Home > Mortgages > Why Do I Have to Pay My Real Estate Agent 6%?

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When it’s time to sell your house, you may have visions of dollar signs dancing in your head, but the truth is, a lot of those dollars will never make it into your bank account. Instead, they end up in the pockets of real estate agents.

You’ve probably heard that agents, on average, take a 6% commission off of your home’s sale price. On a $300,000 home, that’s a whopping $18,000. Before handing over that chunk of change, it’s important to understand what it pays for—and if there’s anything you can do about it.

How Do Real Estate Agents Get Paid?

First, let’s take a look at the history of realtor fees. Realtor fees are usually paid as a commission, although flat fees apply in rare cases. This commission is taken right off the top of the selling price of the home, so many sellers don’t really feel the impact because they never had the money to begin with.

Since the 1950s, the National Association of Realtors has used a “suggested” commission rate for real estate agents. This rate landed at around 6% of a home’s selling price, which included commission for both the buyer’s and the seller’s agents. In 2016, that rate was closer to 5%, which provides a small amount of relief for home sellers looking to maximize their equity when they sell their home.

What Does a Real Estate Agent’s Commission Pay For?

Even at 5%, real estate agents would take home an average of about $15,000 on the sale of a $300,000 home. The total commission is split between both the listing and the buying agents, minus any fees the agents must pay to their brokerage. So let’s break down what you get for $15,000.

  • Help pricing your home. Expertise is at the top of the list of what a real estate agent brings to the party. This means they should be able to help you price your home competitively and in a manner that helps you reach your goals—whether you’re after a quick sale or a big sale price.
  • Effective marketing. One of an agent’s biggest jobs is to make your home look great and to stir up interest in the property. They may take photos, post online ads, use social media, host open houses, and anything else that puts your home in front of qualified buyers.
  • Screening for qualified buyers. It doesn’t do you any good if the people looking at your home aren’t able to buy it. A real estate agent should do all the footwork required to make sure anyone who’s interested in your house is preapproved for a home loan.
  • Closing expertise. Finally, a real estate agent should be well-versed in the art of closing a home sale. Their job is to get you the best price with the least hassle and walk you through all the steps you need to take to make sure your sale goes smoothly. This applies to showings, appraisals, inspections, and the final paperwork.

Can I Save Money on Real Estate Agent Commission?

The good news is you’re not stuck having to fork over 5% of your home’s selling price. If you don’t relish the idea of waving goodbye to that hefty sum, here are some alternatives.

1. Negotiate the commission rate. Just because 5–6% is common, it doesn’t mean that’s what you have to accept. Ask your real estate agent if they’re willing to take less.

“Offer 4%,” suggests Bob Nettleton, who successfully negotiated the commission when he used a real estate agent to sell his home. Or, he says, offer 2% if you find the buyer on your own and just need the agent to help with the standard process. Nettleton adds that other factors, such as home price and how many services you expect, can also affect how much you negotiate on the commission.

2. Sell your home by yourself. More people are opting to sell their home without a real estate agent. This saves on commission fees, but it means you have to do all the work to market your home and vet potential buyers. People who want to go the FSBO (For Sale by Owner) route can find help through services like Homie and Zillow.

Keep in mind that the buyer may have an agent who will expect a commission, so that’s another factor that will play into negotiation of the final sales price. If you opt for FSBO, you may also need to do additional homework like finding a mortgage lender who can help complete the sale.

Other Financial Considerations When Buying a Home

No matter what, you want to get the most out of selling your home. But real estate agent commission is just one part of the overall financial transaction of buying or selling a home.

Chances are if you’re selling a home, you’re probably also looking to buy another one. Negotiating how much you pay a real estate agent may pale in comparison to the extra money you’ll spend over the lifetime of a mortgage if you get locked into poor interest rates or your credit is less than perfect. Check the mortgage marketplace for interest rates and make sure your credit is in tip-top shape before you start looking for your next house. One factor many sellers overlook is the possible impact that selling their home could have on their credit.

If you’re concerned about your credit score, take advantage of a free credit report. This report lets you keep tabs on your credit, and it includes free updates every 14 days to help you proactively correct mistakes and improve your score. You also don’t need to let bad credit get in the way of refinancing your home.

Take Control of Your Home Sale

Managing big transactions like selling or buying a home can feel overwhelming, but there’s no need to panic. Just keep in mind that, ultimately, you are the one in control over the sale of your home. Weigh out the pros and cons of paying a full commission, and take the steps necessary to get a final profit out of your home that makes you happy.

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  • NorthernPaladin

    None of that costs tens of thousands of dollars.

  • http://missleonabrown.tumblr.com/ Leona Brown

    Every agent in NYC will happily accept 6%, but the reality is that these same agents will happily pick up the extra deal for a reduced commission rate. Just google discount full service agent nyc and you will find a ton of companies that offer full service for way less than 6%…

  • Stanley Steamer

    Commissions aren’t set by law – they are always negotiable. Do you get to negotiate your financial advisor’s fees? Doctor? Dentist? Hairdresser? Yet when it comes to getting assistance to sell your largest asset you want to bicker over fees? How ridiculous is that? Now, tell us what you do for a living so we can beat you up over the price of YOUR services.

