According to HomeLight’s transaction data analysis, the national average real estate agent commission rate is 5.8% of the final home sale price. So, who pays for real estate agent commission? The simple answer is that, customarily, it’s going to be the seller.
In the National Association of Realtors’ (NAR) 2020 survey, 77% of sellers reported that they paid for the agents’ commission. With insight from a top real estate agent, we’ll explore the custom for the seller to pay commission, exceptions to the rule, and what activities commission covers.
In the majority of cases, the seller pays for real estate agent commission
The 5.8% figure mentioned above includes the fees for both the listing agent and buyer’s agent, who split the total commission payment.
“Sellers typically pay a 6% commission. Roughly half of that payment will go to their own agent, and the rest will go to the buyer’s agent. That’s how it works 99% of the time,” confirms leading St. Paul real estate agent Shawn Hartman, who has 16 years of experience selling homes and over 400 total transactions.
While the seller is the one who technically pays commission fees, they don’t pay the commission until after they’ve received their home sale proceeds. So, it’s ultimately the buyer who brings the necessary funds to pay agent commissions to the closing table.
There are a couple of rare exceptions
While the above arrangement is the norm, there are a few exceptions where commission varies.
The seller enlists a flat-fee listing agent or discount brokerage
Some listing agents (around 3% nationally) charge a flat-fee for their services instead of taking a commission based on the final sale price. Because these agents have a capped pay system, they may not have a vested interest in increasing the sale price of your home.
Furthermore, flat-fee agents usually only provide limited services like setting up lockboxes for vacant home showings or simply listing your property on the MLS. Even if your flat-fee agent is a full-service agent, they’ll have a smaller budget to market your home. In the end, this can bring down your sale price significantly. For these reasons, we recommend avoiding low-commission agents for most home sales.
The seller negotiates their listing agent commission
While the commission price is a negotiable agreement between you and your agent, keep in mind that you truly do get what you pay for when it comes to real estate agents. An agent willing to come down on their commission fee might be desperate for new clients or inexperienced with negotiations.
In the end, quality agents who charge a 3% commission easily recover their fee by boosting your net home sale proceeds. According to HomeLight’s research, top-performing agents sell homes for 10% more than their peers on average — that difference covers agent commission and then some.
The seller negotiates for the buyer to pay commission
Another exception to the norm is when a seller negotiates for the buyer to cover some or all of the commission. NAR reports that 11% of agents are paid by buyers and sellers jointly, and another 6% are paid exclusively by buyers.
While this might seem like an attractive option if you’re looking to save a bit of cash, Hartmann advises against it, saying, “If sellers tell buyers that they’re going to have to pay commission, they’re going to scare those buyers away.”
The seller sells FSBO and saves on listing agent commission
Some homeowners choose to forgo help from a real estate agent and sell their home For Sale By Owner (FSBO). According to NAR, FSBO sales account for around 8% of U.S. home sales and garner 35% lower prices on average than agent-assisted sales. It’s also important to note that sellers will likely spend a portion of their commission savings since they’ll need to pay for marketing and other items that an agent normally includes with their commission.
In most cases, FSBO sellers still pay the buyer’s agent’s commission, meaning that they only save 3% on commission, rather than 6%. However, some FSBO sellers avoid commission altogether if they’re selling to someone they know who does not enlist a buyer’s agent (for instance, if the buyer is a friend or a family member).
The buyer is not represented by a real estate agent
As mentioned above, a seller won’t pay the 3% buyer’s agent’s commission if their buyer isn’t working with an agent. NAR reports that 88% of buyers purchase their homes through agents or brokers, while another 6% buy directly from a builder or builder’s agent. This means that only 6% of buyers purchasing homes on the market are doing so without an agent’s help.
You don’t hand over commission for nothing — the fee pays for valuable services
When you partner with an expert real estate agent, you’re gaining access to loads of valuable skills and services. Here are some of the services listing agents and buyer’s agents provide in return for their well-earned commissions:
- Marketing: Listing agents typically spend a considerable amount of time and money marketing your home to potential buyers. Agents not only use a Multiple Listing Service (MLS) to give your listing widespread visibility, but they also harness social media, local ads, open houses, and other methods to put your home in front of quality leads.
- Pricing: Pricing is one of the most important factors in a home sale. Price too high and your home will languish on the market until it draws low bids; price too low and you leave money on the table. An experienced real estate agent intimately knows the local housing market and can pinpoint your home’s fair market value. They’ll assess your home’s features, location, construction, and other factors to develop the best possible pricing strategy for your sale.
- Offering repair advice: After the home inspection, your agent helps you understand what repairs your buyer’s lender requires, which structural and safety issues need to be taken care of, and which repairs might not be necessary to complete the sale.
- Staging: Staging involves decluttering and styling your home, so it looks as attractive as possible. The Real Estate Staging Association reports that staged properties typically sell 86% faster than unstaged homes. Your agent may bring in pieces of furniture or use virtual staging to attract buyers.
- Negotiating: Going from an initial offer to closing involves many moving parts. A listing agent communicates with buyers to iron out the details of your deal, working out contingencies, title searches, and all the other components of the closing process while advocating on your behalf so that you end up with the best possible deal.
- Searching the MLS: A buyer’s agent has access to the Multiple Listing Service, meaning that they offer their clients a broader selection of potential properties.
- Reporting property matches: To save buyers time sorting through hundreds of irrelevant listings, buyer’s agents curate the best available properties based on their clients’ preferences and price goals.
- Scheduling showings: Buyer’s agents work with homeowners and listing agents to set up appointments for you to go and check out potential new homes in person. They also walk clients through the property and point out its best features, as well as any downsides they’ve identified.
- Negotiating: Like listing agents, buyer’s agents advocate for their clients’ interests when negotiating the price and terms of the sale. A buyer’s agent rigorously researches a home and uses their pre-existing knowledge of the market as leverage during negotiations. After reaching a deal, a buyer’s agent helps their client understand and complete all of the necessary paperwork.
Choosing the right agent is important
You’re paying your agent to sell your home for the most money possible, so you should know that they have the experience and skill to get the job done. As Hartmann puts it, “You will ultimately end up getting what you’re paying for in the long run, and I’ve seen many people regret second decisions they’ve made after hiring the wrong agent.”
To get started on your search for the perfect agent, use HomeLight’s Agent Finder, a helpful tool that matches you with the three best agents for your home sale. Remember to interview your candidates and ask questions related to your specific selling goals. After doing so, you’ll have a tried-and-true industry professional on your side.
Header Image Source: (Mackenzie Freemire / Death to Stock)