If you’re hoping to buy or sell a house, you’ll probably call in a real-estate agent. In fact, nearly nine in 10 home buyers use get professional help to buy their properties—and for good reason.
A real-estate agent can help you zero in on potential properties or buyers, schedule tours and negotiate on your behalf. Many times, they will even stage your house or attend inspections, closings and other appointments with you.
But what do their services cost? And are they negotiable? Here’s what you need to know.
How much are real-estate commissions?
Real-estate agents are typically paid on commission—meaning their payment is based on the total transaction amount. Commission percentages can vary quite a bit, though. Nationally, the average is 5.45%, according to research by real-estate brokerage Clever, but at the state level, total commissions range from 4.90% in Washington, D.C. to 6.07% in Missouri.
Here’s a look at average real estate commission by state:
Average real estate commission, by state
| STATE | AVERAGE COMMISSION* |
|---|---|
| Alabama | 5.65% |
| Alaska | 5.11% |
| Arizona | 5.55% |
| California | 5.02% |
| Colorado | 5.46% |
| Connecticut | 5.26% |
| Delaware | 5.55% |
| Washington, D.C. | 4.90% |
| Florida | 5.50% |
| Georgia | 5.75% |
| Hawaii | 5.11% |
| Idaho | 5.36% |
| Idaho | 5.36% |
| Illinois | 5.35% |
| Indiana | 5.74% |
| Iowa | 5.66% |
| Kansas | 5.66% |
| Kentucky | 5.55% |
| Louisiana | 5.55% |
| Maine | 5.26% |
| Maryland | 5.28% |
| Massachusetts | 5.26% |
| Michigan | 5.44% |
| Minnesota | 5.77% |
| Mississippi | 5.55% |
| Missouri | 6.07% |
| Montana | 5.36% |
| Nebraska | 5.66% |
| Nevada | 5.36% |
| New Hampshire | 5.26% |
| New Jersey | 5.17% |
| New Mexico | 5.59% |
| New York | 5.29% |
| North Carolina | 5.78% |
| North Dakota | 5.66% |
| Ohio | 5.82% |
| Oklahoma | 5.59% |
| Oregon | 5.15% |
| Pennsylvania | 5.26% |
| Rhode Island | 5.26% |
| South Carolina | 5.79% |
| South Dakota | 5.66% |
| Tennessee | 5.57% |
| Texas | 5.56% |
| Utah | 5.36% |
| Vermont | 5.26% |
| Virginia | 5.30% |
| Washington | 5.45% |
| West Virginia | 5.55% |
| Wisconsin | 5.81% |
| Wyoming | 5.36% |
*Includes payment to listing agent and the buyer's agent
Clever Real Estate
“Commissions can and do vary widely,” says Adie Kriegstein, an agent with Compass Real Estate in New York. “Location is a huge factor, as markets often vary city to city and state to state. On top of location are just the market conditions: Is it a buyer’s market, seller’s market or simply one that is transitional? The type of property also changes commission rates.”
In the luxury market, for example, commissions can often be lower. This is because higher-end properties come with higher price tags, leaving agents more room to negotiate and still get a decent payday.
The exact commission percentage on is typically negotiated upfront and will be detailed in their initial contract with a seller. So, for example, if the agreed-upon commission was 5% and they sold a home for $500,000, the agent’s real-estate brokerage would get a $25,000 commission check once the transaction was complete.
It sounds like a lot of money, but that check is rarely a single agent’s to keep. They often have to split that payment with one, two or even three other parties(more on this later).
Who pays?
Here’s the tricky part: While both buyers and sellers typically use real-estate agents, generally only the seller pays the commission, which is then split between their agent and the agent representing the buyer.
Despite this arrangement, it doesn’t mean the buyer is getting a free ride. While they won’t hand over a physical check, the commission is largely considered a baked-in part of a home’s price.
“Where agents get in trouble is when they advertise their services as ‘free’ to buyers, because that is not true,” says Joe Rath, head of industry relations for real-estate brokerage Redfin. “The money comes from somewhere.”
If you think this commission model is confusing, you’re not alone. The Justice Department even filed an antitrust lawsuit against the National Association of Realtors, or NAR, in 2020 alleging that the system lacks transparency and reduces price competition.
The suit remains in legal limbo after the Justice Department withdrew from an earlier settlement, but it has so far led to NAR rules barring buyer’s agents from describing their services as “free” and allowing listing sites to start publishing buyer’s agent commissions. Previously, that information was only available through Multiple Listing Services, or MLS, local listing databases that only NAR-member agents have access to.
