But when you hire a Realtor®, how do they get paid?
First, a quick primer: A Realtor® is not exactly the same thing as a real estate agent, though there is a lot of overlap between those two job titles. A real estate agent is someone who’s been licensed by the state to help transact real estate (and is usually also a Realtor®, but not always); A Realtor® is a member of the National Association of Realtors® (and is almost always also a practicing real estate agent or broker).
Realtor® fees cover the cost of both buyer’s agents and listing agents for home purchases. In the US, these fees account for nearly $100 billion dollars annually.
As a homebuyer, you may wonder if you’ll have to pay your agent to represent you.
There’s lots of confusion over these fees. Common questions include:
- What are real estate agent fees?
- How much are they?
- When do agents get paid?
- What do these fees cover?
- Are real estate agent fees negotiable?
To answer all your questions, we did the digging for you. We searched the far reaches of the internet and interviewed a real estate pro to put together the ultimate guide to Realtor® fees for homebuyers.
Here’s how Realtor® fees work.
What are Realtor® fees?
As the name implies, these fees are paid to the buyer’s agent and listing agent for their services after closing.
According to Charlotte, North Carolina, real-estate-pro Heidi Hines, the fees are “commissions for the sale of a property.”
These fees are a percentage of the home’s sale price, usually around 6%.
“State law in North Carolina dictates there cannot be a set fee for agent commissions, but they can be anywhere from 6% to 8%,” says Hines.
Does the percentage seem high? Your agent doesn’t get as much as you think. Some agents make as little as $11.85 per hour, on average.
Here’s a visual that illustrates how much an agent makes on a typical home sale:
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.
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
In addition to contract negotiation and representation, listing agents are also responsible for marketing and showing the property.
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.
Research also shows that buyer’s agents receiving less than 3% commission from a home sale are less motivated to show homes.
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.
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. New research shows that 73% of agents will not negotiate 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.
Let’s talk about these fees during standard and non-standard transactions.
Real estate agent fees: Standard transactions
Regardless of the type of transaction, real estate agent fees are paid at closing. The listing agent includes details about fees in their agreement with the seller.
“When sellers sign a contract with an agent, the Realtor® fees are in there,” says Hines. “It also includes a breakdown of how much of that fee will go to the buyer’s agent.”
Let’s use a real-world example to illustrate.
If a house is listed for $350,000 with a 6% agent commission fee, the total fee at closing will be $21,000. This is then split between the buyer’s agent and the listing agent, according to the contract.
In standard transactions where the fee is split in half, $10,500 goes to the buyer’s broker and the same amount goes to the listing broker. The brokers then split their portion of the commission according to individual agreements with their respective agents. Some agents take 50%, while top producers often get more. Each broker receives a check at closing and splits it accordingly.
Now, let’s talk about non-standard transactions.
Real estate agent fees: Non-standard transactions
Certain situations 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. Other situations include rentals and when sellers refuse to pay.
Situations where real estate agents represent both buyer and seller are called dual agency.
While it’s generally not recommended, it’s common in some areas.
Dual agency is illegal in nine states:
In a dual agency transaction, the agent is required to be neutral.
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 offer a clear advantage for sellers looking to sell fast and avoid the hassle of listing. The convenience of shopping online for a home and touring homes easily attracts many potential buyers, as well.
Homebuyers using an agent can still work with iBuyers. According to Opendoor, one of the largest iBuyers, the company pays buyer’s agents “a standard commission based on statewide norms.”
In an effort to save money on agent fees, some buyers turn to discount brokers.
This is a term for real estate brokers who 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. Redfin uses this model.
Is it worth it to use a discount broker? There are obvious advantages for sellers, but the advertising can be deceiving. In most cases, buyer’s agents still receive the full commission.
In the past, discount brokers provided limited services, like less marketing for sellers or minimal education for buyers. However, the evolution of technology makes it easier for agents to get more done without compromising service. Many discount brokers advertise that they are full-service providers with lower fees.
If you’re buying a high-priced property, the buyer’s rebate may come in handy. As with any agent, read reviews to be sure that your rebate doesn’t come with a hidden cost.
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 87% of buyers use a real estate agent, sellers still have to deal with real estate commissions.
Unlike sellers with a listing agent, FSBO sales require the homeowner to market the property and negotiate on their own behalf.
In the past, FSBO listings often included a higher price if a buyer was working with an agent. But today’s sellers are realizing the benefit of paying commissions to buyer’s agents. They still save on fees because they’re only paying one agent.
Real estate agent as buyer
If you are a real estate agent and buying a property for yourself, are there fees involved on the buying side?
Yes. The listing agent has agreed with the seller to pay the buyer’s agent in their agreement.
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.
What if you’re looking to rent instead of buy?
In rental situations, there are still fees to use real estate agents, but how they’re paid and how much they are 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.
What happens if the seller refuses to pay agent fees?
In rare cases, a seller may refuse to pay agent commissions.
There are a couple of potential outcomes if this happens.
If the sellers 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 agreement, 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.
Since the seller usually pays these commissions, spend your 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: (SpeedKingz / Shutterstock)
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