The Truth About Realty.com

Whether you’re in the market for a new home, or looking to sell your existing home, it’s important to understand how real estate commissions work.

First and foremost, if you’re buying a home, you will not have to pay any direct, out-of-pocket commission fees to your real estate agent. Conversely, it is the seller who must forfeit a chunk of the selling price to both the buyer’s and seller’s agent.

The typical commission tied to the sale of a home these days is 5% of the sales price, though it can be as high as 6% or 7%, and lower than 5% in some cases. The seller’s agent typically sets the rate of commission, and then works out a deal with the agent representing the buyer.

In many cases, the two agents will split the commission 50/50, though it can widely vary based on market demand and other factors. In fact, sometimes one agent represents both buyer and seller in a dual agency, collecting the entire commission. If one agent represents both buyer and seller, the total commission may be reduced.

Real estate agents work for real estate brokers, who get a split of the commission as well, with newer agents typically forfeiting more of their total commission, and vice versa. Other fees such as advertising costs, sign rentals, and office-related expenses may also be deducted from the agent’s commission. There are also 100% commission structures, where real estate agents get 100% of the commission.

Fees will range based on what brokerage you decide to work with, or which one the seller is being represented by. It’s possible to negotiate the amount of the commission paid, but larger companies tend to bargain less, as they have more in-house fees and will pitch better service. If an agent is asking too much, you can ask for a lower amount. If the buyer’s offer comes in short, both the buying and selling agents may agree to lower their commission to get the deal done.

Remember, they need to earn your business, as they are working for you. If you’re looking for a cheaper option, you’ll probably have better luck working with a smaller or independent agent, as opposed to a large company with lots of overhead. Just understand that the level of service may be diminished, and you could end up lowering the sales price to accommodate a buyer, costing you more in the long run.

Also, you shouldn’t concern yourself too much with agents trying to steer you towards a more expensive property so they can earn more commission. The reality is that a home worth another $10,000 will only bump an agents’ commission by a couple hundred. And most agents will be more concerned with getting a sale, even if it’s slightly lower than other possible outcomes.

Keep in mind that it is possible for the selling agent to offer a cash incentive to the buyer’s agent to find a suitable buyer, but that should be disclosed if you inquire about it.

It’s also possible to buy and sell homes without the use of an agent to save money on commission, but you should understand that it can be complicated and time consuming. For novices, it’s recommended that you use an agent.

Make sure you take the time to interview your agent to ensure you know exactly what you’re getting. Ask for referrals, and if you’re unclear on anything, don’t be afraid to ask questions. They are working for you, and should appease you at all steps along the way. Remember, a good understanding of real estate commissions can save you a lot of money.