Real Estate Commission For Buyers And Sellers: Who Pays Agent Fees?
Molly Grace6-minute read
October 19, 2021
If you’re buying or selling a house, you might be wondering: who pays my agent?
Real estate agents do a lot of work to help facilitate a successful sale or purchase for their clients. This includes pricing homes, marketing listings, preparing paperwork, negotiating and just generally shepherding their clients through the often confusing processes of buying or selling a home.
So, what price do you pay for all these services? And do you even pay them at all, or does someone else? Let’s take a look at how real estate commission typically works.
What Is Real Estate Commission?
When you enlist the help of a real estate agent or REALTOR® (a member of the National Association of REALTORS®, the main trade organization for real estate professionals) to buy or sell a home, they get paid a commission based on the price of the home.
Real estate commission can vary by location and brokerage. In most cases, the total agent commission is about 5% – 6% of the home’s sale price, split between the buyer’s agent and the listing agent.
Commission For Buyer’s And Seller’s Agents
Buyer’s agents represent the buyer, helping them find a home that suits their needs and budget, negotiating on their behalf and guiding them through the closing process.
Seller’s agents, more commonly referred to as listing agents, represent the seller, helping them price and market their home to attract buyers.
In a typical real estate transaction, the buyer’s agent and the listing agent split the total commission evenly. This means that both agents will usually earn between 2.5% – 3% when they help a client successfully sell or buy a home.
However, that doesn’t always mean that full amount goes directly into the agent’s pocket.
Unless they have their own broker’s license, real estate agents have to work under a licensed real estate broker. Real estate agents also have to be licensed, but have to get additional training to become a broker and have the ability to work independently.
Commission is actually paid to the agents’ brokers. So, in a transaction with a commission of 6%, 3% goes to the listing agent’s broker, and the other 3% goes to the buyer’s agent’s broker.
Then, each broker will split the commission with their agent. A 50-50 split is common, but it varies – the agent may get more or less. Continuing with our 6% example, this means that, out of a commission of 3%, the broker would get 1.5% and the agent would get the remaining 1.5%.
Commission Split Example
Jenny is the listing agent on a home that George is helping his client purchase. The home is listed for $300,000, and Jenny is offering a 6% commission to be split evenly between her and the buyer’s agent.
Once the sale goes through, the total commission amount will be $18,000. Of this commission, $9,000 goes to Jenny’s brokerage and $9,000 goes to George’s brokerage.
Jenny’s brokerage offers its agents a 60-40 split on commissions earned. This means that agents get 60% of the commissions they earn and the remaining 40% goes to the brokerage. So when all is said and done, Jenny will have earned $5,400.
George’s brokerage splits commission 50-50 with its agents: 50% to the agent, 50% to the broker. Once the transaction is complete, George will have earned $4,500 out of a total commission of $18,000.
Average Agent Commission
Though real estate agent or REALTOR® commissions are typically between 5% – 6% of the sale price, there are a few situations where this percentage might vary.
Can real estate agent commission vary by location? Real estate industry standards and customs do vary a bit depending on where you live, and that can include commission amounts.
However, a 2019 study from the Consumer Federation of America looked at commission levels in 20 different urban areas around the country and found that 70% of respondents reported asking for a commission of 6%, split between both agents. The next largest portion, 19%, reported asking for 5%.
This suggests that commission rates are fairly consistent, regardless of location.
You can try to negotiate with your agent to see if they’d be willing to lower their commission amount, but you might find this difficult.
The Consumer Federation of America study on real estate commissions found that only 27% of respondents were willing to negotiate their commission.
Consider the commission split example above. Though commission is a big expense, individual agents only get a small piece of that. When you factor in taxes and other expenses they have to pay, they just might not have much wiggle room left.
Sometimes, an agent will represent both the buyer and the seller in a single transaction. This is known as dual agency.
In these cases, an agent might be more willing to lower their commission amount, since they don’t have to split it with another agent.
Due to the conflict of interest dual agency presents, this practice is illegal in a few states.
Low Commission Brokerages
Low commission or discount brokerages might sound appealing if you’re looking to save money. These brokerages offer to sell your home for as little as 1% – 2% in commission. Or sometimes they’ll offer their services for a flat fee.
This can be beneficial, but do your due diligence and make sure you understand what services the brokerage will provide and what other costs you may have to pay. For example, even if a listing brokerage accepts a 1% commission, you may still be on the hook for the 3% buyer’s agent commission.
Who Pays Real Estate Agent Commission?
Is the commission included as part of the buyer’s closing costs? Does the seller pay the agents out of pocket? Do the buyer and seller split the cost?
REALTOR® Fees For Sellers
Agent commission is usually paid by the seller from the proceeds they earn on their home sale. They’ll pay this in addition to any other closing costs they may have.
Do Buyers Pay REALTOR® Fees?
Typically, buyers don’t have to worry about paying the agents involved in the transaction. They will, however, have other fees and closing costs that they’ll need to prepare for.
When A Deal Falls Through
In most cases, real estate agents don’t get paid unless the home is actually sold. But what happens if something goes wrong or someone gets cold feet at the last minute?
If you bail further along in the process, you might still owe commission. If you breach your contract with your agent or back out late in the game, they might still expect to be paid.
If The Seller Calls Off The Sale
Once your home is under contract and set to be sold, you don’t have a lot of leeway to call off the sale without consequences.
When you back out of a sale after signing the purchase agreement, your agent can sue you for the commission you owe them. Not only that, but the buyer can also sue you for damages or, in some cases, “specific performance,” which means that, if granted, a court will order you to complete the sale.
If The Buyer Calls Off The Sale
Buyers will often have contingencies included in the contract that allow them to back out of the sale under certain circumstances, such as a poor home inspection or being unable to secure financing.
Outside of these contingencies, however, buyers can’t back out of a home purchase once they’ve signed the purchase agreement. If they do, their agent may be able to sue them for commission.
When in doubt, check out your listing agreement or buyer’s agency agreement to see under what conditions you’d still owe commission even if the transaction isn’t completed.
Is Commission Worth It?
If you’re selling your home, you might be wondering if it’s worth it to enlist the help of a listing agent or if you’d save money going the for sale by owner (FSBO) route.
While selling without a real estate agent can increase your earnings, you won’t have the benefit of having a professional do the hard work of pricing, marketing and arranging the sale of your home.
In fact, FSBO sellers often end up selling their homes for less than those who worked with an agent – even after accounting for the money saved on commission.
And remember, even if you forgo a listing agent, you’ll still need to pay the buyer’s agent’s commission, which is typically equal to 3% of the sale price.
The Bottom Line: With Commission, You’re Paying For A Valuable Service
Most of us aren’t real estate experts. Since selling a home can be complex and time-consuming, it’s not a bad idea to have a professional on your side doing the heavy lifting for you.
Ready to start your home selling journey? See how Rocket Homes® can help you sell your home your way.
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