What Is a Real Estate Commission? 5 Myths Busted for First-Time Sellers

Editor’s note: On March 15, 2024, the National Association of Realtors (NAR) announced a landmark lawsuit settlement that will change the way real estate agent commissions are handled in the future. These changes will “decouple” seller and buyer agent compensation. Industry experts predict that this decoupling will likely lower agent fees and give buyers the ability to negotiate commission amounts directly. Learn more.

If you’ve purchased a home before but have never sold one, you most likely haven’t encountered real estate agent fees yet. Real estate fees — or commissions — are typically paid by the seller. So if you’re getting ready to sell your home, you may be wondering: what is a real estate commission?

Top real estate agent Amy Asivido Christman of Oregon and Washington works with over 73% more single family homes than the average agent in her market. When it comes to real estate commissions, she has answers. She also reveals five commission myths that often confuse first-time home sellers.

What are agent fees and commissions?

Real estate agents make their income by charging a fee in the form of a percentage of the sales price. Christman estimates that most real estate commission fees fall between 4 and 10% of the total sales price, but this number can vary greatly depending on your location and market conditions.

This fee comes out of a seller’s total profit from their sale. The 4-10% commission is then split between the buyer’s and seller’s agents. That’s right: it’s customary for sellers to pay the buyer’s agent.

Commission rates also tend to decrease in a seller’s market since homes are selling for more than they normally do. Therefore, agents don’t need to charge as high of a commission rate to make more money off a home sale. In March, the national average real estate commission fell below 5%.

“So at the end of the day, what I think people need to know is that it’s not important how much you pay in commission,” Christman explains. “It’s more important what you net. And the right agent will get you a higher price through better marketing, better negotiation, and the best exposure.”While this amount might still seem high to some sellers, it’s important to remember that your real estate agent is helping you maximize your home sale profit.

Agents on the buyer and seller side both have various responsibilities that impact your home sale. Here are just some of the services agents offer that you may not know about.

Commissions provide these valuable agent services

Seller’s agent services

• Prepping and presenting the house
  As a seller, it’s vital to put the best possible version of your house on display. Many seller’s agents provide professional photography and staging at no extra cost to their clients. Christman, for example, has a professional she hires to help the sellers pack up their belongings for an easier sale process.
  Additionally, if you need work done to the house in order to pass inspection, like electrical or plumbing issues, seller’s agents will often connect you with the best of the best.
  “The contractors we work with are tried and true. We trust them,” Christman explains. “We know they do good work and they’re very competitive with their pricing. All of that together equals more money in the seller’s pocket.”

• Marketing the house
  On top of the photography and staging, seller’s agents write the listing and post it on the industry’s multiple listing service (MLS). The exposure a seller’s agent provides often leads to more — and higher — bids.
  “A lot of times when I sit down and go over all the marketing that we do, they think it’s all going to be extra in addition to the commission,” Christman says. “It’s all included.”
• Working with the appraiser
  Sometimes, a house appraises for less than the final sale price. This puts the seller and the buyer in an unfortunate spot because most lenders will not provide a loan larger than the appraised value.
  Seller’s agents work directly with appraisers to provide comparable nearby properties (comps) and information about the home to help the appraisal equate to the sales price.
  “It doesn’t happen very often with our team that we get a low appraisal because we do everything we can ahead of time,” Christman comments. “Like we provide feature lists to make sure the appraiser doesn’t miss anything and we provide the best comps that we can.”
• Holding open houses and conducting tours
  Touring your home to strangers can be tougher on your emotions than you might think. That’s why seller’s agents are professionally trained in how to vet buyers, host open houses, and conduct tours of your home.
• Reviewing offers
  At the end of the sale process, the seller’s agent helps you go through all of your offers. They can help you negotiate with buyers and will communicate with the buyer’s agent directly. In a seller’s market, sellers will most likely receive multiple offers, and you’ll want to be sure to pick the right one.