How is the commission divided between agents?
Making things even more complex, commissions rarely go to only one agent. Unless the same agent is representing both the buyer and the seller, the selling agent gives a portion of the commission to the buyer’s agent—generally in a 50-50 split. With a $25,000 commission, that would mean the listing agent would get $12,500 and the buyer’s agent $12,500.
Beyond that, there are further splits. Often, the agents will also have to share their commission with their broker—the leader of the brokerage firm they work for. These splits vary based on the company, but it often starts at 60-40 (with 60% for the agent and 40% for the broker) and goes up to 80-20 for more experienced agents.
If the agents in that same $25,000 commission scenario had 60-40 splits with their brokers, that’d mean the listing agent and selling agent would take home just $7,500 each.
“Buyers and sellers can be wary of the 5% commission rate, but their individual agent typically ends up only seeing 1.5% on each deal,” says Christa Kenin, an agent and attorney with real-estate firm Douglas Elliman in Connecticut.
To be clear: Not all real-estate brokerages operate this way (just most). National discount brokerage Redfin, for example, pays its agents a salary. Realty ONE Group, which has over 400 franchise offices, lets its agents keep their full commissions, though agents do pay fees to the company.
Can sellers negotiate real estate commissions?
With inflation and mortgage rates high, a 4% to 6% commission might seem pretty pricey—regardless of whose pocket it goes into. Fortunately, Rath says, “all commissions are negotiable.”
If you’re a seller looking to negotiate a lower commission with an agent you’re considering, it is important to do so up front. Ask your agent to detail what their proposed commission entails—what services and value they’ll provide in exchange for their fee. You can then agree to remove or reduce certain services in exchange for a lower cut.
“Commissions can vary depending upon the level of service that an agent provides, such as marketing, social media, etc.,” says Bryson Taggart, an agent with Opendoor in Arizona. “If a client wants drone photography, videos and a 3-D printing of their home, that commission may come at a higher price than if they simply want it listed on the MLS.”
You may be able to ask for a lower commission depending on market conditions, too. If it’s a seller’s market and homes are selling at inflated prices and record speeds, you may have more room to negotiate than when buyers are harder to come by and selling a home takes more work.
“Consider the conditions of your current market,” Kriegstein says. “If it’s a hot market with little supply and a lot of demand, you can likely leverage your commission. However, if the market is a buyer’s market you may not want to do that, as other properties could be offering more enticing commissions.”
Can buyers negotiate?
Buyers may be able to negotiate fees with their agents, too, though opportunities for this are rare since sellers typically pay the full commission. You might be more able to if your agent is also the listing agent on the home you’re buying or if you’re buying a For Sale By Owner, or FSBO, property. Some brokerages offer buyer’s commission rebates, typically in the form of closing credits, though the practice is banned in eight states.
Other options
Negotiating isn’t your only option. You can also look to alternative agents and brokerages for reduced fees, too. Discount brokerages such as Redfin and Clever charge just a 1.5% listing fee (versus the usual 2% to 3%), plus the buyer’s agent fee. Other brokerages, such as Homie and ListingSpark, operate on a flat-fee basis.
You also have the option to go agent-free altogether. According to the National Association of Realtors, about 10% of all home sales are FSBOs.
Just keep in mind: If you go this route, you’ll need to handle all aspects of the sale yourself. As Kuba Jewgieniew, CEO of Realty ONE Group, explains, “Realtors work incredibly hard, with the bulk of that work done behind the scenes—negotiating, researching, marketing, writing up contracts and more.”
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FAQs
How Do Real Estate Agents Get Paid? What Buyers and Sellers Need to Know About Real Estate Commissions? ›
Buyer agency compensation is the total commission to be paid for this sale, expressed as either a percentage or a constant currency amount. The available compensation types are: RESIDENTIAL SALE: %, Dollar Amount, or Combination of Gross Sale. %, Dollar Amount, or Combination of Base for a New Construction sale. (
What is buyer agency compensation? ›Buyer agency compensation is the total commission to be paid for this sale, expressed as either a percentage or a constant currency amount. The available compensation types are: RESIDENTIAL SALE: %, Dollar Amount, or Combination of Gross Sale. %, Dollar Amount, or Combination of Base for a New Construction sale. (
How is a buyer's agent usually compensated quizlet? ›14. B A buyer's agent is typically compensated through a commission split, receiving half of the brokerage commission paid by the seller.
What state has the highest real estate commission? ›The average real estate commission rate for agents in Missouri is 6.07%, and the state has the highest average realtor fees in the country.
