Buyer or Seller: Who Really Should Pay Estate Commissions

The majority of people who purchase or sell a house use the services of a registered real estate agent. These experts are familiar with their local markets, are skilled negotiators, and can help make the entire buying and selling process go more smoothly.

Real estate agents are paid a commission in exchange for their services. Here’s how real estate commissions operate, as well as who should pay the Estate agent fee.

Real estate commissions are always adjustable, but they are often between 4% and 6%.

The commission is generally split in half when two agents work on a real estate transaction—one for the buyer and one for the seller.

A portion of the fee goes to the real estate agency to help pay for things like advertising and office space.

What Are Real Estate Commissions and How Do They Work?

Buyers and sellers are rarely charged by the hour by real estate agents and brokers. Instead, they take a percentage of the sale price as a commission.

The commissions paid to agents are determined by the contracts that buyers and sellers have with their representatives. Although a contract may dictate that one agent receives more of the commission than the other, the real estate fee is frequently shared evenly between the buyer and selling agents.

Realtor, real estate agent, and broker are all names that are frequently used interchangeably, although they are not interchangeable. Agents and brokers have various degrees of licensure, although both can join the National Association of Realtors and become Realtors.

However, the money does not go directly to the real estate agents. The listing and selling brokers are the first to get it. That’s because real estate agents must operate for and under the supervision of a broker, who takes a share of the commission to cover expenses like advertising, sign rents, and office space.

After that, each broker divides the money with the agent, usually 50/50, although it may be any amount that the broker and agent agree on. So, assuming a 50/50 split across the board, a 5% commission would divide down as follows:

Selling broker: 1.25%

Buyer’s agent: 1.25%

Listing broker: 1.25%

Seller’s agent: 1.25%

Each broker and agent would get $2,500 for a $200,000 transaction.

What Is the Cost of a Real Estate Commission?

Real estate commissions are constantly negotiable (otherwise, agents would be breaking state and federal antitrust laws), therefore they fluctuate. Even though 6% has long been considered the industry standard, today’s commissions are generally between 4% and 5%.

According to research company Real Trends, the average real estate commission in 2019 (the most current statistics available) was 4.96 percent, down from 5.03 percent in 2018.

Remember that the commission is a percentage of the home’s selling price, so the precise amount won’t be known until the offer is accepted and the house is sold.

Who is responsible for Paying The Real Estate Commission?

Where things get a bit murky is who pays a real estate agent’s commission. The vendor is usually the one who pays the charge. The charge is generally included in the home’s price by the seller. As a result, the buyer is ultimately responsible for the charge, although in an indirect manner.

Let’s assume a buyer and seller (both with their real estate agent) agree on a price of $200,000 for a home. The cost would be $10,000 ($200,000 x 0.05) assuming a 5% real estate commission. The charge is deducted from the home’s cost rather than being added to the sale price.

As a result, the seller would earn $190,000 from the sale, despite the buyer paying $200,000 for it (this is an overly simplified example as closing costs and other fees would apply).

Is it Worth It to Pay Real Estate Commissions?

One of the most common complaints about real estate fees is that they are too exorbitant, or that the service provided by real estate agents is not worth the money.

If a property sells on the first day it’s on the market, the seller’s agent may make a nice profit by doing little more than taking photographs, deciding on a listing price, and placing the house on the market. On the other hand, a home might take weeks, months, or even years to sell, especially if it is particularly unique or valuable.

This can add up to many hours spent by the seller’s agent marketing the home, conducting open houses, fielding phone calls, and keeping up with other listings and transactions in the neighborhood. The long-term costs of maintaining the home on the market, such as signage and advertising expenses, will be borne by that agency. In this light, few sellers would be willing to accept the risk of paying a real estate agent by the hour.

Buyers are in the same boat. Some people will locate a home right away, while others will look at dozens of properties over weeks or months before deciding. Buyers would be pushed into deciding if they had to pay an agency by the hour.

Real Estate with a Flat Fee

There are listing agents that charge a fixed fee, such as $100 or $500, for their services. This certainly benefits sellers (and, in turn, purchasers) in terms of cost savings, but the disadvantage is that these agents may only provide limited representation.

Throughout the whole home buying or selling process, a conventional real estate agent will be your partner. A seller’s agent will assist you with staging your property, taking professional pictures, listing it on the Multiple Listing Service, advertising, scheduling, and hosting open houses, as well as negotiating on your behalf.

Buyer’s agents, likewise, will assist you in determining your must-haves, locating the ideal house, accompanying you to showings, negotiating offers, and recommending additional specialists (such as a home inspector).

Although flat-fee or discount brokerages may be less expensive, you may not get what you paid for. Even yet, some full-service agents operate for a fixed charge or a lesser commission. If you decide to go this way, make it important to check out what services the agent provides ahead of time to ensure that what you get meets your expectations.

Final Thoughts

The majority of buyers and sellers use real estate brokers. Agents are compensated for their efforts by receiving a commission, which is a proportion of the sale price. Even though the commission is normally paid by the seller, the fee is frequently included in the home’s listing price. As a result, the buyer is ultimately responsible for any real estate expenses.

Always remember that commissions are negotiable. If you’re concerned about excessive costs, a flat fee or discount broker or a for-sale-by-owner transaction are two choices to explore.