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Real Estate Agent Fees And Realtor Commissions | Bankrate

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In this do-it-yourself digital age, home sellers and buyers alike might wonder if they need Realtors — or, more precisely, to pay Realtor fees. Just how crucial are these agents to a successful real estate transaction?

Well, a good agent is really pretty useful. Especially if you’re buying a home: Agents have access to information you don’t, and it takes time and expertise to research properties, find the best ones for you and put together a strong offer. But sellers see many benefits, too, especially when figuring out the best asking price. Your home will still need to be staged, listed on the market and shown, too. Here, we’ll take an in-depth look at how real estate agent fees work and what you get for the money.

One important note first: Changes to the way commissions work went into effect on August 17, as a result of a long legal battle settled by the National Association of Realtors and several major brokerages. The commission system, and how it has changed, is outlined below.

The NAR lawsuit

In October 2023, a federal jury found that the National Association of Realtors (NAR), along with several large brokerages, conspired to inflate Realtors’ commissions. All of the brokerages settled out of court, and as of March 15, 2024, NAR did the same.

As a result, the longstanding traditional real estate commission model — that is, sellers footing the bill for both their own agent and their buyer’s, typically totaling 5 to 6 percent of the home’s sale price — is upended. Now, sellers’ agents may no longer make offers of compensation to buyers’ agents on the MLS (multiple listing service, a vast database of for-sale homes accessible only to industry pros). Home sellers might no longer need to pay the agent who represents their buyer, which could open the door to much more competition among buyer-side agents, and even more potential for fee negotiation.

How much are Realtor commissions?

Let’s recap the traditional commission model, before the rule changes took effect.

Only a very small portion of Realtors work on salary — working on commission is much more common. For years, the typical going rate was 6 percent, split down the middle between the buyer’s agent and seller’s agent. But it began to fluctuate with the advent of discount brokers and the rise of online, publicly accessible listings.

Of course, real estate commissions can be negotiated, and nowadays they typically run somewhere closer to 5 percent of a home’s sale price. That means the means the more expensive the home, the more money the agents make. The exact terms of an agent’s commission vary from sale to sale, and can depend on the region and which firm they work for.

Let’s look at an example. A 5 percent commission on a $250,000 home sale would come to $12,500. But on a $1M sale, a commission at the same rate would come to $50,000.

Assuming a 5 percent total commission under that model, here’s roughly what sellers could expect to pay based on the price their home sells for:

Home’s sale price
Seller’s agent commission (2.5%)
Buyer’s agent commission (2.5%)
Total commission (5%)

$250,000
$6,250
$6,250
$12,500

$500,000
$12,500
$12,500
$25,000

$750,000
$18,750
$18,750
$37,500

$1,000,000
$25,000
$25,000
$50,000

Seller vs. buyer commission

Sellers sign a listing agreement with a Realtor in which they agree to pay a commission fee after the transaction closes. If it’s an “exclusive right to sell” arrangement, they pay the fee even if they found the buyer on their own.

Commissions for both Realtors in the transaction have traditionally been paid by the home seller: Both the buying and selling agents are paid with proceeds from the sale of the home. These two agents typically split the total commission — so for a 6 percent commission, the selling agent would receive 3 percent and the buying agent would receive the other 3 percent. Now that the new rules have kicked in, that is changing.

It also changes in the case of dual agency, when one agent represents both the buyer and seller in a transaction. Laws about this vary by state; in some states, dual agency is not permitted. In this type of scenario, pay particular attention to the home appraisal to ensure you’re getting a fair price. While agents have a fiduciary duty to their clients, with dual agency, the lines can get blurred.

As Samantha Fish, an agent with Wesely & Associates in Grass Valley, California, points out, agents are still required to act in their clients’ best interest. “It’s in our ethics; it’s in our contract,” she says. “If someone comes into my open house and they like it, but they don’t have an agent, at that point I can say, ‘let me get you an agent from my office’ so they feel like they’re being represented 100 percent as well.” Still, buyers working directly with a listing agent may have more room for negotiation because the seller may agree to a lower selling price if the agent agrees to lower their fee.

The brokerage’s cut

Real estate brokerages may get a cut of the commission as well. The brokerage RE/MAX, for example, has a split commission setup by which its agents receive 95 percent of the full commission from the sale, and 5 percent goes back to the company.