How much is a real estate commission quizlet? ›The overall commission for a transaction is 6%.
What percentage do most realtors charge? ›The traditional standard commission is 6 percent of a home's purchase price, which is split evenly (3 percent each) between the buyer's agent and the seller's agent. However, the typical percentage has been lowering over the years, and the average Realtor commission is 5.37 percent according to Clever.
How is an agent compensated? ›Typically, half of the commission is paid to the agent that represents the Buyer and half of the commission is paid to the agent that represents the Seller. In the event that the listing agent represents both the Buyer and the Seller, then the listing agent is compensated with the entire 5% to 6% commission.
What's the most widely accepted way to compensate the buyer's agent? ›A buyers agent is most commonly compensated by the: Seller, through a commission split.
How is amount of commission to be paid to the broker by the client determined? ›The contracts that buyers and sellers have with their agents determine the agents' commissions. The real estate fee is often split evenly between the buyer and seller agents, although a contract could stipulate that one agent receives more of the commission than the other.
Who may directly compensate a salesperson? ›A salesperson can only accept compensation for licensed activity through the broker under whom their license is registered.
Where do realtors make the most money? ›
Real estate agents in high cost of living cities such as New York and San Francisco tend to be the highest earners.
What type of realtors make the most money? ›Real Estate Broker
A real estate broker is permitted under law to negotiate and organize real estate dealings. A career as a real estate broker is one of the highest paying and lucrative professions in the real estate industry. On average, experienced brokers take home a six-figure pay.
Hardest States to get a Real Estate License
Of all states, Colorado and Texas come on top as the hardest in terms of granting a real estate license. Each of the states requires some education and a test, which you must pass before being issued with a real estate license.
However, many agree that 20%-30% is a typical range for sales representatives. Most companies pay a base rate (either by the hour or as an annual salary) in addition to the salesperson's earned commission. Commission rates go as low as 5%, though these companies typically offer significant base rates.
Why is a good Realtor worth the money you pay in commission? ›A real estate commission covers all the work that goes into buying and selling property. Trust us, a great agent does a lot to help you buy or sell a house. A seller's agent shows you how to stage your home for buyers and—since they know what similar homes in your area are selling for—they help you price it right.
Who sets the rate of commission? ›Commission rates are set by the market.
National Association of REALTORS'® guidelines ensure that the listing broker advise all other participants in their local broker marketplace what the amount of compensation to the buyer's broker will be for closing the sale.
Each real estate office sets its own standards for top producers, but it's safe to say that a top producer would have to sell at least one home per month to qualify. Top producers earn around $112,610 a year to start, according to the BLS. 1 Mega-stars could earn $500,000 per year and up.
What is a good profit margin for realtors? ›Since these situations describe most solo real estate agents, the target allocation percentages should be as follows: 5 percent for profit, 50 percent for compensation, 15 percent for taxes, and 30 percent for your expenses.
What is Keller Williams commission split? ›What is the Keller Williams Commission Split? Every agent is on a 70/30 commission split with Keller Williams Realty. That's 70% to the agent and 30% to the local office/brokerage. KW is a franchise, and a franchise fee (6% on each transaction up to $3,000) is included in this calculation.
What does CSO mean in real estate? ›NAHRO's Certified Specialist of Occupancy-Public Housing (CSO-PH) designation demonstrates that an individual has the knowledge, skills and ability necessary for: Understanding the tasks and processes associated with the public housing occupancy cycle.
What is the most common broker agent split? ›
The traditional mode, or 50/50 split, is when the real estate agent and the broker split the original commission evenly. 50/50 splits typically occur when brokers provide office spaces, client leads, marketing resources and other materials that help agents find work opportunities.
Can you negotiate with an agent? ›Is your agent's commission negotiable? Often, yes, there is a bit of room for negotiation. As you prepare to list your home for sale, you may be meeting with a few listing agents to find the right one for the job. Ask each agent about their commission rate and what exactly you'll be getting for that price.
How do you negotiate the best real estate deal? ›- Show Your Cards Second. ...
- Use Inclusions. ...
- Connect Personally Through Letter Writing. ...
- Use Affirming Language. ...
- Facial Expressions and Body Language Will Set the Tone. ...
- Start Close to the Market Value. ...
- Research Everything. ...
- Control Emotions and Stay Positive.
An exclusive right-to-sell listing is the most commonly used contract. With this type of listing agreement, one broker is appointed the sole seller's agent and has exclusive authorization to represent the property.
How do you manage buyers expectations of realtors? ›- Listen to Your Clients. ...
- Explain the Basics of Home Buying. ...
