Real Estate Commissions: Not All Commissions Are Created Equal

By
Real Estate Agent with EXIT Realty Beatrice Associates 9506757

When paying a real estate commission, it's essential to understand the services you can expect from a real estate agent. These services include pricing consultation, property promotion, showings and open houses, offer negotiation, and legal and administrative assistance and much, much more… 

But when interviewing agents and discussing commissions, realize the lowest real estate commission paid does not necessarily mean you net more money.  A higher commission structure can provide you with more services that could lead to you paying a higher commission and putting more money in your pocket on closing day. 

Working with an agent can provide several benefits and potentially lead to a higher sale price. In this article, we'll explore the various services provided by real estate agents and the value they bring to the buying or selling process. Let's dive in. 

Understanding Real Estate Commissions

Real estate commissions play a vital role in the industry, serving as compensation for the expertise and services real estate agents provide. These commissions are typically negotiated and calculated as a percentage of the property's sale price.

Negotiability of Commissions

Real estate commissions are generally negotiable, allowing for flexibility between agents and their clients. The percentage can vary based on market conditions, property value, and the agreement between the agent and the client.

Calculation of Commissions

Commissions are calculated by multiplying the agreed-upon percentage between the agent and the client by the property's final sale price. For example, if the commission percentage is 5% and the property sells for $600,000, the commission would amount to $30,000.

Who Pays the Real Estate Commission?

In the world of real estate transactions, it is common for the seller to be responsible for paying the real estate commission. However, it's essential to understand that the commission is typically factored into the property's listing price. As a result, the buyer ultimately indirectly covers the commission expenses.

This practice is because the seller typically includes the anticipated commission in the listing price. When the transaction is completed, the proceeds from the sale are distributed to cover various expenses, including the commission amount. This means that while the seller is technically responsible for the commission, the buyer ultimately pays for it through the property's purchase price.

Make Sure You Are Comparing Apples To Apples When Discussing Real Estate Commissions

Often, when a seller calls, the first statement out of their mouth is how much is your commission to sell a house.  However, sellers should realize there is more to selling a home than the real estate commission paid.

Does it matter if you pay 6% for a commission versus 4% if you netted more money for the higher commission paid?  As a real-life sample, I had a listing years ago on the market as an identical unit, and they should have sold within thousands of dollars of each other. 

I sold my unit for $365,000 and the other agent sold it for $348,000.  A total of $17,000 more and I sold my unit in half the time.

So if the other agent charged 4% and I charged 6% the seller would have still netted $9020 more while paying 2% more in commission.

The bottom line is that paying less of a commission does not always put more money in your pocket.

Two Considerations When Discussing Commissions

There are two things to consider when discussing commissions with a real estate agent.  The first is experience and the second is services provided.

Experience

Experience in real estate is a bit like having a seasoned pilot at the controls of your plane. It's not just about flying; it's about navigating through turbulence smoothly. Let's break down why experience really matters when you're hiring a real estate agent.

Market Knowledge: Experienced agents have their finger on the market's pulse. They've seen the highs, the lows, and everything in between. This means they can offer insights on pricing, trends, and what to expect in your area. They're like your personal market encyclopedia.

Negotiation Skills: This is a biggie. Real estate deals are all about negotiation. An experienced agent has likely been through hundreds of negotiations. They know the tricks, the tactics, and how to keep a deal on track while ensuring you get the best possible outcome. Think of them as your negotiation ninja.

Problem-Solving: Things don't always go as planned. Experienced agents have seen various problems and learned how to solve them effectively. Whether it's an issue with financing, inspection, or legalities, they're equipped to handle these hurdles.

Network and Connections: Over the years, seasoned agents build a network of contacts including other realtors, lawyers, inspectors, and contractors. This network can be invaluable in smoothing the process and efficiently getting things done.

Understanding Legalities and Paperwork: Real estate transactions involve a lot of paperwork and legal jargon. Experienced agents are familiar with these documents and can help you navigate them, ensuring that you understand what you're signing and that all the i's are dotted and t's are crossed.

Tailoring Strategies: Every buyer or seller and their situation are unique. An experienced agent can tailor their strategy to suit your needs and circumstances. They're not just following a script but crafting a plan that works for you.

Handling Stress and Emotions: Real estate transactions can be emotional. An experienced agent acts as a buffer and a voice of reason, helping to keep the process as stress-free as possible. They're like your personal real estate therapist.