Buyer’s agent services

• Building a relationship with the seller
  Although “love letters” are largely controversial, buyer’s agents can still make an introduction between the buyer and the seller. In a seller’s market, where many sellers are receiving multiple offers, getting your face and name out there is vital.
  “We just share a little bit about them personally in the intro of the email just to help the seller connect with the buyer as a person,” Christman states.
• Make a compelling offer
  As a buyer, it’s vital to make the best offer possible to increase your chances of being accepted. That doesn’t always mean offering more money, though.
  “Because it’s a seller’s market right now, we can sometimes get our offers accepted when they’re not the highest offer because of offering more appealing terms,” Christman comments. “Like maybe they can’t offer the highest price, but they can let [the seller] stay for free for two months.”
• Show properties
  Buyer’s agents also do the hard work of searching for properties that fit their clients’ wishlists, driving them to the properties, and showing them. With so many properties coming on and off the market the last couple of years, this timesaving skillset is especially important.

5 commission myths to watch out for

If you’re not familiar with the ins and outs of commission fees, you may have fallen trap to some pervasive myths about them. Our expert agent Christman sets the record straight. Here are some myths you can be assured are false:

Myth 1: A discount commission agent will save you money in the long run

Some agents with less experience will offer a lower fee to their sellers, which might save them 1 to 2% of their sales price. However, just because one real estate agent offers a lower percentage commission than another doesn’t mean you’ll net more money working with them.

“I will say that if they offer a low commission to a cooperating agent, there is a risk that they won’t get as much exposure,” Christman explains.

Exposure often leads to more offers, meaning a lower-rate agent might not bring in as many offers. That could lead to a lower sales price, and less money in your pocket in the end.

Myth 2: You can’t negotiate a real estate agent’s fee

Almost everything in real estate is negotiable. Especially in a seller’s market, you can definitely negotiate your agent’s commission. Christman says that sellers usually request a lower commission in order to net more, which she can help alleviate by bringing in higher offers. Still, she’s open to negotiating her terms.

“I’m committed to net them more than any other agent will,” she explains. “So I’ll definitely work with them, especially if they’re in a life crisis.”

Myth 3: You still have to pay an agent’s commission if your house doesn’t sell

This is wrong in most instances. The vast majority of buyer’s and seller’s agents will not charge commission on a deal that doesn’t go through. So don’t worry about having to shell out thousands of dollars even if your house doesn’t sell.

“So [the agents] may spend a ton of time marketing a house, but if it doesn’t close, they’re just out that money,” Christman comments.

Myth 4: Real estate agents net all of their commissions

This is a common myth. It can be jarring to see a commission of $15,000 on a $300,000 home sale. Sellers might wonder why a real estate agent earns that much money on one transaction. However, not all of that money goes into their pocket. First of all, the seller’s agent needs to split the fee with the buyer’s agent. Typically this is split 50/50, but can be split more unevenly if the seller’s team had more upfront costs.

Additionally, real estate agents have to pay their brokerages, unless they are a broker themselves. Brokers have received more training and can have other real estate agents work under them. The title also comes with more responsibility. Agents and brokers also have additional costs such as insurance and taxes.

“It’s not all just this money in our pocket. And I think a lot of times people think we’re literally just sitting in an office waiting for the phone to ring doing nothing,” Christman says. “But we’re all working 40+ hours a week.”

Myth 5: A dual agency will result in lower real estate commissions

Dual agency is when one agent represents both the buyer and the seller. While this is actually illegal in several states due to the conflict of interest in which it places agents, it can actually net agents much more money on a single transaction. Your agent’s commission is typically split between the seller’s and buyer’s agents. But because there’s only one agent in the transaction, they’ll be able to charge the same percentage commission, without having to split it with anybody else. It’ll usually cost you, the seller, the same amount of money.

Partner with a professional — put an expert on your side

To summarize, you can negotiate your real estate agent’s fees, but it’s important to remember what you’re paying for. Having a professional real estate agent represent your sale can mean more money in your pocket, even if the sticker price seems shocking.

“I can’t imagine anything more terrifying than not having an expert on your side just to guide you through the law, find good people that you trust to do inspections and repairs, all of it,” Christman says. “I can’t imagine not having someone to guide you who’s an expert through one of the biggest sales in your life.”

To connect with a proven seller’s agent in your market, try HomeLight’s Agent Match tool. Our data shows that the top 5% of real estate agents across the U.S. sell homes for as much as 10% more than the average agent.

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