The Breakdown: Understanding How Real Estate Commissions Work for Buyers and Sellers

Real estate commissions can be a mystery to those who are not familiar with the industry. In this article, we’ll explain how real estate commissions work, who pays them, and how they are split among the parties involved in a real estate transaction.

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What are real estate commissions?

Real estate commissions are fees paid to real estate agents or brokers for their services in representing clients in buying, selling, or leasing property. Commissions are usually calculated as a percentage of the sale price of the property and are negotiated between the real estate agent and the client.

In most cases, the seller pays the commission to both the seller’s and buyer’s agents. However, in some cases, the buyer may pay part of the commission or negotiate a lower price for the property to offset the commission.

How much are real estate commissions?

Real estate commissions vary depending on the location and the type of property. In general, commissions range from 5% to 6% of the sale price of the property. However, commissions can be higher or lower depending on the market and the type of property.

For example, commissions for luxury homes or commercial properties may be higher than those for residential properties. In addition, commissions may be lower for properties that are difficult to sell, such as those in remote locations or in need of significant repairs.

Who pays real estate commissions?

In most cases, the seller pays the commission to both the seller’s and buyer’s agents. The commission is typically a percentage of the sale price of the property, and the seller agrees to pay this commission when they sign a listing agreement with a real estate agent.

The commission is usually split between the seller’s agent and the buyer’s agent. In some cases, the buyer may pay a portion of the commission, but this is less common.

How are real estate commissions split?

Real estate commissions are split between the seller’s agent and the buyer’s agent. The exact split of the commission is negotiated between the agents and is typically based on the services provided by each agent and the amount of work involved in the transaction.

In some cases, one agent may represent both the buyer and the seller. This is called dual agency, and in these cases, the agent typically receives the entire commission. However, dual agency is illegal in some states, so it’s important to check the regulations in your area.

How do real estate agents earn their commissions?

Real estate agents earn their commissions by representing clients in buying, selling, or leasing property. This includes a range of services, such as:

Marketing the property

Real estate agents use a variety of marketing techniques to promote properties to potential buyers. This may include listing the property on multiple listing services (MLS), using social media and online advertising, and hosting open houses.

Negotiating offers

Real estate agents negotiate with buyers and sellers to reach a mutually acceptable price for the property.

Handling paperwork

Real estate agents prepare and review contracts and other paperwork involved in the transaction.

Facilitating inspections and appraisals

Real estate agents help coordinate inspections and appraisals of the property.

Providing advice and guidance

Real estate agents provide advice and guidance to clients throughout the buying or selling process.

Real estate agents work on a commission-only basis, meaning they don’t receive a salary or hourly wage. Instead, they earn a percentage of the sale price of the property when the transaction is complete.

Are real estate commissions negotiable?

Real estate commissions are negotiable, and the exact commission rate may be negotiated between the agent and the client. However, it’s important to keep in mind that the commission rate should reflect the level of service provided by the agent and the amount of work involved in the transaction.

If an agent is offering a lower commission rate, it’s important to ask why. It may be that the agent is providing a reduced level of service or is inexperienced in the market. On the other hand, if an agent is asking for a higher commission rate, they should be able to justify the higher rate with additional services or expertise.

It’s important for clients to carefully consider the level of service they need and the value of that service when negotiating commission rates. A lower commission rate may be tempting, but it’s important to ensure that the agent is providing the necessary level of service to successfully complete the transaction.

Do real estate commissions affect the sale price of a property?

Real estate commissions are calculated as a percentage of the sale price of the property. This means that a higher sale price will result in a higher commission for the agent.

However, it’s important to note that real estate commissions do not directly affect the sale price of a property. The sale price is determined by market conditions, the condition of the property, and the negotiating skills of the parties involved in the transaction.

While a higher commission may provide an incentive for an agent to negotiate a higher sale price, it’s important to remember that the ultimate goal of the agent is to sell the property at the best possible price for their client.

What happens if a property doesn’t sell?

If a property doesn’t sell, the agent is not entitled to a commission. However, in most cases, the agent will have incurred expenses in marketing the property and will expect to be reimbursed for those expenses.

Some listing agreements include a provision for a “marketing fee,” which is a non-refundable fee paid by the seller to cover the agent’s expenses in marketing the property. This fee is typically paid upfront and is separate from the commission.

If a property doesn’t sell, the seller may choose to relist the property with the same agent or with a different agent. In either case, it’s important to carefully review the terms of the listing agreement to ensure that the terms are favorable and the level of service provided by the agent is sufficient to successfully sell the property.

TL;DR Real estate commissions are fees paid to real estate agents or brokers for their services in representing clients in buying, selling, or leasing property. Commissions are usually calculated as a percentage of the sale price of the property and are negotiated between the agent and the client. The seller typically pays the commission, which is split between the seller’s agent and the buyer’s agent. Real estate agents earn their commissions by providing a range of services, including marketing the property, negotiating offers, handling paperwork, facilitating inspections and appraisals, and providing advice and guidance to clients throughout the buying or selling process. While commissions are negotiable, it’s important to ensure that the level of service provided by the agent justifies the commission rate. If a property doesn’t sell, the agent is not entitled to a commission, but may be reimbursed for expenses incurred in marketing the property.


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