“The broker has to set the policy and oversee, monitor and supervise everything the agent does,” says Patrick Duffy, broker/owner of Duffy Realty in Miami. “And if the agent does something fraudulent or unprofessional, the broker gets sued.”

What do real estate agent fees cover?

You might wonder, what services does this commission fee buy me? One of the biggest ways buyers benefit from working with a Realtor is gaining access to the MLS, the database Realtors use to see and list properties for sale.

The fee compensates the agent for time spent answering questions and helping you through the process. An agent is also able to utilize their skills and contacts to negotiate, find properties and take you on tours of multiple homes.

A Realtor’s fee covers a wide range of costs for sellers as well, including marketing materials, staging and showing the property, coordinating open houses and contacting agents of potential buyers. When an offer comes in, the listing agent negotiates on behalf of the seller, often presenting one or more counteroffers. A lot goes into listing a home, such as:

Creating a comparative market analysis to establish a competitive price
Arranging for photo shoots, sometimes including aerial shots via drone
Writing descriptive listing copy to attract interest from other Realtors and potential buyers
Providing staging guidance
Showing the property multiple times to prospective buyers
Hosting open houses, often on weekends
Providing yard signage
Making sure listings are populated on all major property search websites
Helping the seller review and negotiate buyer offers

As with most of the other expenses related to real estate transactions, a Realtor’s fee isn’t paid until the sale closes.

Average real estate commissions by state

Overall, the national average Realtor commission in 2023 was 5.49 percent, according to data from Clever. In all but a few states, the average commission ranged between 5 and 6 percent.

Keep in mind, though, ​​that Realtors may accept a lower commission for high-priced homes to earn a higher amount overall: Their piece of the pie may be smaller, but it’s a richer slice. “For example, if I’m listing a $4 million home at 6 percent, that’s a lot of money,” Duffy says. “In a situation like that there is greater flexibility to negotiate the commission — if you get $100,000 or $80,000 instead of $120,000, it’s still a good payday.”

Here are the average real estate commissions by state, according to Clever:

State
Average commission rate

SOURCE: Clever

Alabama
5.45%

Alaska
6.00%

Arizona
5.44%

Arkansas
5.99%

California
5.11%

Colorado
5.62%

Connecticut
5.47%

Delaware
4.88%

District of Columbia
5.49%

Florida
5.37%

Georgia
5.81%

Hawaii
4.78%

Idaho
5.50%

Illinois
5.35%

Indiana
5.56%

Iowa
5.67%

Kansas
5.58%

Kentucky
6.00%

Louisiana
5.56%

Maine
5.17%

Maryland
5.34%

Massachusetts
5.45%

Michigan
5.92%

Minnesota
5.82%

Mississippi
6.07%

Missouri
5.58%

Montana
5.50%

Nebraska
5.25%

Nevada
5.80%

New Hampshire
5.25%

New Jersey
5.21%

New Mexico
5.90%

New York
5.39%

North Carolina
5.52%

North Dakota
5.00%

Ohio
5.99%

Oklahoma
5.95%

Oregon
5.03%

Pennsylvania
5.48%

Rhode Island
5.50%

South Carolina
5.62%

South Dakota
5.49%

Tennessee
5.58%

Texas
5.73%

Utah
4.90%

Vermont
5.49%

Virginia
5.45%

Washington
5.25%

West Virginia
6.67%

Wisconsin
5.15%

Wyoming
6.00%

How to avoid paying Realtor fees

Selling your home without the help of a real estate agent — called “for sale by owner” or FSBO for short — is certainly possible. Between July 2022 and June 2023, 7 percent of home sales were sold by owners without the help of an agent, according to NAR data. But selling without an agent’s help is a lot of work to do on your own, much of it complicated.

If you don’t want to go it alone, ask agents from the outset what their commission is and compare the terms of each person you talk to. If you think the fee is too high, talk to them about lowering it. If the transaction is being handled on both sides by agents from the same brokerage, you might have more leverage to negotiate as well.

Alternatively, you could consider working with a low-commission real estate agent, who will likely charge much less than a traditional agent would (usually 1 to 1.5 percent of your home’s sale price). However, since they’re receiving a smaller commission on each property, these agents are typically focused on volume. As a result, you might not receive as much personal attention as you would with a traditional Realtor.