  • chandra

    I give owner and respect to your beneficial thought about real estate business

  • Judy

    Wonderfully stated, Warren. One other point is the sheer number of homes and the time that takes not to mention gas and car maintenance as well as particular insurance on said car required by most brokerages of their agents.
    The longest we have worked with one buyer is THREE YEARS. Loved every minute of it though. And the top amount of homes shown to one particular client is for us was “94 homes.”
    So real estate is a personal service, into which we hard working caring Realtors invest not only money but time. Lots of time. Some of which is also spent in hours of continuing education so that we may best serve our clients and earn their trust. I love real estate, but my one heartbreak is that so many clients walk in the door of a real estate office distrusting the service as valuable, and the agent in general, mostly because of media to the contrary. Not real experience.

    Before joining my broker husband in Real Estate, I worked in as a Dental Hygienist for 3 decades. My patients walked in my door full of hope and total TRUST and this was with full knowledge that I held their health in my hands. Literally.

    So the initial lack of trust, mostly as per media misinformation, hurts my heart. Other than that, I find being a broker a rewarding career filled with new friends whom i treasure. Thanks for the great article all.

  • steve_milford

    Even though this article is about commission rates, the point that I see that is really missed here is that bad credit is more costly to a transaction than the rate a Realtor charges. Yet so many people don’t worry as much about their credit as the do about how much a commission rate is.

    Regarding commissions – these are all relative to the costs that every Realtor has. The commissions from each sale is not just meant to cover the costs for that one client only. There is also the portion that Realtors must pay for desk fees, liability insurance, splits to the agency itself, taxes, and more.

    Just like those that earn an hourly wage, the rate that one earns at the top is not the same amount of money that eventually flows into one’s pocket.

  • N.C. Overton

    It is understandable that many people don’t truly see the value of a Realtor®. However, it is important to understand that Realtors® are not just salespeople. We are licensed professionals. Warren below is right. Having and maintaining a real estate license is not cheap. It’s also not free of liability. Everything you do for your client must follow established rules and regulations according to the federal government as well as the state you operate in.

    Warren has already outlined most of the fees and costs associated with being a Realtor®. This is a full time job. We work completely on commission, there are no regular paychecks. And the expertise we offer the client is pertinent to their needs. We are helping someone buy your home. Whether to live in or invest in, purchasing a home is a big decision and a Realtor® understands and guides their clients through the entire process.

    The seller pays for the expertise and advice their own Realtor® provides and the buyer’s agent for spending all the time it took to search for and set up a showing for their buyer’s to see your home. If you want a cut rate to sell your home, you can use “Help-U-Sell” and get the limited services they provide.

    • Tommy Eliassen

      Hey Overton,
      Excellent explanation.

  • Warren

    I completely agree that a 6% commission to sell a home is ridiculous. I think is should be between 8-10%.
    Yes, I’m a Realtor®. Commissions are how I make a living. Just like doctors, lawyers, and anyone else who is an independent businessperson, a Realtor® has expenses. After paying for school and getting licensed, the real costs starts. The multiple listing service (MLS) isn’t free, each agent must pay several hundred dollars per year for MLS access. Also, to be a Realtor® you must be a member of the National Association of Realtors® as well as a member of your state and local board of realtors. There’s another $800-1,000 per year. Then there is the cost of your computer, internet service, marketing costs, gas for your car and when you think that you’re going to finally make money, you run in to the “split.”
    As a licensed agent you must work for a licensed broker. The broker receives a percentage of the commission received as a result of the sale. Your example of $18,000 breaks down like this.
    If the listing agent also represents the buyer, then that agent and broker split the commission. Normally it’s a 70/30 split. So the broker gets $5400 and the agent gets $12,600. Not bad right? Except it’s rare that a listing agent also sells the house.
    So now that $18,000 is actually $9,000 ($9,000 for the listing agent and $9,000 for the buyer’s agent) and the broker gets $2,700 and the agent gets $6,300.
    So what did both agents do to earn that money? On the seller’s side there were costs involved in getting a person to list their home with you. Real Estate is a very competitive market and getting and keeping your name out there is pretty expensive. Think somewhere between $2000-$3000 in marketing costs per month. Any you pay that whether you list a house or not.
    Now let’s look at the buyer’s agent. That buyer doesn’t usually walk into a brokerage, they see a home on the internet on sites like realtor.com, or zillow.com or trulia.com. Each of those sites are free because real estate agents advertise on them at a cost of sometimes thousand of dollars a month. And, again, that’s a cost whether you sell a home or not.
    Now that you’ve got a buyer to call you there’s the process of looking for a house. A buyer may look at between 10-15 houses before deciding to purchase a home. That buyer’s agent is taking a considerable amount of time making showing appointments, showing the houses and then finally, a buyer decides to purchase.
    Hopefully you’re buyer is pre-qualified (not pre-approved) and they have already begun the loan process. So now you write an offer and present it to the owner, who counters, and you counter the counter. Finally, you arrive at a good price and the real work begins. There’s the home inspection, and the appraisal, and the termite inspection and all of that involves the agent’s time.
    Finally you get to closing on that $300,000 home and get that $9,000 commission check and give it to your broker who adds on error and omission insurance, desk fees and you get a check for $5,800 (after the broker split and your insurance and desk fees). Earning that $5,800 probably took you several months and hopefully you’ve been working with other buyers/sellers so you can sell an average of 8-12 houses per year in the 300,000 range. That way you’ll make $46,000-69,000 a year. From that deduct income tax (Realtors® are independent contractors) and you can see that 6% isn’t the windfall people think it is.
    Before trying to FSBO — For Sale By Owner — or Craigslist, Zillow or similar sites to market your home consider security. Most Realtors® make sure people they work with are pre-qualified and are looking to buy your home. Security is a big issue today for Realtors® since one was recently murdered in Arkansas showing a home and others have been robbed when showing a home. When you try to do it yourself you’re letting people into your home whom you don’t know. Today, most Realtors® pre-screen buyers before they take them on as clients.
    Finally, most Realtors® don’t sell 10 houses a month. Many are lucky to sell two per month and there are a lot of costs and time involved, whether you’re a buyer’s agent or a seller’s agent.
    Don’t get wrong – I love my job. I love helping people find a home – especially first time buyers who usually cry when they get the keys to their first home. I love selling a person’s home and recognize that they are not just selling a building, they are selling memories of their life in that house – that “home.”

