You may have heard a lot about real estate commissions recently. In November 2024, the National Association of REALTORS® settled a lawsuit that reinforced the negotiability of commissions in real estate transactions. This has led to some rewording of forms and generated many questions. This post is designed to provide you with up-to-date information so you can navigate your real estate transaction with confidence and clarity.
What is a Real Estate Commission?
A real estate commission is a fee paid to real estate professionals for their services in buying or selling property. It is compensation for the agent’s time and expertise. These fees are always negotiable and can take different forms depending on the agreement between the client and the agent.
Buyer’s Agent Commission (also called Selling Agent Commission): This is the fee paid to the agent who represents the buyer in a transaction. It can be structured as a flat fee or a percentage of the sales price. The payment responsibility can fall on the buyer, the seller, or be negotiated into the deal.
Listing Agent Commission: This fee is paid to the agent representing the seller. Like the buyer’s agent commission, it can be a percentage of the sales price or a flat fee and is typically covered by the seller.
Other Ways Agents Are Paid
In addition to commissions from real estate transactions, agents may receive compensation in other ways:
Builder Incentives: Some builders offer financial incentives to agents to encourage them to bring buyers to their new developments.
Bonuses: Agents can receive bonuses from sellers, landlords, or other agents for successfully closing deals, but these must be fully disclosed to all parties involved.
All forms of compensation must be clearly outlined in an official document, ensuring transparency. Buyers and sellers must agree to these terms before any payment is made.
Do Agents Keep All the Compensation?
No, agents do not typically keep the full commission amount. Their commission is often split with their brokerage. The specifics of this split depend on the agent’s experience, the brokerage’s policies, and their negotiated agreement.
Brokers vs. Agents: A broker holds additional certifications and takes on greater liability than an agent. Agents work under brokers and must split commissions with them until certain financial thresholds are met.
Commission Splits: Some brokerages take a higher percentage of an agent's commission in exchange for training, marketing, or other benefits. The specific split varies from brokerage to brokerage.
What Do Real Estate Agents Do to Earn Commission?
In addition to taking on liability, real estate agents wear many hats and provide a wide range of services to their clients. Here are some key responsibilities:
For Sellers:
Conduct market analysis and research to determine the best listing price range.
Provide guidance on home staging and necessary repairs to maximize value.
Arrange for professional photography and videography to showcase the home.
List the property on the Multiple Listing Service (MLS) and market it to a wide audience.
Handle scheduling for showings and open houses.
Field calls and inquiries from potential buyers and their agents.
Advise sellers on offers, negotiate the best possible terms, and manage contract changes.
Coordinate with title companies, lenders, inspectors, and other parties to ensure a smooth transaction.
Ensure all legal and regulatory requirements are met throughout the selling process.
For Buyers:
Understand the buyer’s needs and create customized property searches.
Schedule and conduct property tours, including homes not yet listed publicly.
Provide lender recommendations and financial guidance.
Analyze comparable properties to ensure buyers make competitive offers.
Draft contracts and include necessary forms for submission.
Negotiate terms and contingencies to secure the best deal.
Facilitate home inspections, appraisals, and financing approvals.
Work closely with the title company and ensure all closing procedures are followed.
Provide continued support in case issues arise before or after closing.
How Does Commission Work in a Real Estate Transaction?
Commissions are always negotiable and should be discussed early in the relationship between client and agent. The agreed-upon terms are documented in writing to ensure transparency.
For Sellers:
During the listing appointment, the agent explains their commission rate and the seller decides whether to agree. Commissions can be a flat rate or a percentage of the sales price. A common rate is 3% of the sales price, but this can vary based on the agent’s services and the market conditions. Commissions are always negotiable.
Sellers must also decide whether to pay the Buyer’s Agent Commission (BAC), which can influence how many buyers are interested in the property. A typical BAC is 3%, but sellers have options:
Offer a set commission to attract buyer agents and encourage showings.
Opt not to specify a BAC and negotiate it directly with the buyer during the offer stage.
If the BAC is lower than what the buyer and their agent agreed upon in their contract, the buyer may ask for the seller to cover the difference or offer additional closing cost assistance.
For Buyers:
Buyers discuss commission with their agent before signing a Buyer/Tenant Representation Agreement. This agreement outlines how much the agent will be paid for the transaction. The agent and the buyer then discuss what will happen, should the seller of a home not want to pay this commission. Commonly the BAC is 3%, but this amount is negotiable.
If the seller covers the agreed commission, the buyer has no additional financial obligation.
If the seller offers less than the agreed commission, the buyer may need to pay the difference or negotiate in the offer that the seller pays this cost.
Some buyers request to only see properties that cover their agent’s full commission, which can limit their options in the market.
Factors to Consider When Deciding on Commission
Commissions are flexible, but it’s essential to consider your situation before making a final decision. Ask yourself:
How quickly do I need to buy or sell?
What are current market conditions (buyer’s market vs. seller’s market)?
How much do I value my agent’s expertise and services?
What is my financial flexibility if I need to pay part of the commission?
How involved do I want to be in negotiations and the transaction process?
Conclusion
Understanding real estate commission helps you make informed decisions whether you are buying or selling. While commissions are always negotiable, they reflect the value and expertise that agents bring to the table. Be sure to discuss expectations early in the process and ensure all agreements are in writing. If you have any questions, I’m happy to help guide you through your real estate journey! Email me at Kristin@HaylesRealEstate.com or call 281-881-3881.
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