The real estate commission is the amount of money paid to a real estate brokerage for assisting with the purchase and sale of a home. This amount is often paid as a percentage of the final sales price of the home. The commission is typically, but not always, split evenly between the brokerage representing the buyer and the brokerage representing the seller.
The typical real estate commission is between 5.5% and 6% of the home sales price. The national average is usually close to 5.7-5.8%. Many people believe that the average real estate commission is 6% but this has not been true for quite some time. Real estate commissions are negotiable, so there is no set rule on what they can be. In fact, there are laws that specifically prevent brokerages from colluding to set a standard commission rate.
The real estate commission is paid to the brokerage, not to the agent. As a result, the agent typically receives a portion of the commission after the brokerage takes it cut, called the split.
For example, if a home sales for $100,000 and has a 6% commission, the total brokerage fees will be $6,000. If the commission is split evenly between the buyer’s agent and seller’s agent, then the seller’s agent brokerage will collect $3,000. The seller’s agent then will get some portion of the $3,000 based on a predetermined split with their brokerage.
The commission fee is paid from the final sale of the house. Technically, the seller receives the home sales price after the cost of agent fees are removed. As a result, the seller and the seller’s agent will often decide how high of a commission to offer. But this often accounts for the fact the buyer will have an agent. As a result, the buyer and seller often collectively pay for the agent fees even though the commission comes out of the sales price of the house.
Commissions are negotiated and can vary by market and brokerage. Some agents may charge more because they are high in demand. Some markets may have higher or lower commissions. And in some cases, brokerages offer lower commissions. For example, companies like Redfin offer 1-2% listing services to all clients. Other companies offer flat fee listing services for set dollar amounts. Ultimately, clients will pay the commission they think is necessary to get the right level of service for their needs.
Sometimes real estate commissions offered on a home can change. For example, a seller may notice that a 2.5% commission offered to a buyer's agent is not getting a lot of traction. They may instruct their agent to raise the buyer’s agent commission to 3.0% in an effort to increase traffic.
Typically, agents are not paid if a home does not sell. But in some cases, clients may pay for specific services, such as posting on the multiple listing service, and may still owe some money in fees. There are also other cases, such as if the client backs out of an agreed deal, where the agent may have some legal recourse to collect fees.