In short, experience in real estate isn't just about the years in the business; it's about the depth of knowledge, skills, and expertise that can make your property journey smoother, more successful, and less stressful. It's about having someone who can steer the ship through calm and stormy waters alike.

What Services Are Being Provided?

Are you going to hire a post-and-pray agent who snaps a few cell phone pictures and tosses your house into the MLS or an agent who has a carefully crafted marketing plan to get your home sold for top dollar?

Selling your home for top dollar is like staging a great play — every element needs to be spot on. A top-notch real estate agent brings a suite of services to the table to ensure your home sells quickly and for the best price. Here’s what you should expect from them:

Market Analysis and Pricing Strategy:

Your agent should start with a comprehensive market analysis. This isn't just about looking at comparable sales; it's about understanding current market trends, local demand, and how your home fits into the picture. The goal? Setting a competitive price that attracts buyers and maximizes your profit.

Professional Staging Advice:

Presentation is key. A skilled agent often guides your home's preparation and staging to highlight its best features. This might involve decluttering, rearranging furniture, or even bringing in professional stagers. The idea is to create an environment where buyers can envision themselves living.

This may even include the agent providing a home staging consultation from a professional home stager.  Or if you have a vacant home providing virtual staging services.

High-Quality Photography and Virtual Tours:

In today's digital world, your home's first showing is online. A top agent ensures your listing stands out with professional, high-resolution photographs and possibly a virtual tour. This step is crucial for making a solid first impression.

But it goes a step further. A top agent should consider providing drone photography, videography and 3D models of your home.

Effective Marketing and Advertising:

A strategic marketing plan is essential. Your agent should use a mix of traditional (like open houses and signage) and digital (like social media, email campaigns, and online listings) marketing techniques to reach a broad audience.

The more exposure your home gets, the better your chances of finding the right buyer.

Negotiation Skills:

Once offers start coming in, your agent’s negotiation skills become invaluable. They should handle counteroffers and negotiate terms (like price, contingencies, and closing dates) to secure your best deal.

An experienced agent spends part of every day negotiating everything from timelines, purchase prices, repairs, and more.  They become adept at dealing and putting those skills to work for you on your behalf.

Communication and Updates:

Regular updates and open communication are crucial. A good agent keeps you informed throughout the process, from listing to closing.

They should be easily accessible and responsive to your questions and concerns.

Handling Paperwork and Legalities:

Real estate transactions involve a lot of paperwork. A top agent guides you through this effortlessly, ensuring everything is completed correctly and on time. They should also be knowledgeable about legal requirements and local real estate laws.

Network of Professionals:

Often, selling a home involves other professionals like inspectors, appraisers, and lawyers. A well-connected agent can recommend trusted professionals to make sure every aspect of the sale goes smoothly.

Post-Sale Support:

Even after the sale, a good agent may assist with the transition, offering advice or resources for your next steps, whether it's finding a new home or moving to a new area.

Essentially, a top real estate agent acts as a conductor, orchestrating each step of the sale process to ensure you hit the high notes and your home sells for top dollar. They blend market savvy, marketing acumen, and customer service to make your home-selling journey as smooth and profitable as possible.

All of these services add up to your home selling for more money.  So make sure when you compare one agents real estate commission structure to another you are comparing experience and services as well. 

Understanding Real Estate Market Trends and Commission Rates

When it comes to real estate market trends and commission rates, it is essential for buyers and sellers to stay informed. This section provides an overview of the historical perspective on commission rates, current trends, and the factors that influence these rates.

Historical Perspective on Commission Rates

Over time, the standard commission rate for real estate transactions has evolved. Historically, a 6% commission was considered the norm. However, in recent years, this rate has gradually decreased, and it is now more common to see commissions ranging from 4% to 5%. According to research conducted by Effective Agents in 2022, the average real estate commission was 5.46%.

Current Trends in Commission Rates

Commission rates can vary based on multiple factors, including the region, local market conditions, property type, and the specific services the real estate agent provides.

In highly competitive markets, agents may be more willing to negotiate lower rates to secure a listing. Discount brokerages and alternative selling models have emerged, offering lower commission rates as an alternative to traditional full-service agents.