    The 6% commission is outdated. It should be a minimum of 8%.
    People don’t question how much their doctor charges for a major surgical procedure, nor do they shop around, or ask for a reduced rate to have the procedure done. People generally don’t ask other professionals, such as lawyers, tax advisors, investment bankers or dentists to take less for the services they perform. Why should Realtors® be asked to perform for less money? As you pointed out in your article, raising the commission rate will cause other Realtors® to show your home more often and sadly, that’s because they’re trying to recoup the cost of that four or five percent commission they are working trying to sell someone’s house.

    • Hoosier Native

      You did a fine job of explaining all the realtor costs associated with selling a house. However I have a couple of questions/comments. Most costs you list are flat fees (per year) or are initial costs like those for the license classes and exams. Given those points, why should I pay 6% on a $300K ($18K) house when a $150K house goes for $9K? Were your costs most to sell my higher priced house? No. You also do not put in more effort to sell the higher priced house. Don’t get me wrong. I would never try to buy or sell a house without a realtor. I just don’t understand the justification for the flat % fee.

      • http://www.robertmay.ca Robert in lethbridge

        Sometimes the larger homes are much less work as the buyers for the starter homes are all seeking financing and scraping up downpayment, but at the higher end lots of the client actually have money of their own and jobs too!

    • Furby

      Your writing is long, but flawed. The main point of my argument: The number is not a f lat fee, it’s a percentage, so as houses become more expensive (and they do over the long run) your commission goes up. 6% in the 50’s might have seen you sell a $30,000 home. Today that home is $500,000.
      The second part of my argument (which I’m sure you will disagree with). Also, how much actual work are you putting into selling the home. YOu meet with the seller (1 hour), you hire someone to take pictures (or do you it yourself – 1-2 hours), you write-up/post the ad to MLS (1 hour or less). You do an open house once a month (6 hours x 2 months =12 hours). Showing the house is typically done by the buyers agent – so you may field some phone calls to give the door lock code. Then negotiations (4-8 calls) may take you 1 hour (calls are short). Prep – (1 hour), most of the document prep is done by title companies, appraisers, etc. Closing (2 hours). So if you honestly look at your hours in, that’s less than 40 hours. 6% on $500,000 = $30,000. Divide that by two (half to buyers agent) and that’s $15,000. Even if you pay out $10,000 to other people, that leaves you with $5,000 for about 40 hours worth of work. If you disagree with me – please post up how many hours worth of work you HONESTLY put in.

    • Nadia

      I disagree completely. Your commission is relative to the cost of the house. That same $300k home went for much less years before. You get your raise as property values increase. You are in a position where you have to sell more to make more. That is how real estate works. You can go ahead and try to charge more in commission. More people are going to start going FSBO. The Internet makes this process much easier than it used to be.

    • http://www.caare.org CAARE.org

      In Europe commissions are around 1.8 – 2% and those agents typically sell about 54 homes per year. Here the Realtor Associations have lowered the entry standards so low that there are far more Realtors than are needed. As a result the average Realtor sells between 2-4 homes per year and most are severely under qualified. Plus, the MLS system which is owned by Realtors requires that commissions get split 4 ways. Its pure insanity. Consumers should look for small brokerages and only work with the broker of the office who doesn’t have to split their fee with anyone. They can avoid dual agency, being steered into over-priced, conflict-ridden title companies and actually get some representation for far less money.

    • evilp

      Actually what you’ve described is a completely inefficient system with the Realtor being the unnecessary overhead in the process. Thats why the cut gets so small by the end of the process. The market will find equilibrium always.

    • ms_scorpio

      what about all the expenses you deduct on you taxes against that income??

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