There are also brokerages and agents who work on a flat-fee basis. In other words, no matter how much your home sells for, they’ll receive a set amount rather than a percentage of the sale price.

If you want to avoid Realtor fees and sell your house quickly, another option could be selling to an iBuyer or a company that buys houses for cash. Both options will allow you to finalize your home sale fast, without paying any agent commissions. But the offers from these buyers will be less than you’d likely fetch in a traditional sale, and some charge service fees that are equivalent to what you’d pay in commission anyway.

Finally, remember that even if you’re not paying Realtor fees, there are still plenty of other closing costs associated with selling your home. For instance, you may be on the hook for things like title transfer fees, attorney fees, property taxes and more. And even if you sell without an agent of your own, you may still be on the hook to pay your buyer’s agent.

FAQs

What percent commission do most real estate agents charge?

Typically, each agent involved in the transaction (one for the buyer, one for the seller) earns somewhere between 2.5 and 3 percent of the home’s sale price as their commission fee. However, the amount is negotiable — and new rules as of August 17, 2024, mean the seller may no longer be obligated to pay their buyer’s agent’s fee.

Do sellers or buyers pay fees to the real estate agent?

Traditionally, sellers have been the ones who covered real estate agent commissions — both for their own agent and for the buyer’s. That changed on August 17, 2024, as a result of the NAR lawsuit settlement. Now, buyers may (or may not) be responsible for paying their own agent directly. The details of each transaction will be different.

How much commission do you pay on a $500,000 home?

It depends on the specific terms of each agent’s commission. Commissions usually total somewhere between 5 and 6 percent of the home’s purchase price — on a $500,000 transaction, 5 percent comes out to $25,000 and 6 percent comes to $30,000.



This article was originally published by a www.bankrate.com . Read the Original article here. .

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Real Estate Commission Changes Are Here For Buyers, Sellers | Bankrate

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The National Association of Realtors (NAR) agreed to new rules around real estate commissions as part of a lawsuit settlement in March. As of August 17, they’re actually rolling out — and consumers face a deluge of confusion and conflicting predictions.

One narrative predicts a coming utopia for homebuyers: A price war will erupt, and commissions will plunge amid a new wave of competition among buyers’ agents. A competing narrative goes in the opposite direction: Under the new commission structure, buyers will realize they’re on the hook for thousands and decide not to use agents at all. NAR, meanwhile, has portrayed the changes as minor tweaks rather than a major shift.

The opposing narratives underscore just how complex Realtor compensation has always been — and how much more complex it just got. Here’s a look at the new commission structure and what it could mean for both homebuyers and sellers.

How real estate commissions used to work

Traditionally, when a home seller hired a real estate agent to represent their listing, the seller agreed to pay a commission. The national average has been about 5 percent of the home’s sale price, typically split down the middle with 2.5 percent going to the listing agent and the other 2.5 percent to the buyer’s agent. (On a $400,000 home, 5 percent comes to $20,000, or $10,000 for each agent.)

Who pays?

Even this has been a bit murky. Agent fees came out of the seller’s proceeds at closing, but it’s reasonable to assume that the seller adjusted their price accordingly — the fees were baked into the home’s sale price. And so the buyer ultimately paid, just not directly to the agents: That extra 5 percent was rolled into the home’s sale price.

What’s changing?

The biggest change is that listing agents (the agents who represent home sellers) may no longer make offers of compensation to buy-side agents on any NAR-affiliated multiple listing service (MLS). In addition, a buyer’s agent must now have a written contract with a home shopper, clearly specifying their fee, before they may show that client a house. Until now, NAR encouraged but didn’t require written agreements between buy-side agents and buyers.

A federal judge gave preliminary approval to the settlement in April 2024, and the final holdout among the brokerages named in the suit — HomeServices of America, part of Warren Buffett’s Berkshire Hathaway — also settled in April. While final court approval is not expected until November, the rules took effect August 17.

Compared to the old model, the new version offers a greater level of transparency for consumers — homebuyers now will be fully aware of how much they’re paying for an agent’s services. “It’s always good when people understand what they are and are not paying for,” says David Druey, Florida regional president at Centennial Bank.

An important aspect of the new model for agents: While the new rules prevent listing agents from posting buy-side commissions on the MLS, as they used to, sellers and listing agents still can agree on the amount off the MLS. That means it’s OK to offer compensation amounts verbally, in emails or texts, and even on their brokerage’s own website, as long as it’s not done on the MLS.

