Do I Need a Realtor? All About Fees and Commissions
The price you pay for a real estate agent is negotiable, but is it always the best option?
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Realtor Fees and Commissions
As you go through the home buying process, you’ll no doubt notice the slate of additional fees that are tacked onto the closing. Because many of these are absorbed by the seller, you likely didn’t pay them the first time around. When you prepare to sell a home, you’ll learn that up to 6% of the sale price goes towards realtor commissions and fees. It may have you wondering if you need a realtor at all. Is it worth it, or would it be better to attempt to sell your home on your own?
What is Real Estate Commission?
Real Estate Commission refers to the fee paid to the real estate agents involved in a transaction, including both the buyer and seller agent. The fee covers the cost of the agents’ work, just as you would pay anyone else for performing a service.
The seller traditionally pays the full commission for both agents, but negotiations sometimes create exceptions. The average real estate commission is between 5-6%, which may seem high. However, consider that real estate agents are not typically paid hourly or by salary. Most real estate agents or realtors work solely on commission, which means they do not get paid until the home is bought or sold.
What is the Benefit of Working with a Realtor?
A real estate agent must complete a certain amount of training and education, which will vary by state, to obtain a license. Their knowledge alone will be valuable to both buyers and sellers, but they offer even more than that. A realtor will provide a comprehensive market analysis, negotiate the property’s sale price, and prepare important legal documents.
Market Analysis
Your real estate agent will create a market analysis, sometimes referred to as ‘comps’. It should encompass several factors that will impact your home’s sale price, particularly as it compares to recent sales of other houses in the area.
This analysis is a critical service that allows the agent to assist you in pricing your home correctly. Hopefully, you’ll not only sell your home quickly, but you’ll sell it for a higher amount than you would have otherwise.
Buying and selling at the same time? Comps can be useful if you are also using an agent to find your next home. Realtors have access to the most recent listings and know whether a specific home is under contract or still accepting offers. A lot of this information is only accessible by a licensed real estate agent. If you’re looking in a seller’s market and the market is hot, having an agent in your corner can give you the edge you need to get the home you want.
Negotiating a Price
Realtors are experienced negotiators who serve as an intermediary between a buyer and a seller. Your real estate agent will know how to leverage market and home conditions to achieve the best price for their client. Their commission depends on the final sale price as well, so it’s in their best interest to get you the best price possible.
Document Preparation
You may feel comfortable conducting the market analysis and handling the negotiations, but have you seen the legal paperwork involved in a home sale? It’s often enough to dissuade the average homeowner from striking out on their own.
The sale of a home will depend on the timely and accurate completion of an offer and a contract. It can be comforting to have an experienced professional attending to the legal documentation when it comes to such a large and complex transaction. Your realtor can also walk you through inspections, appraisals, and general guidance throughout the journey.
So is it Worth Hiring a Realtor?
In short, yes! According to the National Association of Realtors, the average sales price of “For Sale by Owner” homes was $217,900, while those represented by agents averaged $295,000. This means you could miss out on up to 10% by trying to avoid a 6% payout. Did you know that the vast majority (92%) of sellers choose to hire an agent? Of the sellers who didn’t, 63% attribute their decision to avoiding those commission fees. Is a realtor right for you? Consider who your real estate agent is and what experience they bring.
What Does the Commission Pay For?
The buyer and seller agent typically divide the 6% realtor commission fee. The commission is usually a 50/50 split, but real estate agents can negotiate a different breakdown amongst themselves.
Realtors typically aren’t paid an annual or hourly salary. The commission paid out of the sale of a home reimburses the participating agents for their time, expertise, and expenses. These expenses may include any of the following:
- Professional listing photos
- Digital and traditional advertising
- Membership dues to the National Association of REALTORS (NAR) and other organizations
- Broker fees
If your agent is independent and not part of a larger company, they probably pay for these items out-of-pocket until your home sells. The commission allows them to reimburse themselves for those operational expenses. On average most agents only take home 1.5% of the sale price after deducting these costs.
Can I Negotiate the Rate?
While there’s no law against an attempt to negotiate a real estate commission, it’s important to consider the work a realtor does, the experience they bring to the table, and the expenses they incur to do their job. As with any service provider, the saying “you get what you pay for” can apply here. A realtor may put less effort into marketing your home, and they may be less incentivized to sell it if they are expecting a smaller payday.
Generally, you won’t pay your realtor any commission if your home doesn’t sell, but there are some exceptions. Some realtor contracts will protect their commission if either party backs out of an agreement or if a buyer whom your agent found purchases your home after the contract period has ended. Be sure to read the fine print!
What is Dual Agency?
Dual agency refers to a transaction in which the same agent represents both the buyer and seller. You read that correctly: a single agent gets all of the commission in a dual agency transaction.
Because of a potential conflict of interest, dual agency is not legal in some states, including Colorado, Florida, and Kansas. It can be challenging to prove neutrality when an agent represents both parties. One might wonder if they can truly have both the buyer and seller’s best interest in mind. Dual agency also applies when two agents from the same brokerage separately represent the buyer and seller. Neutrality remains a concern because the brokerage stands to gain from both transactions.
Dual agency does have some benefits, though. Having one agent or brokerage handle the entire sale may result in better communication between the parties involved and swift document preparation. Working with a brokerage may provide access to more buyers. Finally, some agents are willing to reduce their total commission if they won’t be splitting it with another agent.
Your situation is unique, and only you will know if the benefits of dual agency outweigh the possible negatives of less neutrality and negotiation power. If the seller wants the highest price and the buyer wants the lowest price, it may challenge the realtor in the middle. You also have no one to hold the agent accountable if they overlook something.
How to Negotiate Realtor Commissions
If you have decided to negotiate your realtor fees and commissions, you can use some of the strategies below to increase your chances of reducing the cost.
These brokers will list your home and offer some of the advertising and marketing that regular agents might, but they won’t show your home. In exchange for saving some money on the commission, you’ll end up doing a lot of the legwork yourself.
Getting a reduction as small as 0.5% could make a difference of hundreds or even thousands of dollars depending on the home price. If you have a good rapport with your agent, it might be as simple as posing the question.
You may be able to use market conditions to your advantage. If the market is hot and your realtor is likely to gain the commissiOn Q Home Loansuickly, they may agree to a slightly lower rate. You may have luck during a slow season too. If an agent isn’t getting a lot of business, they may be more willing to reduce their rate to earn yours.
As mentioned earlier, agents typically cover the costs of professional photos, cleanings, open houses, etc. Taking some of these tasks on yourself could convince your realtor to reduce their rate. It’s best to be upfront and discuss your idea with them before taking any action.
If you are simultaneously buying a new home and selling your current one, using the same agent may make it more likely for them to lower their fees. Knowing they will receive a commission from two different transactions may be a tempting enough offer.
Getting Started
Whether you’re planning to buy a home, sell one, or both, a licensed real estate agent can be a tremendous resource. Their knowledge and expertise will give you an advantage in finding a home, negotiating a price, and completing the necessary paperwork. The other expert you’ll want in your corner is a mortgage consultant.
Are you ready to begin a new adventure in home buying? Contact one of our expert On Q Home Loans Mortgage Consultants to learn about your options and get pre-approved. Our mortgage consultants are here to help you find options tailored to your specific needs. The best part is our Mortgages Simplified™ journey means less stress and more ways to say yes!
Resources
“Is an Agent Worth the 6% Commission? Uncover the Truth.” HomeLight Blog, https://facebook.com/gohomelight, 19 June 2020, https://www.homelight.com/blog/real-estate-agent commission/.
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