Real Estate Commissions

The vast majority of people who buy and sell their homes work with a real estate agent or realtor (let’s simply call them an “agent” from here on). These professional representatives should, in theory, streamline the process, acting as marketers, guides, directors and scouts, all rolled into a single role. They should help sellers reduce days on market (DOM), gussy up a property and ferret out motivated buyers. Likewise, selling agents on the buyer side should coach home hunters, attend viewings, answer questions and track down pertinent paperwork.

But agents don’t do it out of the kindness of their hearts; they have to get paid somehow. And that payment comes in the form of commissions. In this article, let’s take a deep dive into the world of real estate agent commissions. Below, you’ll find FAQs that tackle basic questions and learn lesser-known tips for finding competitive commission rates.

What Is a Commission?

Let’s start with the fundamentals. A commission is the cut an agent takes for either selling a home or helping a buyer find a home. Put more professionally, it is the “compensation” for the “services rendered,” a standard variable form of remuneration that exists in several service-based industries. In real estate, an agent’s commission is tied to the purchase price of a home (following a formerly agreed-upon percentage).

How Much Is a Real Estate Commission, on Average?

The short answer is: it depends. Some areas boast higher commission rates overall, and, within given areas, some agents exact higher rates. It’s up to individual agents to set their commission rates, but agents typically tend to hew close to the area average.

The average commission overall (taken with a grain of salt) is around five or six percent, split evenly between the listing and selling agent. The seller fronts the cost of the commission at the time of sale. So, if a house goes for one million dollars with a pre-agreed six percent commission rate, the seller will pay out $60,000 commission – 30 to the listing agent, 30 to the selling agent.

Not bad for the agents, especially if it was a quick and easy sale.

Are Commission Rates Transparent, Negotiable and/or Final?

Next, let’s dispel some common myths. First, commission rates aren’t always clear – at least, they weren’t in the past. Unlike other industries where price transparency is the norm, real estate agents often conceal their commission rates until engaged, making it challenging for sellers to shop for a reasonable listing agent. Next, several sellers are under the impression that commission rates are non-negotiable and fixed – they aren’t. You can negotiate a commission rate and even work cashback incentives into your agreement.

A seller looking for a deal on commission rates should use a real estate digital marketplace like Nobul. On Nobul, consumers can shop around for a real estate agent based on personal criteria (services offered, transaction history and, of course, commission rates). The platform’s proprietary algorithm suggests relevant agents; then, those agents can compete for a seller’s business by offering lower commission rates, incentives or services. Many in the industry view the innovative tech company as a positive disruptor, a democratizing force that helps keep prices fair and information transparent.

“Real estate transactions have the single largest fees people pay,” says Nobul CEO Regan McGee, “and the average person pays those fees 11 times in their lifetime. For us to be disrupting this market is extremely exciting.”

What Do Sellers Get in Return?

A seller parting with thousands (or tens of thousands) of dollars naturally expects value in return. Agents demonstrate value in various ways. A listing agent might coordinate home staging, professional photography and curb appeal projects; they will advertise the home and facilitate virtual and/or in-person viewings; at a minimum, they will coordinate with selling agents to provide prospective buyers with information. Hopefully, all of these services coalesce to promote a quick, painless and fairly valued sale.

Selling agents demonstrate their value by guiding buyers (especially first-time homebuyers) through the real estate process; they attend viewings, whether in-person or via videoconferencing; they draft, send and negotiate offers; they gather pertinent information on property claims, liens, original house plans, HOA fees and strata proactivity (if applicable). And, critically, they connect prospective buyers with sellers (while looking out for the buyer’s interests). 

Whether you’re considering selling your home or buying a home, it pays (sometimes literally) to understand agent commissions. Hopefully, this article answers your questions and offers insights so you can find a quality agent in your budget.