The home-selling process can be daunting, whether it's the first home you're selling or even if you have a track record of homes you've sold previously. Read below to learn who exactly pays the commission in the home selling process!
The seller will predominately pay the commission to the listing and buyer's agent when the home closes. About 25% of the real estate commissions paid in 2020 were from a buyer. Buyers will still have closing costs like appraisal, inspection, earnest money, loan fees, and mortgage insurance.
While the seller technically disburses the payment, the funds come from the money the buyer pays to the seller. It's not uncommon for seller's agents to account for their commissions by factoring them into the initial listing price. In some sense, buyers are footing the bill indirectly.
While the average real estate commission rates have fluctuated year to year, the average has remained between 5 and 6% for over a century. In 2021, the average commission was right about 5.6%. This commission is usually split evenly among buyers' and sellers' agents. The average commission and split among agents are dependent on the agent and location.
If the home's selling price is $500,0000, the seller would pay $27,500 with an average fee of 5.5%. The $27,500 would then be divided among the buyer and seller's agent, each paid $13,750 in this scenario.
There are also instances where a seller pays a flat fee but this is less than 3% of the real estate transactions in 2020.
The costs associated with homes can add up quickly when purchasing or selling a new home. Adding a 6% commission on top of everything can make or break a transaction. Agents are used to having conversations around compensations. Some agents are willing to negotiate commission or add extra services like staging. There are a lot of agents, and they have to remain competitive to get and keep your business. However, varying compensation can also yield varying levels of agents.
Suppose an agent has one listing where the seller is paying a 6% commission and another paying a 4% commission with a second listing. The agent will likely prioritize the listing to close with a 6% commission. If they don't prioritize it, they might spend less money on marketing or open houses on the listing making a 4% commission in an attempt to compensate.
Keep in mind that an agent might have control over their commission. Agents are legally required to work under a broker. If a seller is not working with a broker for their property, the agent will be paying a percentage of their commission back to their broker. If this is the case, the broker could have parameters that an agent must abide by.
If the home doesn't sell, the seller is most likely not responsible for the commission. Typically, the commission is based on the assumption that the home is sold. However, read the contract. While untypical, agents could have specific clauses or situations where the agent would be entitled to some or all of the commission.
It can become tricky when the owner has a home for sale. The seller might still have to pay the buyer agent's commission, usually around 2.5-3% of the home's sales price. The seller will also be responsible for all the paperwork and negotiations associated with the sale. So while it might be more cost-effective, the seller may lose time waiting on a buyer or selling the home.
The commission includes the agent's pay for work and time and the fees and costs associated with listing and selling the property. An agent should offer their negotiation skills to get their client the best deal and make recommendations on price and potential scenarios. The commission also covers the agent's fees for listing on the MLS and any other listing service. Depending on the contract, the commission also includes the marketing costs such as open houses, mailers, and flyers that are utilized to sell the property. Things like the cost of staging or photography may or not be included in the agent's commission.
Rental agents work differently than purchase agents. The landlord or the management company decides who pays the rental agent's fee. The fee generally falls between one month's rent and 15% for the property's annual rent.
One of the associations with real state agents and commissions is that they are too high or the service rendered is not worth the cost associated.
If a home sells as a pocket listing or one the first day, the seller's agents could make a nice sum without relatively little work. However, on the opposite end of the spectrum, the home could spend months or even, in some cases, years to sell.
This amount of hours and money spent marketing the home, holding open houses, talking on the phone, and working the listing could add up quickly. In this case, the seller is getting the agent's services for a steal compared to what an hourly rate for the agent would be.
The same goes for buyers. Some find a house right out of the gate, and others see dozens and dozens of homes across a month before finding the perfect fit. If buyers had to pay by the hour, it would affect their decision because of the compounding costs.
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