- Help Them Understand the Psychology of Selling. ...
- Be Patient. ...
- Be Realistic About Their Budget. ...
- Focus on the Possibilities. ...
- Be Honest. ...
- Keep an Open Line of Communication.
Typically, companies pay out a percentage based on total sales revenue. Commission can be calculated with this formula: commission = total sales revenue * commission rate. Base pay can also be incorporated into this equation by simply adding it to the commission earned.
What is the difference between a brokerage fee and a commission? ›A brokerage fee is a charge that a broker takes to execute any financial transaction on behalf of their clients whereas a commission is a type of brokerage that they charge for stock trading.
How is a commission typically calculated? ›This is a very basic calculation revolving around percentages. Just take the sale price, multiply it by the commission percentage, and divide it by 100. An example calculation: a blue widget is sold for $70 . The salesperson works on a commission - he/she gets 14% out of every transaction, which amounts to $9.80 .
What is the golden rule salesperson? ›Brian Tracy: “Sell unto others as you would have them sell unto you. The successful sales professional uses the golden rule to sell with the same honesty, integrity, understanding, empathy, and thoughtfulness that they would like someone to use in selling to them. “
Which is the most common compensation method for salespeople? ›A salary plus commission pay structure is the most common type of plan. It gives sales reps a fixed annual base salary plus commissions.
What are the three primary methods of compensating salespeople? ›
- Performance-based pay. The salesperson is compensated based on the actual results they achieve. ...
- Salary plus commission. This method combines two elements of compensation: a base salary and a commission on sales. ...
- Hybrid incentive plans.
Currently, the average real estate commission rate nationwide is 5.37% of the home's final sale price. This fee is typically split equally between the listing and buyer's agents who handle the transaction, and comes out of the seller's proceeds.
Why do realtors do highest and best? ›As the seller, you usually ask for the highest and best offer to eliminate negotiations and expedite the deal. It lets buyers know you're looking for only the most serious offers. Conversely, with a best and final offer, you're asking buyers to go above and beyond the competition to convince you to sell to them.
Where do real estate agents make the least money? ›| Rank | State | 2017 Mean Annual Wage |
|---|---|---|
| 1 | Ohio | $41,650 |
| 2 | Arkansas | $41,660 |
| 3 | Montana | $42,010 |
| 4 | Indiana | $43,230 |
| Annual Salary | Monthly Pay | |
|---|---|---|
| Top Earners | $135,623 | $11,301 |
| 75th Percentile | $111,632 | $9,302 |
| Average | $87,243 | $7,270 |
| 25th Percentile | $58,753 | $4,896 |
- Get Your Mind Right. ...
- Choose Your Broker and Your Mentors Carefully. ...
- Create a First-Year Budget. ...
- Learn Everything You Can About Your Market. ...
- Find Your Niche. ...
- Set S.M.A.R.T. ...
- Create an Effective Routine. ...
- Prospect.
- Become A Buyer's Agent. ...
- List Homes For Sellers. ...
- Make Money By Selling Short Sales. ...
- Completing Broker Price Opinions. ...
- Become A Property Manager. ...
- Become A Commercial Real Estate Agent. ...
- Work As A Broker.
The difficulty of the real estate exam varies by state, but the California real estate exam is known to be one of the most difficult. In fact, the pass rate for the California real estate exam in the last two years was under 50%, which means it's incredibly competitive and difficult to pass.
What is the easiest state to get a real estate license in? ›According to our analysis, Massachusetts is the best state for Real Estate examinations in the US. There, most candidates have it relatively simple. This is true since the state only needs 40 hours of pre-licensing training. Before sitting for the test, you must first complete a state-approved real estate school.
Is 40% commission a lot? ›
The average in sales, though, is usually between 20-30%. What is a good commission rate for sales? Some companies offer as much as 40-50% commission. However, these are typically sales reps that require more technical skills and knowledge, plus have a compensation structure that relies more heavily on commission.
What are the 3 types of commission? ›- COMMISSIONS. Straight | Graduated | Piecework | End of Page.
- Straight Commission. Straight Commission is calculated to be the person's wage based solely on sales. ...
- Graduated Commission. Graduated Commission is calculated into a person's pay in addition to his/her regular salary or wage. ...
- Piecework Commission.
What is the lowest commission a real estate agent will take? You can find low commission realtors who charge as little as 1.5%. Typically, real estate agents charge a 3% commission, which adds up to 6% total commission for the buyer's agent and seller's agent.