“Although sellers can elect not to pay any buyer agent compensation, that doesn’t mean they will avoid the economics,” says Budge Huskey, president and chief executive of Premier Sotheby’s International Realty in Naples, Florida. “Buyers may easily write into any offer a contingency requiring that the seller cover the cost, or may request other concessions, such as closing cost assistance in the dollar amount they are paying their representative.”

Does this mean real estate commissions are now negotiable?

Technically, real estate commissions always have been negotiable — a theme NAR long has stressed. Practically, though, the picture gets complicated. In many cases, Realtors are more skilled at negotiating than their clients, so the consumer comes into the negotiation at a disadvantage. What’s more, the buyer’s agent commission was previously determined by the seller, not by the buyer. The new rules shift that responsibility to buyers, who now will discuss compensation directly with the agents representing them.

Is this good or bad for consumers?

Until we see how things shake out over time, the answer really depends on who you ask. Some foresee a near-nirvana for consumers: Vishal Garg, CEO of mortgage company Better, predicts the settlement will unleash a “buy-side price war” — buyer agents will begin competing fiercely for clients.

Others fear a darker turn. Ken H. Johnson, a real estate economist at Florida Atlantic University and a former real estate broker, says the new rules just add another layer of complexity to an already-confusing process.

“No longer advertising buyer agent commissions will only create a more confused and drawn-out transaction process as buyers, sellers and agents will have to negotiate the fee, who will pay for it and how much will be paid by each party,” Johnson says. “Due to this added level of complexity, buyers will almost certainly have to negotiate with more sellers before they find the deal they are satisfied with. Thus, the house-hunting period will extend for the average buyer.”

Concerns for first-time buyers

Many in the real estate industry worry that first-time homebuyers — those who need expert guidance the most, and who are already severely hampered by high prices and high mortgage rates — will be priced out of professional representation. If commissions no longer come out of the seller’s proceeds, the thinking goes, buyers won’t have an additional $7,500 or $10,000 to pay an agent.

“Most of those buyers are scraping the barrel to the bottom to come up with a down payment,” says Dave Liniger, chairman and co-founder of RE/MAX. (The firm was one of the large brokerages named as defendants in the suit along with NAR; RE/MAX settled last year for $55 million.)

For now, buyers can’t roll commission costs into their mortgages under the new rules. But industry players widely expect the Federal Housing Finance Agency, overseer of mortgage giants Fannie Mae and Freddie Mac, to change those rules.

“I think there’s going to be pressure on them to allow that,” Liniger says. “The industry needs first-time buyers.”

Indeed, NAR already has been attempting to nudge the mortgage industry in that direction: “We are talking with Freddie and Fannie to see what can be done,” says Lawrence Yun, NAR’s chief economist.



This article was originally published by a www.bankrate.com . Read the Original article here. .

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What Is Dual Agency, And Is It Risky? | Bankrate

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Key takeaways

In a dual agency situation, the same real estate agent represents both the buyer and the seller of a home.

This arrangement can be risky for buyers, since agents are paid based on how much the home sells for.

However, dual agency can also be beneficial in helping to simplify a complex transaction and ensuring a smooth and efficient close.

In most real estate transactions, the buyer and seller are each represented by their own separate agents: one buyer’s agent and one listing agent. Each agent protects their individual client’s interests. It’s also possible, however, for both the buyer and seller to work with the same real estate agent in an arrangement called dual agency.

Having only one agent involved in a transaction can simplify the process. But it also presents the risk that the agent may favor one party over the other — specifically the seller, as their commission fee hinges on the final sale price of the house. In fact, in several states, acting as a dual agent is actually illegal. Still, if it’s permitted in your state, it can be worth considering. Here’s what you should know about dual agency, whether you’re a buyer or seller.

What is dual agency, and how does it work?

Typically, when a buyer searches for and purchases a home, they do so with the help of a buyer’s agent — an agent who works specifically for them, helping them find and buy the right property. The seller of a home, meanwhile, works with their own dedicated agent, whose job is specifically to market and sell their home (usually referred to as the listing agent, as they manage the listing). Each agent in the transaction works on behalf of their respective party under a principle known as fiduciary duty, which means each must act in their own client’s best interests. But in a dual agency situation, the same real estate agent represents both the buyer and the seller of the home.

