What is real estate commission?

If you are looking to sell your home on the market, a good real estate agent is an invaluable asset.

Agents help their clients navigate the market and find potential buyers, and in exchange for their time and expertise, they charge commissions. But what exactly is included in the agent’s commission? And what can homeowners expect to receive in return for these costs?

Read on for a complete understanding of what real estate commissions are, how much they cost, who pays them, and alternative avenues that sellers can take if they are looking to save money.

What is the average real estate commission?

How much does a real estate agent’s commission cost? According to a nationwide survey of agents conducted by Clever Real Estate, the national average is 5.45% of the final sale price of a home. However, the actual answer to this question really depends on which state you are in, since realtors’ rates are highly localized.

For example, in Florida, commissions average 6%, which are split between the buyer’s and seller’s agents. On the other hand, in Texas, the fees are only 5.65%. What’s more, rates in New York, California and the District of Columbia are lower than the national average at 5.29%, 5.02% and 4.90%, respectively. Note, however, that home sales prices in New York, California and the District of Columbia are also higher than the national average, potentially offsetting any cost savings that can be gained from lower commissions.

Prices vary because all agents charge different rates, and some agents will charge lower rates if you agree with them. Moreover, there are also discount brokers such as Clever Real Estate who negotiate lower rates with agents on behalf of their clients; but we’ll cover all of this later in this article.

Who pays real estate commissions?

Typically, the seller is responsible for paying property commissions. This means that sellers pay both their own agent to list the property and the buyer’s agent.

Agents usually distribute the commission among themselves, but this distribution can be different. Sometimes more experienced agents get a larger share than new agents. If the agent represents both the buyer and the seller, that is, the double agent, the agent will receive both commissions.

However, the commissions of both the seller and the buyer’s agent are determined in advance in their respective contracts with their clients.

What does the real estate commission cover?

Real estate agents charge a commission for their time, service and experience. A good real estate agent will make the home sale process much smoother and should have a wide network of potential buyers to showcase your property.

They know their location like the back of their hand and have the potential to make multiple offers, especially in the seller’s market. And multiple offers means you can even start a bidding war, which will give you more leverage during negotiations.

Your agent will also take care of the small details of the home sale, such as listing it on the MLS, promoting the property through various channels, negotiating with potential buyers, and completing the closing process.

Using a knowledgeable, well-connected agent is also more likely to result in a higher selling price. A recent study by the National Association of Realtors found that a typical FSBO (“For Sale by Owner”) home sells for $ 190,000, compared to $ 249,000 for an agent-assisted home. This huge difference in selling price and owner’s savings is why most people choose to use an agent.

Can I negotiate real estate commissions?

Yes, you can negotiate a commission and you should!

In the current market for sellers, agents know that customers can easily look elsewhere if they think their bids are too high. And if you’re in a hot market like Miami or San Francisco, or if you have a coveted home that’s going to sell quickly, you should definitely try negotiating a lower price.

While you can ask your agent for a lower rate, they are not required to comply with your request. According to a 2019 report by the Consumer Federation of America, 73% of agents said they would not lower the standard rate if a customer asked. However, if you’re a half-glass person, this study also shows that more than one in four agents will lower the standard rate if the customer asks. So it doesn’t hurt to try to negotiate a better deal.

Are there ways to pay commissions?

To avoid paying commission fees, homeowners can opt out of an agent altogether and use the local Multiple Listing Service (MLS), which typically charges a flat fee of $ 99 to $ 500.

However, the owner will be responsible for all of the responsibilities that an agent would normally perform, such as marketing their property, negotiating closing costs, inspecting the home, and more. Selling a home as an FSBO (sale by owner) is not an ordinary walk in the park, so in 2019 only 7% of sellers used this method.

Another option that owners can turn to if they want to lower commission costs is to work with a discount real estate broker like Clever Real Estate, who charges a flat fee for their services instead of a percentage commission. Clever negotiates better rates for its clients with the best local real estate agents, offering a full-service sales service for a flat fee of $ 3,000, or 1% if your home sells for over $ 350,000.

These brokers can charge such competitive rates because they provide agents with a steady stream of income, allowing them to compensate in volume for the commission they donate.

Which option is right for me?

When deciding whether to use an agent or what type of agent to use, you must consider how much time and effort you personally want to spend selling your home. If you are a seasoned real estate professional who understands the market, then placing with a local MLS service may be the best route for you. However, if you are like most home sellers and are not a real estate guru, then using an agent is probably the best option.

If you’re wondering how much it would cost to use a traditional agent versus a discount broker versus a fixed-fee MLS listing service, here’s an example demonstrating how much you’ll pay as a commission for every instance of a home that sells for $ 211,000. :

As you can see, using a discount broker significantly reduces costs compared to a traditional agent. This is why many people choose discount brokers like Clever Real Estate. Clever offers its clients a full range of sales services for a flat fee of just $ 3,000 or 1%, and all Clever agents are top rated in their field.

Visit listwithclever.com to connect with thousands of local agents and list your home today.

This article originally appeared on Your Money Geek and has been republished with permission.