How Much Are Realtor Fees? A Guide for Homebuyers

What’s included in the fees?

Both buyer’s agents and listing agents are local real estate experts, with knowledge of real estate law and contract negotiation. Though agents are not attorneys, these skills are critical for an agent to possess.

“It is imperative for a buyer to work with a real estate professional who has the experience, and the market knowledge to guide them through this process,” Navarro says. “The investment in their future home is one of the biggest investments they may be making.”

Buyer’s agents do a lot more than represent and negotiate. Other duties include:

• Searching the MLS
• Reporting property matches
• Scheduling showings
• Following up on offers
• Educating you on the homebuying process
• Showing you homes

Seller’s agents also have a number of duties, including:

• Preparing your home to sell
• Helping determine a price
• Staging the property
• Marketing the property
• Showing the property
• Hosting open houses
• Reviewing and negotiating offers

Standard vs. non-standard transactions

Now that we’ve looked at what’s included in real estate agent fees and how they’re determined, let’s dive into the differences between standard and non-standard transactions.

Standard transactions refer to real estate deals where the buyer’s agent and the listing agent split the commission 50/50, but there are certain situations that can affect the way Realtor fees are collected and/or distributed.

These non-standard transactions include dual agency, FSBO (for sale by owner), iBuyers, buyers representing themselves, and discount brokers. Rentals and situations where sellers refuse to pay can also affect the way a transaction is carried out.

Dual agency

Situations where real estate agents represent both the buyer and seller are called dual agency. In a dual agency transaction, the agent is required to be neutral.

While it’s common is some areas, dual agency is typically not recommended and is even illegal in eight states:

• Alaska
• Colorado
• Florida
• Kansas
• Oklahoma
• Texas
• Vermont
• Wyoming

Dual agents receive fees for both the buyer and seller sides of the transaction. Because of this, sellers may reduce the commission. This type of fee is called a dual or variable-rate commission.

iBuyers

An iBuyer is a real estate technology company that buys a home, makes minimal repairs, and then sells it. Unlike house flippers, iBuyers generally buy homes with minimal renovation required.

iBuyers offer a clear advantage for sellers looking to sell fast and avoid the hassle of listing. They also provide buyers with the convenience of shopping online for a home and the ability to tour homes easily.

Homebuyers using an agent can still work with iBuyers. Opendoor, one of the largest iBuyers, pays buyer’s agents a commission when one of their clients purchases a home from Opendoor.

Discount brokers

Discount brokers charge a flat fee or a discounted rate for their services. While many discount brokers are small, local companies, large brokerages like Redfin are also jumping on the discount bandwagon.

Many discount brokers follow one of these pricing models:

• Flat fee: Charges sellers a flat fee to list and market their home.
• Low percentage: Similar to flat fee, but listing agents take a smaller percentage of the total commission. This is how Redfin works for sellers.
• No commission: Sellers do the work, and the agent only lists the property on the MLS. These are technically FSBO properties.
• Hybrid model: Agents receive a combination of a percentage and a flat rate based on the home price.
• Two-for-one: Agents represent a client during both a sale and purchase, but only charge commission on one sale.
• Buyer rebate: Buyers receive a portion of the buyer’s agent’s commission back to use for whatever they wish, including closing costs.

There are obvious advantages for sellers to use discount brokers, but the advertising can be deceiving. In most cases, buyer’s agents still receive the full commission.

Since sellers typically cover Realtor fees, it can be less appealing for buyers to work with a discount broker. When considering whether to go with a discount or traditional broker, Navarro notes that it’s important to consider the knowledge and experience a traditional agent brings to the table.

“When I’m speaking to a client, they understand that my market knowledge is vast, and I’ve gone through many, many sales cycles.They have a trust there that I’m going to help,” he says. “If you have to discount your services to get business, then how good of a negotiator are you for your client? If that’s your value proposition to provide a discount, then that just puts a question mark in my head on behalf of the buyers out there.”

For sale by owner (FSBO)

Homeowners who list their own homes are often motivated by a desire to cut commissions out of the equation. But since 86% of buyers use a real estate agent, sellers will likely still have to deal with buyer’s agent commissions.

For buyers, FSBOs are often a better deal. The National Association of Realtors reports that FSBO homes sell at a median price of $225,000 —  $120,000 less than homes with a listing agent.

Real estate agent as buyer

If you’re a real estate agent buying a property for yourself, are there fees involved on the buying side?

Yes. The listing agent has already agreed with the seller to pay the buyer’s agent in their contract.

If you are the buyer and a licensed agent, you can get paid the buyer’s agent fee. However, you may choose to make your offer more attractive by waiving the buyer’s fee. Since many brokerages offer their agents free closing on their own properties, a highly-competitive agent may drop their fees to win the bidding war.

Rentals

What if you’re looking to rent instead of buy? There are still fees to use real estate agents, but how they’re paid and how much they’re paid depends on the rental agreement.

In some cases, real estate companies charge renters an upfront fee that covers a certain number of property showings in addition to negotiating the lease. In other cases, the fees are paid by the landlord or the tenant and are either one month of rent or a percentage of the annual rent payment.

Are real estate agent fees negotiable?

In real estate, everything is negotiable, and real estate agent fees are no exception.

However, because sellers typically pay agent commissions, there isn’t much incentive for buyers to negotiate, other than the seller will save money at closing, which could make your offer more attractive.

Reasons an agent may be willing to reduce commission might include:

• They charge a higher rate than others in their area.
• The agent is working with you on multiple transactions.
• The transaction is dual agency, so there’s only one Realtor involved in the sale.

Other reasons — including home price, location, and how quickly homes are selling — may give sellers ammunition to negotiate lower fees.

Remember: just because real estate agent fees are negotiable doesn’t mean that an agent will reduce theirs to get your business.

Negotiating other fees

If you’re trying to save money, consider negotiating other fees before closing. Your Closing Disclosure provides a breakdown of the fees you’re responsible for as the buyer. These include credit report fees, loan application and originations fees, and broker fees, among others.

Additionally, buyers and sellers may encounter additional fees based on the city or state where the transaction takes place. In San Francisco, for example, Navarro notes that there is a city transfer tax that is split equally between the buyer and the seller.

However, the way fees are split between buyer and seller can also vary. Navarro points out that in Santa Clara County, it’s customary for the seller to pay title and escrow fees for the buyer, but in San Francisco and most other Bay Area counties, the buyer covers those costs. Real estate agents can help make sure you’re aware of any relevant state or city fees, and they can offer insight on local procedures.

What happens if the seller refuses to pay Realtor fees?

In rare cases, a seller may refuse to pay agent commissions. There are a couple of potential outcomes if this happens.

If the seller already agreed to fees in their contract, the broker can take them to court. Unless the seller can prove that the broker didn’t honor their contract, they’ve already agreed to the fees and must pay them.

Even though sellers typically pay commissions in a real estate transaction, it’s not required. Buyers who are motivated to get an offer accepted in a highly competitive market may offer to pay the fees.

If the seller remains unreasonable, and you are set on buying the property, you can seek the advice of a real estate attorney to help with negotiation. However, with the cash you’ll dole out, it may be just as reasonable to pay the fees yourself.

The bottom line on Realtor fees

Realtor fees are a part of home sales everywhere, but homebuyers don’t have much reason to worry. Still, awareness of these fees and what they cover can highlight the value-add your agent brings to a transaction. It can also help you navigate any non-standard transactions you may encounter.

Since the seller usually pays real estate commissions, you can spend time looking for other ways to save money. Like real estate agent fees, just about everything in a real estate transaction is negotiable.

Header Image Source: (Annika Wischnewsky / Unsplash)