Dual agency often occurs when the buyer and seller of a home use the same brokerage. It can also happen when a buyer approaches the listing agent directly, such as through a for-sale sign or online listing, without being represented by their own buyer’s agent.

Here’s an example: Say you’re a buyer who’s just starting to look at homes, and you are not yet working with an agent. You attend an open house, love it, and chat with the agent hosting it, who is representing the seller. You hit it off with that agent and decide to work directly with them to submit an offer and purchase the home. If that agent agrees, they are now a dual agent, representing both parties in the transaction.

Whether you’re the buyer or the home’s seller, it’s important to understand how you’re being represented. Both parties must formally agree to a dual agency arrangement, notes Than Merrill, a real estate investor and founder of FortuneBuilders. “For an agent to represent both sides in a real estate transaction, they must receive informed consent from the buyer and the seller,” he says. “If either the buyer or seller isn’t comfortable with the idea, they reserve the right to opt out of the deal.”

Risks of dual agency

By its nature, dual agency can present very real conflicts of interest.

A real estate agent’s commission is based on a percentage of how much the home sells for — in other words, the higher the sale price, the more money they earn. So they “are incentivized to bid up the sale price,” Merrill says. “That’s not to say that all dual agents don’t have their customers’ best interests in mind, but rather that the incentives inherently work in favor of sellers.”

It also raises potential ethical questions. “Dual agency in and of itself is not unethical, but there are actions and tactics that could be sneaky,” says Farid Yaghoubtil, an attorney with Downtown LA Law Group in Los Angeles. He notes that “both the buyer and seller may be under the impression that the agent is biased toward or favoring the other party, which can result in suspicion, mistrust and anger.”

Overall though, buyers and sellers can usually count on getting fair, if not full, representation in a dual agency transaction, says Deb Tomaro of Bloomington, Indiana’s Deb Tomaro Real Estate. “For example, if I am the agent in a dual agency arrangement, I cannot make suggestions to a buyer about how much to offer, because that’s not fairly representing the seller,” she says. “If a buyer tells me he wants to see a list of all homes with 2,000 square feet that sold in the past year in the same neighborhood, I can run that report. But I can’t help him interpret it or point out differences. I can only provide the facts.”

Is dual agency illegal?

For these and other reasons, some U.S. states actually prohibit the practice of dual agency. “The fact that it is illegal in several states should be enough to give some parties pause and elicit further consideration,” says Yaghoubtil. Real estate dual agency is illegal in these eight states:

Alaska
Colorado
Florida
Kansas
Maryland
Texas
Vermont
Wyoming

Advantages of dual agency

While dual agency can be inherently problematic, it can also offer advantages — namely, a smoother transaction.

“Since both the seller and buyer are working with the same agent, documents can be prepared and signed more quickly,” says Raj Dosanjh, founder of Rentround, a rental agent-matching platform. “There will be one person who knows everything about the property. This can eliminate excessive back-and-forth questions.”

Another plus? The seller has more leverage to request a reduced commission fee, since there’s only one agent. “You can use the single point of payment to your advantage,” Merrill says. “You may be able to negotiate lower commission fees when the dual agent doesn’t have to split profits with anyone else.” (Read more on this below.)

Who pays commission in dual agency?

In a traditional two-agent transaction, each agent earns a portion of the overall commission. In contrast, a dual agent will receive the entire commission on the transaction, since there’s no second agent to split it with. Thus, the amount can often be open to negotiation. For example, a dual agent may agree to a 5 percent commission instead of 5.5 or 6 percent, or maybe even less, since they do not have to split the fee with anyone else.

As for who pays that commission, buyer or seller, it used to be that the seller paid the commission for both agents out of their sale proceeds. But that is changing thanks to new commission rules going into effect after a federal lawsuit, which are due to kick in this August. Be sure to hammer out the details of who is paying what percentage of a dual agent’s commission beforehand, and have it clearly spelled out in the purchase and sale agreement.

Bottom line

Dual agency is legal in most states and can make for a more convenient transaction, provided you understand the risks. But it isn’t often recommended. “I believe buyers should have their own representation and enlist their own agent before they start looking for homes,” Tomaro says. “Having representation with a Realtor you trust and develop a relationship with will always end better than just calling a random name on a sign and having them represent you.”



This article was originally published by a www.bankrate.com . Read the Original article here. .

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