Without being in the business, there can be a shroud of mystery around real estate. Especially regarding what real estate agents do and how they make their money. You might wonder who pays which agent, and how much is due once a piece of property is sold. The short answer is that real estate agents help clients sell or buy their properties and they work on commission. The commission is based on the final price of the sale. In the US that is generally around 5% – 6%. The agent’s fee is paid by the home seller unless negotiated otherwise. The pay is divided between the listing and buying agents.
Although this is the standard method of compensation, there are other ways to save money when using a real estate agent. The available options would be hiring flat MLS fee service, discount brokerage firms, and even trying to negotiate with a traditional agent for a lower commission percentage. Keep in mind that discounted rates can result in a decrease in services or availability. Still, if your needs aren’t too complicated, this could be a good option.
It may take some research, but you should be able to find someone to work with you no matter what your financial situation is. If you’re strapped for cash, try to find an agent that can offer you the most services for a flat rate. You can save a bundle this way.
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How Much Do Real Estate Agents Make On a Sale?
The commission percentage can change depending on where you’re doing business, but it usually stays in that 5% – 6% area. The commission amount is divided up between the listing agent and the buyer’s agent.
For example, say you sell your home for $300,000 and pay your agent the standard commission. At 6%, the total gross commission is $18,000. From there, depending on the listing terms, each agent will take their portion of the gross commission. In most cases it is split equally and thus for this example it equates to $9,000 for each agent. Although rates can vary, this is the basic process.
How Does That Affect The Seller’s Earnings?
If the seller doesn’t do their homework then it could mean they take home less than they are hoping for. When a seller lists their home for sale, they need to consider the expense of hiring a real estate agent. As a result, sellers need to find a price they are comfortable with when listing the home.
Pricing a home is usually done by assessing its worth based on tax assessments, recent sales of similar homes near the property, specific home amenities, location, recent remodelling, and even adding in the cost of using a real estate agent. That said, determining fair market values can be extremely challenging.
For example, the property is valued at $300,000 and the agents commission is 6%. You would increase that price by $18,000 to cover the commission fee due to the agents. From there you can raise the price even more based on any amenities that add to your home’s resale value. Things like location and remodeling can really boost your property’s worth. Go ahead and charge more for features that are in demand! It’s a part of the process.
By accurately estimating and pricing for your listing’s profitability, and by working your agent’s fee into the cost, you should be able to make back your investment and (hopefully) then some.
Who Needs To Pay The Agents?
The seller is responsible for agent fees, and those are resolved after closing. It is their job to get your home sold, and if they don’t do that, they won’t make anything off of you.
If you’re buying a home, the seller of the home you’re purchasing covers your real estate agent’s fees too, unless you are working through a buyer’s agency. In general, buyers do not pay for any part of an agent’s commission. If your agent doesn’t succeed in finding you a home, they won’t get paid. At that point, you may consider moving on to someone else who can help.
How Much Of The Commission Does An Agent Keep?
Real estate agents are normally required to pay their brokerage firm a percentage of their earnings. Real estate agents work for a broker or a brokerage firm so they will normally owe a fixed amount or a percentage from their proceeds. The money that they are required to pay will cover for associated expenses, advertising, insurance and other costs associated with running a real estate brokerage. The rates that they pay will depend on their contracts with the broker.
Is There Room To Negotiate Real Estate Agent Fees?
Some might be open to it, and some might not. If you want to negotiate, you can always try. If you can afford it, consider looking for the perfect agent based on your needs before attempting to adjust the price. Since the rate is probably going to be in that 5-7% range anyway, you might as well hire who you like.
If you are hiring a real estate agent that you’ve used in the past, they might be open to negotiating. For instance, if you’re staying in town and just moving into a different home. Many agents depend on word-of-mouth recommendations and repeat clients for the bulk of their business. In these cases, you could talk them into a smaller fee.
Another way to snag a lower rate is through a dual agency. This occurs when the same agent represents both parties – the seller and the buyer. In these cases, they are looking to make more on the transaction anyway since they won’t be splitting their commission. They may be willing to accept a lower fee as long as the total is still worth their effort.
Let’s Talk About Flat Fee Agents.
Also known as Flat-Rate Agents, Flat-Fee Agents are real estate agents who charge a flat price for their work. They don’t work solely on commission. Instead, they establish a set fee up to an agreed-upon price. If the price goes beyond that number, they will charge an additional amount. Usually, it’s significantly less than the normal 6%. More like 1-2%.
There is a lot of confusion around real estate, but you can clear that up with just a little understanding. The big things to take away are that real estate agents usually work on a 6% commission, the sellers pick up the bill, and sometimes there is room to negotiate.