Though homebuyers tend to begin their search online, 89% of them ultimately purchase their home through a Realtor®. That’s not surprising, considering that during the home search, your Realtor® is your guide to the market, bringing a wealth of resources you can’t find elsewhere.
But when you hire a Realtor®, how do they get paid?
Realtor® fees cover the cost of both buyer’s agents and listing agents for home purchases. In the US, these fees accounted for $86 billion dollars in 2020.
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.
Real estate agent vs. Realtor®
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).
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.
These fees are a percentage of the home’s sale price, usually around 5%-6%. In 2020, real estate took a dip to 4.94% on average. Today, the average fee is about 5.8%. Real estate agent fees tend to be higher in difficult economic markets and lower when home prices are rising because Realtors® are willing to take a smaller percentage of a larger sale price.
If that percentage seems high, remember, your agent doesn’t get as much as you think. Some agents make as little as $11.85 per hour.
Buyer’s agents and seller’s agents typically split commissions 50/50. So if a home’s Realtor® fees are 6%, the buyer’s agent would get 3% and the seller’s agent would get 3%. On average, agents make $41,289 per year, according to a 2019 Forbes report.
Fees are determined by individual real estate agents and their clients. Sellers typically cover agent commissions, so they negotiate with their agent to determine what percentage of the sale their own agent and the buyer’s agent will get.
“The buyer does not see the fee, nor do they pay the fee,” says Anthony Navarro, an agent with 16 years of experience who’s completed more than 300 transactions.
The median home price in August of 2021 was $356,700, according to the National Association of Realtors®. If you assume real estate agent fees of 5%, the buyer’s agent and their broker would split just over $8,900.
In standard transactions where the fee is split in half, $10,500 goes to the buyer’s agent and the same amount goes to the listing agent. The agents then split their portion of the commission according to individual agreements with their respective brokers. Some brokers take 50%, but top producing real estate agents often get more. Each broker receives a check at closing and splits it accordingly.
A number of factors, including the local market, goes into what determines Realtor® fees. In San Francisco, where Navarro is based, the average commission is 5.04%. In Atlanta, average fees are 5.98% and in Baltimore they’re 5.36%.
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.
“It is imperative that they’re working 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
Real estate agent fees: 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.
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. Rentals and situations where sellers refuse to pay can also affect the way a transaction is carried out.
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 also 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.
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 had a trust there that I’m going to help,” Navarro 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.”
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 89% 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.
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.
- 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. New research shows that 73% of agents will not negotiate fees.
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 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.
Still, an 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: (SpeedKingz / Shutterstock)
- "2020 Home Buyers and Sellers Generational Trends Report," National Association of Realtors®, Lawrence Yun, Ph.D. et al. (March 2020)
- "Here's How Much Real Estate Agents Earn In Every State," Forbes (January 2019)
- "Your realtor’s commission is not really negotiable, according to new report," CNBC (October 2019)
- "Use a "For Sale by Owner" Sale to Cut Commission Fees," Investopedia (May 2022)
- "Occupational Employment and Wage Statistics," U.S. Bureau of Labor Statistics (May 2021)