $66,000 gain and satisfaction with the selling process are a function of agent fees. You get a top-tier marketer, negotiator, and advocate for your best interests in exchange for paying an agent’s price.
Let’s dig deeper to discover everything you get when you pay Realtor® fees.
First, what is the difference between a Realtor® and a real estate agent?
Real estate agents and Realtors® are not the same, even though people use the terms interchangeably. As explained by a top real estate agent, Randi Szakaly of Snohomish County, Washington, “A real estate agent simply holds a real estate license whereas a Realtor® subscribes to a code of ethics that holds them to a higher standard.”
While some Realtors® are brokers and others are licensed real estate agents, not all real estate agents are Realtors®. To be designated a Realtor®, an agent must undergo more education and is bound by a strict Code of Ethics & Standards of Practice.
What is a Realtor® fee?
The fee is not pure profit for the real estate agent. Here is an example of how a Realtor® fee works for you.
As of February 2022, the median sales price of a house sold in the United States was $357,300. According to our Commissions Calculator, the national average for a Realtor® fee is 5.8% – let’s round it up to 6% to get nice, round numbers to analyze.
Pro tip: To find out your city’s average commission rate, you can use HomeLight’s Agent Commissions Calculator, which has access to real estate transaction data from thousands of home sales each year.
Here is an illustration showing how the Realtor® fee typically gets divided:
Sale price: $357,300
Realtor® fee: 6%
Seller pays: $21,438
Listing agent receives: $5,359.50
Listing broker receives: $5,359.50
Buyer’s broker receives: $5,359.50
Buyer’s agent receives: $5,359.50
The selling agent in this example takes home 1.5% of the home’s sale price, or 25% of the Realtor® fee. Using the national median sale price, a listing agent makes $5,359.50 on the average home sale.
According to the most recent real estate statistics from the NAR, here is a breakdown of what agents make annually:
- Overall median gross income: $43,300
- Realtors® with 16 years or more experience: $75,000
- Realtors® with two years or less experience: $8,500
That’s not much in Realtor® fees, after all.
What do Realtor® fees cover?
An experienced agent brings a lot to the table. Top agents will provide:
- Guidance on pre-sale improvements
- Pricing strategy
- Marketing services
- Offer management and negotiations
- Market knowledge and neighborhood expertise
The Realtor® fee makes your money work hard for you so that you potentially sell your home for your asking price or more. In 2021, Realtors® helped people sell their homes for a median sales price that was 99% percent of the final asking price.
Where does a Realtor’s® commission go?
A significant portion of the Realtor’s® fee goes to selling your home. As explained by top real estate agent Elizabeth Weintraub of Sacramento, California, some of the money agents earn from commissions go into marketing. Weintraub estimates that she dedicates about 30% of her fee share to marketing.
Marketing includes professional photographs, full-color online and newspaper ads, and an active online presence. You might think of the real estate fee as an investment that enables your agent to make your home more attractive and sell it for more money.
Why should you care?
Discount brokers may not be able to devote ample time or resources to the marketing or sales efforts your home deserves.
You may save money on the broker fees, but you might lose money when a low-commission agent uploads shoddy photos that look like fuzzy mess shots from a shaky iPhone. Doesn’t your home deserve to let its beauty shine?
Or you may get a discount agent who only works in real estate part time and does not have sufficient experience in negotiations, credits, concessions, contingencies, inspections, or know how to market your home to the right buyers.
What could be at risk?
Money is at risk. When sellers use an agent to sell a home, they typically make $58,000 more on the deal than someone who sells a For Sale By Owner (FBSO) home.
Can I get good service from a low-cost brokerage company?
There are a number of low-cost brokerage companies that offer discounted real estate commissions or fees. Depending on your market, type and condition of your home, and your selling objectives, a discount brokerage may be able to get you satisfactory results. However, top-performing agents take pride in delivering not only a higher sales price for your home than average agents, but also a higher level of service.
Weintraub shared an anecdote about the time a client chose a low-cost brokerage company over her to save money on Realtor® fees.
“He wanted me to discount my Realtor® fee to what this other company was going to charge him. And he said… they’re going to do everything that you’re going to do. And I said, ‘No they’re not…but I’ll tell you what. When you get into escrow, and you get to the home inspection part, and you’ve got an old home — it was built in the 1920s — you’re not going to get out of it. And when you don’t get out of it, you can give me a call, and I’ll come back and list the property.’”
