One of the most misunderstood aspects of the real estate process is who foots the bill for the agents facilitating the sale. Real estate sellers and buyers often aren’t sure exactly who is responsible for paying the sales commission. Real estate agent commission splits seem complicated, but most transactions follow some common trends. Here is everything you need to know about how real estate commission works — and most importantly, who pays it.
How Do Real Estate Commissions Work?
In order to practice real estate, agents must work under a licensed real estate broker. Any commission an agent earns must first go to their broker. The broker will then pay the agent the commission they’re due according to their agreed commission split. Commission divisions can vary greatly, depending on how experienced the agent is, the volume of sales they achieve, and what they negotiated with their broker. For example, new agents can have commission splits as low as 30/70. In contrast, top-producing agents can receive 100% of their commission and simply pay their broker a desk fee.
Who Pays the Listing Agent Commission?
When a homeowner hires a real estate agent, they typically enter into a listing agreement that gives the agent’s broker exclusive right to market their home. In return for facilitating the sale of their home, the homeowner agrees to pay the broker a commission. Sales commission is usually calculated as a percentage of the sales price. Anywhere from 4-6% of the sales price is standard. If an agent also represents the buyer in the transaction, the commission is shared between the buyer’s agents and the listing broker.
Who Pays the Buyer’s Agent Commission?
Some buyer’s agents require a buyer’s broker arrangement that stipulates the named brokerage, and agent are exclusively representing the buyer. The seller typically pays the sales commission for both the listing agent and the buyer’s agent. When deciding on their desired list price, the seller often takes into consideration the total commission cost. Therefore, it can be argued that technically the buyer pays the sales commission, as the expense is included in the sales price.
Can You Negotiate Real Estate Commission?
Put simply, yes — all real estate agent commission is negotiable, although this doesn’t mean that each agent will be willing to negotiate. Top agents typically charge a higher commission and are less likely to give a discount. In contrast, less experienced agents may be more willing to cut their commission. Like most things in life, real estate agents cannot be judged on their commission rate alone. It’s essential to sit down with your agent and discuss their brokerage fees and what their listing service includes.
If you want to avoid traditional brokerage fees, there are other options to consider, such as “discount” brokerages. Discount brokerages offer a reduced commission price in exchange for a limited listing service. Another way to avoid paying real estate commission is to sell your home for cash to an investor or iBuyer company. Selling to a real estate investor or iBuyer can help you avoid traditional brokerage fees and closing costs; however, you may also have to sell your home for a reduced sales price. It’s essential to research your options thoroughly to ensure you make the best decision.