What percentage do most realtors take? ›The traditional standard commission is 6 percent of a home's purchase price, which is split evenly (3 percent each) between the buyer's agent and the seller's agent. However, the typical percentage has been lowering over the years, and the average Realtor commission is 5.37 percent according to Clever.
Is 6% a lot for a real estate agent? ›A 6% real estate commission has long been considered the industry standard. Listing agents earn their 3% for helping the seller price their home accurately, prep it and market it to potential buyers, negotiate favorable contract terms, and navigate the closing process.
What is a good commission structure? ›We recommend a 50/50 split, where 50% of a rep's payout comes from their base salary while the other half comes from sales earnings. We've also seen organizations adopt a 60/40 ratio. In this ratio, the base salary makes up 60% of the rep's OTE, and the remaining 40% consists of variable pay.
When should commissions be paid? ›If sales commissions were earned between the 1st and 15th days of the month, then payment must be made to the sales employee between the 16th and 26th day of the same month. For sales made from the 16th through the last day of the month, payment must be made between the 1st and 10th day of the following month.
Who determines the amount of commission due on sale? ›The contracts that buyers and sellers have with their agents determine the agents' commissions. The real estate fee is often split evenly between the buyer and seller agents, although a contract could stipulate that one agent receives more of the commission than the other.
Which of the following are buyer paid compensation? ›Which of the following are buyer-paid compensation? The answer is all of these. Buyer-paid compensation can take several forms, such as an hourly rate, a percentage fee, or a flat fee. The answer is provide data relating to market values for properties that the buyer may be interested in purchasing.
What are the three most common forms of buyer agency agreements? ›The three types of Buyer's Agreements are the following: Exclusive purchase, exclusive seller, and closed buyer agency.
Who pays the buyer's agent in a buyer agency contract quizlet? ›
buyer is obligated to compensate the agent whenever the buyer purchases a property of the type agreed upon in the contract. broker is entitled to payment only if he or she locates the property the buyer ultimately purchases.
What is 3 percent commission? ›A commission, in its simplest form, is some percentage of revenue. For example, a salesperson may earn 3% of whatever they sell. If a product is sold for $100, the salesperson would earn $3 from that sale. This is not the only model however.
Which of the following is the most common method of compensating a buyer's agent? ›A buyers agent is most commonly compensated by the: Seller, through a commission split.
Which of the following is normally paid by the seller? ›Sellers often pay real estate agent commissions, title transfer fees, transfer taxes and property taxes.
Which of the following must be included in a buyer agency agreement? ›There are three different types of buying agency agreements. These agreements must include an expiration date, a fair housing statement, a blockbusting statement, and a signature line for both the broker and the seller.
What is the most widely used real estate agreement? ›A purchase agreement is the most common type of real estate agreement. This contract specifies the details regarding the sale of property.
Are there three basic types of listing contracts? ›The three types of real estate listing agreements are open listing, exclusive agency listing, and exclusive right-to-sell listing. The listing agreement is an employment contract rather than a real estate contract: The broker is hired to represent the seller, but no property is transferred between the two.
What is a three way agreement called? ›What Is a Tri-Party Agreement? A tri-party agreement is a business deal between three separate parties. In the mortgage industry, a tri-party or tripartite agreement often takes place during the construction phase of a new home or condominium complex, to secure so-called bridge loans for the construction itself.
Who prepares the contract the buyer or the seller? ›Most often, the buyer's real estate agent will write up and prepare the purchase agreement for a house. Note that agents (not being practicing attorneys themselves) can't create their own contracts.
Who pays for the contract the buyer or seller? ›In short, buyer and seller closing costs are paid based on the terms of the home purchase contract, which both mortgage parties agree on. As a rule, the buyer's closing costs are substantial, but the seller is often responsible for some closing fees as well. Much depends on the purchase agreement.
Who directly pays the real estate salesperson his her commission in a typical transaction? ›
Standard practice is that the seller pays the fee. However, the seller usually wraps the fee into the price of the home. So, the buyer ultimately ends up paying the fee, albeit indirectly. Let's say, for example, that a buyer and seller (each with a real estate agent) agree to a deal on a home for $200,000.
How does 40% commission work? ›The standard salary to commission ratio is 60:40 with 60% being the base rate and 40% being commission-driven. The plan best serves as an incentive or motivation for increased sales performance. Example: A salesperson earns $500 a month in salary with 10% commission, or $500, for $5,000 worth in sales.
Is 20% commission a lot? ›Because there are so many variables, there's no true average sales commission rate. However, many agree that 20%-30% is a typical range for sales representatives. Most companies pay a base rate (either by the hour or as an annual salary) in addition to the salesperson's earned commission.