Most people who buy or sell a home do so with the help of a licensed real estate agent. These professionals know their local markets, have superior negotiating skills, and can generally make the entire buying and selling process easier. In exchange for their expertise, real estate agents earn a commission. Here's a look at how real estate commissions work and who pays these fees.
- Real estate commissions are always negotiable but are often between 4% and 6%.
- If two agents work on a real estate transaction—one for the buyer and one for the seller—the commission is usually split down the middle.
- The real estate brokerage takes a cut of the commission to help pay for things like advertising and office space.
Real estate agents and brokers typically don't charge buyers and sellers by the hour. Instead, they take a cut of the sales price—in the form of a commission.
The contracts that buyers and sellers have with their agents determine the agents' commissions. The real estate fee is often split evenly between the buyer and seller agents, although a contract could stipulate that one agent receives more of the commission than the other.
The terms realtor, real estate agent, and broker are often used interchangeably, but they differ. Agents and brokers have different levels of licensing, and either can become a realtor by joining the National Association of Realtors.
The fee doesn't go straight to the real estate agents, however. It first goes to the listing and selling brokers. That's because real estate agents must work for and under the umbrella of a broker, and the brokers take a cut of the real estate fees to cover costs such as advertising, sign rentals, and office space.
Each broker then splits the amount with the agent, sometimes 50/50, but it could be any amount upon which the broker and agent have agreed. So, a 5% commission would break down as follows, assuming a 50/50 split across the board:
- Listing broker: 1.25%
- Selling broker: 1.25%
- Seller's agent: 1.25%
- Buyer's agent: 1.25%
On a $200,000 sale, each broker and agent would receive $2,500.
Real estate commissions are always negotiable—otherwise, agents would be in violation of state and federal antitrust laws—so they vary. Though 6% has traditionally been regarded as the standard fee, commissions typically fall between 4% and 5% nowadays. The average real estate commission in 2020 was 4.94%, according to research firm RealTrends.
Keep in mind that the commission represents a percentage of the home's selling price—so the exact fee won't be known until an offer is accepted and the house is sold.
Precisely who pays a real estate agent's commission is where things get a little tricky. Standard practice is that the seller pays the fee. However, the seller usually wraps the fee into the price of the home. So, the buyer ultimately ends up paying the fee, albeit indirectly.
Let's say, for example, that a buyer and seller (each with a real estate agent) agree to a deal on a home for $200,000. Assuming the real estate commission is 5%, the fee would be $10,000 ($200,000 x 0.05). The fee comes out of the cost of the home—it is not added to the sale price. So, although the buyer would pay $200,000, the seller would receive $190,000 from the sale. (This is an overly simplified example as closing costs and other fees would apply.)
One of the biggest contentions about real estate fees is that they are too high, or that the service real estate agents deliver isn't worth the cost.
If a home sells on the first day it's listed, the seller's agent could make a tidy sum for relatively little work—such as taking photos, setting a listing price, and putting the home on the market. However, on the flip side, a home can also take weeks, months, or in the case of very unique or expensive houses, years to sell.
For the seller's agent, this can add up to many hours spent marketing the home, holding open houses, taking phone calls, and staying abreast of other listings and sales in the neighborhood. That agent will also bear the long-term cost of keeping the house on the market, including signage and advertising fees. If you look at it this way, not many sellers would want to take the risk of paying a real estate agent by the hour.
The same goes for buyers. Some will find a house immediately, while others will look at dozens of homes—over weeks or months—before settling on one. If buyers had to pay an agent by the hour, they would likely feel rushed into making a decision.
Of course, there are listing agents who work for a flat fee—such as $100 or $500. This can obviously benefit sellers (and ultimately buyers) in terms of cost savings, but the drawback is that these agents may offer limited representation.
A traditional real estate agent will be your partner throughout the entire homebuying or selling process. A seller's agent will help you stage your home, take professional photos, get your home on a multiple listing service, advertise, schedule and host open houses, and negotiate on your behalf.
Similarly, buyer's agents will help you determine your must-haves, find the right property, take you to showings, negotiate offers, and recommend other professionals (such as a home inspector).
Flat-fee or discount brokerages may cost less, but you could end up getting what you paid for. Still, there are full-service agents who work for a lower commission or flat fee. If you decide to go this route, be sure to find out ahead of time which services the agent offers to make sure that what you will get matches your expectations.
Most buyers and sellers work with real estate agents. In exchange for their work, agents receive a percentage of the sales price known as the commission. Though it's the seller who is usually on the hook for the commission, the cost is generally factored into the listing price of the home. In this way, the buyer ultimately bears the cost of any real estate fees.
Keep in mind that commissions are always negotiable. If you're concerned about high fees, two options to consider are using a flat-fee or discount broker or doing a for-sale-by-owner sale. Alternatively, the best real estate websites can potentially enable potential buyers to search for a home without having to engage with a real estate agent at all.
An exclusive listing is a type of real estate listing agreement in which a property seller appoints and specifically authorizes one real estate broker to act as the seller’s sole agent. By contrast, in an open or non-exclusive listing, the seller retains the right to employ any number of brokers as agents.
- An exclusive listing is a type of real estate listing agreement in which one broker is appointed as the seller’s sole agent.
- In an exclusive agency listing, the seller retains the right to sell the property, with no obligation to the broker.
- With exclusive right-to-sell listings, the broker receives a commission regardless of who sells the property.
- Exclusive listings give sellers greater privacy and control over testing prices in the market.
- Because you're working with a smaller circle of buyers, exclusive listings generally receive less offers and you're more likely to have a potential conflict-of-interest with your agent.