Factors Influencing Commission Rates

Several factors can influence the commission rates charged by real estate agents. These factors may include the complexity of the transaction, the level of experience and expertise of the agent, the local market competition and the price point of your home. Selling your home for top dollar is like staging a great play — every element must be spot on. A top-notch real estate agent brings a suite of services to ensure your home sells quickly and for the best price.  

FAQ: Common Questions About Real Estate Commissions

When it comes to real estate commissions, it's natural to have questions. Here are some frequently asked questions about real estate commissions:

Are Real Estate Commissions Negotiable?

Yes, real estate commissions are often negotiable. The commission rate can vary depending on factors such as the local market, the property's value, and the specific services provided by the agent. It's important to discuss commission rates and negotiate with your agent to ensure a fair agreement for both parties.

Who Pays the Real Estate Commission?

In most cases, the seller pays the real estate commission. The commission is typically included in the listing agreement and is deducted from the proceeds of the sale. However, it's important to note that the cost of the commission is ultimately factored into the selling price of the property, which indirectly means the buyer is indirectly paying the commission.

What Services Can I Expect When I Pay a Commission?

When you pay a real estate commission, you can expect a range of services from your agent. These services typically include:

  • Assistance in determining the optimal price for your property
  • Promotion and marketing of your property to potential buyers
  • Organizing and conducting property showings and open houses
  • Negotiating offers and terms on your behalf
  • Handling legal and administrative tasks, such as preparing contracts and coordinating with other professionals involved in the transaction

Can I Sell a Property Without Using a Real Estate Agent?

Yes, it is possible to sell a property without a real estate agent. This is known as a "For Sale By Owner" (FSBO) transaction. However, it's important to note that selling a property without an agent can be more challenging and may require a deeper understanding of the real estate market and legal aspects of the transaction.

How Do Real Estate Agents Get Paid?

Real estate agents are typically paid through the commission they receive from the sale of a property. Once the sale is finalized, the agent's commission is deducted from the proceeds. The commission is then shared between the listing broker (the broker representing the seller) and the buyer's broker (the broker representing the buyer).

Do Buyers Pay a Commission?

In most cases, buyers do not directly pay a commission to their agent. The buyer's agent is typically compensated through the seller's commission. However, it's important to clarify the details of the commission arrangement with your agent to ensure transparency and understanding.

Understanding these frequently asked questions about real estate commissions can help navigate the buying or selling process with confidence. Discuss commission rates and services with your agent to ensure a mutually beneficial agreement.

The Bottom Line: Understanding Real Estate Commissions

By understanding the ins and outs of real estate commissions, you can make informed decisions when buying or selling a property. Working with a knowledgeable real estate agent can ensure a smooth and successful transaction, providing valuable services every step of the way.

And remember, choose the agent that provides detailed information and a well-thought-out marketing plan.  Not just one that offers the lowest real estate commission.

Comments (7)

John Pusa
Glendale, CA

Hello Kevin Vitali very good helpful report about not all commissions are created equally.

Nov 13, 2023 02:06 PM
Michael Jacobs
Pasadena, CA
Pasadena And Southern California 818.516.4393

Hello Kevin - long before real estate,  I understood the concept there was no free lunch.  This post explains it quite well.

Nov 13, 2023 02:50 PM
Kevin Vitali

Thanks Michael Jacobs 

Nov 14, 2023 03:26 AM
Lawrence "Larry" & Sheila Agranoff. Cell: 631-805-4400
The Top Team @ Charles Rutenberg Realty 255 Executive Dr, Plainview NY 11803 - Plainview, NY
Long Island Condo and Home Specialists

A thorough understanding of commissions empowers informed decisions, and working with a skilled agent ensures a seamless, valuable process. 

Nov 14, 2023 04:05 AM
Richard Weeks
Dallas, TX
REALTOR®, Broker
Great information, thanks for sharing.  I hope you have a great day.
Nov 14, 2023 05:08 AM
Kevin Vitali
EXIT Realty Beatrice Associates - Middleton, MA
Helping Massachusetts Home Buyers and Home Sellers

Thanks Richard Weeks 

Nov 14, 2023 06:06 AM
Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

It’s a great post. Thank you for sharing!

 

Have a super fantastic week!

Joe Jackson, Realtor-KWCP

Nov 14, 2023 10:22 AM
Kevin Vitali
EXIT Realty Beatrice Associates - Middleton, MA
Helping Massachusetts Home Buyers and Home Sellers

Thanks Joe Jackson 

Nov 14, 2023 12:23 PM