“He hired that company, and sure enough, they got into escrow, and the home inspection came around, and the whole thing blew up…and he came back to me and said, I want you to list this and put this into escrow!”
The client’s house did not sell with the discount brokerage. In the end, it cost the seller time and money that could have been avoided had he used an experienced, full service agent or real estate team from the start.
You can certainly ‘save money’ by hiring a lower commission real estate agent. But if you look beneath the hood and do the research, you will see that those agents commanding that full six percent commission are categorically more valuable.
Do discount or low-commission agents really save you money?
You may appear to save money on the commission, but appearances can be deceiving. Szakaly explains, “You can certainly ‘save money’ by hiring a lower commission real estate agent. But if you look beneath the hood and do the research, you will see that those agents commanding that full six percent commission are categorically more valuable.”
Namely, that a top real estate agent typically sells homes for more money than a bargain agent does. Without a top agent working for you, you may sell your home for less than its worth, struggle through an agonizing transaction, or be stuck without selling your home.
It’s only fair to note that not all discount agents lack experience, and some may have a better track record than others. However, there are enough uncertainties in the complex world of real estate sales; taking a gamble on having the right agent might not be something you feel comfortable doing — especially with what is likely one of the largest financial transactions of your life.
If I sell without an agent (FSBO), will I see a bigger profit?
You will most likely lose money without an agent guiding you during the transaction.
“There is a guarantee that you will see a lower profit,” Szakaly said. “And the reason I say that is because right now, the real estate market is dictated by a shortage of inventory, and when you go For Sale By Owner, it reduces the number of eyeballs that find your home, it reduces the amount of showing and has a detrimental impact on the price you ultimately receive.”
According to recent data compiled by the NAR, the typical FSBO home sold for $260,000 compared to $318,000 for agent-assisted home sales.
Historically, only 7%-8% of homes sold each year are listed as FSBO, and about a quarter of those were houses sold to family members or friends.
What about selling to an iBuyer or accepting some other cash offer?
iBuyers are financial technology companies that buy properties online, usually without a physical inspection. The iBuyers buy decently taken care of homes, do light repairs, then sell the house. It’s a volume business that often operates on razor-thin margins.
iBuyers do not make up a majority of cash buyers, but they do exist for a reason. That reason is convenience. If you need cash quickly or are desperate to sell your home because of a life event, an iBuyer might be right for you.
Keep in mind, with an iBuyer, you will likely get less than what you could have received if you sold your home on the open market with an experienced real estate agent. This means you could potentially leave tens of thousands of dollars on the table. However, for some sellers, the convenience of an all-cash offer and fast closing can be the solution they need.
HomeLight’s Simple Sale platform could be another option to consider. Simple Sale provides cash offers for homes in almost any condition nationwide. Just answer a short questionnaire with some basic questions about your home’s condition, how much work it needs, and your selling timeline. You will generally get results within 48 hours, and there is no obligation to accept any offer.
Are Realtor® fees negotiable?
Realtor fees are negotiable, but think about how much money your agent is receiving when negotiating. When you bargain away your agent’s commission, you may impede your agent’s ability to do the great work necessary to sell your home.
“If you are hiring a professional qualified real estate agent, it should not cost you one penny to have them represent you,” Szakaly said. “They should be able to bring more to you and the home’s value through their marketing expertise and negotiation skills than you’d ever pay them in real estate fees.”
Realtor® fees translate to more money for your home and better service
Sellers pay real estate fees to their listing agent. It’s an exchange of the payment for the listing agent’s expertise, local knowledge, and negotiation skills. The cost of the commission may seem off-putting, but – on balance – the agent’s skill and expertise can far outstrip the price of a fee.
The most important aspect is to find a solid agent who provides you with the most value. Our transaction data reveals the top 5% of agents in the U.S. sell homes for as much as 10% more than the average agent.
If you’d like to take a confident next step, try HomeLight’s agent matching service that matches you with top agents who have experience and knowledge specific to your needs and your market. HomeLight’s network agents will happily and openly answer your questions about Realtor® fees and ease your real estate journey.
Header Image Source: (Ján Jakub Naništa / Unsplash)