A listing agreement is a contract under which a property owner (as principal) authorizes a real estate broker (as agent) to find a buyer for the property on the owner’s terms, a service for which the owner pays a commission.
To understand how an exclusive listing works, it’s helpful to first consider open listings. In an open listing, the seller retains the right to employ numerous brokers as agents. The seller is obligated to pay a commission only to the broker who successfully produces a ready, willing, and able buyer. If the seller finds a buyer without the help of any of the brokers, then the seller is not obligated to pay a commission to anyone.
An exclusive listing works differently. In an exclusive listing, only one broker is specifically authorized to act as the exclusive agent of the seller. That means one broker has the sole right to market, show, and sell the property; other brokers are excluded from trying to sell the property while the agreement is active.
There are two types of exclusive listings: exclusive agency and exclusive right-to-sell listings. Both types of listings work specifically with one agent. However, they vary in the way that commissions are structured.
One broker is appointed to act as the exclusive agent for the seller. The seller retains the right to sell the property, with no obligation to the broker. However, the seller is obligated to pay a real estate commission to the broker if the broker is the procuring cause of the sale.
This is the most commonly used real estate contract. With this type of listing agreement, one broker is authorized as the seller’s sole agent and has exclusive authorization to represent the property. While the listing agreement is in effect, the broker receives a commission no matter who sells the property.
The primary difference between exclusive agency and exclusive right-to-sell relates to commission fees. In an exclusive agency listing, the seller only pays fees if the agent sells the property. In an exclusive right to sell agreement, the seller must pay realtor fees regardless of if the property is sold.
With an exclusive listing, you are more likely to develop a longer-term working relationship with a single real estate agent. As this agent is the only party responsible for the sale of your property, you may experience that the agent is more motivated to execute the sale as opposed to open listings.
As you develop a relationship with your exclusive real estate agent, they are more likely to make strategic recommendations such as marketing, advertising, and renovation approaches to attract higher offers.
An exclusive listing also gives the seller an opportunity to test the market with fewer future consequences of price changes. If your property is openly listed on the MLS, the general public will know your initial asking price and will see it every time you change this asking bid. For an exclusively listed price, your agent can control who has access to pricing information. There is less risk of potential buyers seeing you've previously reduced the price and using this to their advantage when negotiating.
Exclusive listings are more suitable for sellers that want to control who and how many people are going in and out of their homes during the sale of property. To weed out non-competitive house seekers, sellers can focus on only qualified buyers that are serious about submitting bids by restricting who has an incentive to sell your property.
As exclusive listings offer a certain level of privacy to a seller, celebrities and notable public figures often exclusively list their properties and rely on a real estate agent within their network.
Exclusive listings often have more complicated fee structures than open listings. While some real estate agents may charge a lower commission, they may charge higher fees or include/exclude other benefits as part of the agreement.
If you're hoping to sell your property fast, exclusive listings may not be the best path for you. Exclusive listings have limited exposure as the offering is not publicly listed. Without an MLS listing, your property will simply garner less attention as your offering is restricted to your real estate agent's direct network reach.
Exclusive listings are also somewhat controversial. Proponents of open listings cite that exclusively listing your property reduces competition in the neighborhood, affects the accuracy of home prices potential buyers may see, and negatively impacts the information available for other sellers.
There is also a higher chance of a conflict of interest arising due to using an exclusive agent. If that single agent is responsible for finding a buyer, that buyer may in turn decide to use that exclusive agent on their behalf. Though a real estate agent would owe both parties a fiduciary duty, it may be more difficult to speak freely and express your concerns with an agent that is knowingly communicating and representing the buyer as well.
Pros
More likely to develop long-term working relationship with a single real estate agent
More likely to receive strategic advice from agent who has more knowledge of property
Can test market by setting non-public price that can easily change with minimal impact
Grants seller greater privacy and control over who enters home during sale process
Cons
May result in more complicated fee structures
Often results in lower exposure than open listings, leading to potentially slower sales
May not receive accurate information regarding your home due to restricting information
More likely to result in conflict of interest with agent who often ends up representing buyer in exclusive listing deals
An exclusive listing can often be referred to as a pocket listing or off-market listing. When entering into an agreement with only one real estate agent, consider the duration of the agreement. Depending on the terms and timing of the agreement, you may not be required to pay a commission should they be unable to find a buyer within a specified time.
Ensure your exclusive listing agreement stipulates what happens if certain unfortunate circumstances should occur. For example, you or the buyer may fail to meet any number of approval contingencies. In this situation, understand the financial ramifications you owe to the agent should a deal progress but eventually fall through.
An exclusive listing is a method of selling real estate property by working directly with just one real estate agent. Instead of publicly listing your home for sale, you agree to let a single real estate agent attempt to find buyers and manage the sale process.
Exclusively listing your home results in greater privacy and price control over your listing. You'll have to work with less agents, and you have control over who can visit your property which may be important for sites under development or major renovation.
Home exclusively listed often takes longer to sell due to there being fewer eyes on the deal. For this reason, you're more likely to receive fewer offers and less competition on your listing. While a higher price isn't necessarily guaranteed, exclusive listings can benefit a buyer by have a greater ability to explore pricing without public knowledge
An exclusive agency listing results in a commission being paid to the real estate agent should the home be sold by that agent. However, no fees are due if someone else sells the home. Otherwise, an exclusive right-to-sell listing results in the real estate agent receiving a commission regardless of who sold the property.
Exclusive listings are private sales in which a seller agrees to only work with one specific real estate agent during a sale. That real estate agent attempts to solicit bids from qualified buyers. Non-exclusive listings entail publicly listing a house for sale and potentially working with any real estate broker that brings a potential buyer to you.