Real estate agent commissions are the most problematic aspect of selling your home. These commissions account for the largest share of fees you have to cover if you decide to sell your property.
Real estate agent commissions range between 4% and 6% in California. Some experienced listing agents may attract a commission of 7% or higher, although this is rare.
What is a real estate agent commission?
A real estate agent commission is a fee paid to the seller’s agent and the buyer’s agent. Typically, a real estate agent’s commission is about 4% to 6% of the property’s sale price.
For example, if a house sells for $300000, and the agreed-upon commission is 5%, the real estate agent commission amounts to $15,000.
The buyer’s agent and the listing agent will each receive their own commission. Typically, the listing agent and the seller will set both agent commissions before taking the property live. For example, the listing or seller agent might agree to a 2% commission while offering a 3% commission to the buyer’s agent to incentivize agents to show the home. Additionally, the listing agent might ask or require the seller to offer the buyer’s agent a minimum commission to get the best exposure to their home. Once the sale goes through, the buyer’s agent will receive $9000 and the seller’s agent $6000.
Why do you need to pay the listing agent commission?
The listing agent helped you list your home on the MLS, advised on staging and photography, and took care of all the legal issues. Often, a listing agent will pay some of these initial fees out of their pocket, understanding that if that can increase the home’s value, they will be compensated more in the end. How the real estate industry is currently set up, you have to pay them a certain percentage of your home’s sale value in exchange. The 6% realtor commission is not always fair or reasonable, but fortunately, you do have some alternatives we’ll discuss below.
What about the buyer’s agent commission?
In most traditional industries, buyers would pay their agent to help them find a house and negotiate through the selling process. But, in the Real Estate industry, most sellers pay the buyer’s commission. Often it is believed that the buyers are getting a “free” service, but this is debatable. In a sense, both buyers and sellers are losing because the seller will inflate the price of their home to cover commissions, which drives up the market and can result in fewer offers. The seller will pay both the listing and buyer agent commissions in most cases.
Who pays a real estate agent commission?
As mentioned before, the seller typically pays both agent commission in a transaction. The commission comes out of the house sale proceeds. For example, the buyer or buyer’s lender will send the funds into an escrow company that will pay each agent and sends the remaining balance to the seller. While the seller does not pay out of their pocket, sellers are often confused and frustrated after realizing that a large percentage of the home’s value was paid to the agents. However, as you’ll see below, agents do not take their entire commission portion home. Agents have to split the commission further with their respective brokers.
How do real estate commissions work for the agents?
Here is a breakdown of how real estate agent commissions work.
Home sells for $500,000, and the seller’s and buyer’s agent commission amounts to 6%. In this case, the total real estate agent’s commission amounts to $30,000. Then, the listing agent and buyer’s agent split the commission, meaning each agent would receive $15,000.
Afterward, each agent will have to split their half with their respective broker. The split, in this case, depends on the agent’s experience and their agreement with the broker. Newer, less experienced agents may split 50/50.
As agents gain experience, the split may be set at 60/40 in favor of the agent. As the agent grows and closes more sales, the split may happen at 70/30 or 80/20 in favor of the agent. If we’re working with a 60/40 split, the agent gets $9000, and the broker $6000.
What is the typical real estate agent commission in California?
The average real estate agent commission in California is 2.7% for each agent. This amounts to a total commission average of 5.4%.
If the listing agent finds a direct buyer, you pay the agreed buyer and listing agent commission to the listing agent. Although this could become a conflict of interest, it is currently legal in real estate. However, if the seller finds their buyer, they can negotiate directly with the buyers to eliminate the commission. Another option if a seller finds a buyer is to hire a real estate attorney or work with a buyer contract specialist like Everhomes flat $3950 buyer representation.
Do you have to pay a commission?
If you plan to sell via a real estate agent or realtor, you need to pay the real estate agent commission. In addition, even if you plan to sell through For Sale By Owner(FSBO), you might still have to pay the buyer’s agent commission. However, the commission will only be for one agent (the buyer’s agent) instead of two unless you find your buyer.
Selling by FSBO might look like you’re saving cash, but peering underneath all the work reveals FSBO is not as money-saving as most people think. Instead of going through the challenging and frustrating process of listing the house yourself, you can try to negotiate the listing and buyer agent commission with your agent. This way, you save money, but you also receive professional help. Most importantly, you close the sale of your home faster.
Negotiating for a lower commission is challenging, but you have the bargaining chip when:
- You’re selling in a seller’s market. Listing agents can lower the commission since they will expend less effort when home offers are desirable and many.
- You’re selling a high-value home. A high-value home translates to a reasonable sum in commission, even if the rate is not the typical 6%.
- You can offer the listing agent repeat business. This might not be practical if you’re only selling a beloved family home and planning to move. Nonetheless, you can try to make it work by referring more clients to the listing agent.
What happens if you offer a commission below 2%
Offering a commission lower than 2% can sabotage your home selling efforts. In other words, you severely limit your chances of selling a house fast and for top dollar by offering a low realtor commission.
The unfortunate truth is that Buyer’s agents will avoid showing your home listing to their clients if they see low buyer agent commissions. After all, the buyer’s agent may only get a few listings per year, and they may view the low commission as working for too little and not worth the effort. Less buyer agent exposure could translate to your home staying longer in the market. Eventually, you might have to lower the asking price to get buyers more interested.
Are there other options to avoid the hefty realtor commission?
You can sell the home yourself through FSBO. Unfortunately, this method is not a great move. FSBO homes sell for a lower value than agent-assisted home sales. In addition, the effort, time, and resources you use in an FSBO sale are not worth anything.
What’s the cheaper alternative to hefty realtor commissions?
Your best option is to work with a flat-fee, full-service agency like Everhome. With a flat fee real estate brokerage, you get an entire team of experts to help sell your home faster and make more profit. The best part? You won’t have to part with 6% of your home sale proceeds. Instead, you pay a flat fee of less than $5000 for most single-family homes. You don’t have to worry about professional photography, marketing, staging, or attorney-related issues in exchange. The full-service agent takes care of it all, saving you time and, most importantly, money.