If you need to hire a real estate agent to help you buy or sell a house, keep in mind these real estate professionals get paid through a real estate commission. So how much does it cost and why? Can this be negotiated?
As a real estate agent in Orlando, FL since 2004, please let me explain everything you’ll need to know about real estate commissions.
How much are real estate commissions?
Instead of getting paid by the hour or weekly salary, real estate agents only get paid if the real estate transaction goes through.
Some brokerages will charge a flat rate for their services, most agents work off a percentage of the sale once the sale has gone through. The exact percentage can vary however, most real estate commissions are usually between 5 and 6% of the sale price. So on a $100,000 home, a 5% commission would be $5,000.
This might seem like a lot of money, but keep in mind that the real estate commission gets split between the listing agent and buyer’s agent. Also, real estate agents don’t receive a penny until the deal has gone through… a process that can take weeks and even months of work depending on the deal.
Who pays the real estate commission?
Usually, the seller of the home pays the entire amount of the commission for the service of both the listing agent as well as the buyer’s agent… unless the agent is representing both buyer and seller.
The two agents typically split the real estate commission 50/50. If a home sells for $100,000 at a 5% commission, each real estate agent will walk away with $2,500. However, this can also vary in certain situations such as if the listing agent was only offering 1% to the buyer’s agent. Everything in real estate is usually negotiable.
Dual Agency Explained
If the same real estate agent is representing both the buyer and the seller, the agent then becomes a “dual agent” and receives the entire amount of the real estate commission. That’s why listing agents love it when they also find the buyer in addition to representing the seller. [Talk about a huge payday!]
As an Orlando real estate agent, this has happened to me countless times. However, many real estate agents don’t like representing both parties because it puts them in the awkward situation of having to work for both the buyer which could at times become a conflict of interest.
What Exactly does real estate agent commission cover?
Homeowners certainly have the option of selling or buying their home “For Sale By Owner”, but when they find out the tremendous amount of time and work that it requires, they usually end up hiring a real estate agent. Real estate agents provide a whole wide range of services like; pricing the home correctly, marketing the home [on the Multiple Listing Service, social media, etc.] negotiations, and even guiding homeowners through the closing.
An experienced real estate agent can help you get top dollar for your home while handling all the stress that comes with selling a home. I can tell you from experience… good real estate agents earn their money!
Need proof? Check out these numbers… A recent National survey done in 2019 found that a typical FSBO home sold for $195,000 compared to $245,000 with the assistance of a real estate agent, according to the National Association of Realtors®.
That means that homes listed for sale with a realtor sold for $50,000 more than without an agent. Maybe that’s why a whopping 92% of homeowners used a real estate agent to sell their home.
Are real estate agent commissions negotiable?
As my first ever real estate teacher used to say all of the time “everything in real estate is negotiable”. Although a 5% to 6% commission is the norm here in Florida, there aren’t any state or even federal laws that set commission rates.
This means that if you want to sell your home, you can certainly ask your real estate agent to reduce their commission however, they aren’t obligated to do so.
One thing to consider is this: Your listing agent must pay for marketing your home from the commission they receive after the closing, less commission could mean a lower marketing budget for your home which could mean more time on the market.
With that being said, it won’t hurt to ask your agent to lower their commission. Most real estate agents won’t be offended [who cares if they are?] and the worst they can tell you is no. If you are tight on the numbers, you may ask them to charge you a flat fee for helping you list the home, communicate with buyers, and write the contract, but you won’t get a full service from the agent or brokerage with a flat fee. Most agents don’t offer a flat fee listing agreement, so you’ll have to shop around a bit, and be prepared to do some of the heavy lifting yourself.
Buying or selling a home will probably be one of the largest financial transactions of your lifetime, so make sure to find an experienced real estate agent that you can trust to do a great job. This isn’t the time to hire your nephew who just got his license 3 weeks ago…
Other Things You Should Know About Real Estate Commissions
Every detail about an agent’s real estate commission must be outlined in the listing agreement [contract] that you signed when you hired the agent. A typical listing agreement should also state how long the agent will represent you. Usually, a listing agreement in Florida lasts between 90 to 120 days.
As the home seller, you want a real estate agent who will fetch you the highest and best sales price and the terms you want, but the best real estate agents aren’t cheap. Like the old saying goes with most things in life… you get what you pay for.