If you are thinking of becoming a real estate agent, you might be wondering how much money real estate agents make from each sale. After all, selling houses is not an easy job, and you want to make sure you are fairly compensated for your hard work.
The answer is not so simple because real estate agents do not get paid a fixed salary or an hourly wage. Instead, they earn commissions based on the final sale price of the properties they help sell. These commissions can vary widely depending on many factors, such as the location, the market conditions, the type of property, the negotiation skills of the agent, and the agreement between the agent and their broker.
How Real Estate Agent Commissions Work?
A real estate commission is a percentage of the final sale price of a property that is paid to the agents involved in the transaction. Typically, the commission is 5% to 6% of the sale price, but it can be higher or lower depending on the market and the agreement between the seller and their listing agent.
The commission is usually paid by the seller at closing, as part of their closing costs. However, this does not mean that the buyer does not pay anything for their agent's services. In fact, the commission is often built into the listing price of the property, so buyers indirectly pay for it through a higher purchase price.
The commission is not paid directly to the agents but to their brokers. A broker is an agent who has taken additional education and licensing requirements to operate their own brokerage or oversee other agents. Agents work under brokers and share a portion of their commission with them.
The commission is also split between the listing agent (the agent who represents the seller) and the buyer's agent (the agent who represents the buyer). The split can vary depending on the agreement between the agents and their brokers, but it is usually around 50/50.
For example, let's say a house sells for $300,000 with a 6% commission. The total commission would be $18,000. Assuming a 50/50 split between agents and brokers, here is how it would be divided:
- Listing broker: $4,500
- Listing agent: $4,500
- Buyer's broker: $4,500
- Buyer's agent: $4,500
As you can see, each agent would receive 1.5% of the sale price as their commission. However, this does not mean that they get to keep all of it. They also have to pay for their business expenses, such as marketing, advertising, licensing fees, taxes, insurance, etc. So their net income would be lower than their gross commission.
How Much Does a Real Estate Agent Make Per Sale?
According to data from Clever Real Estate, an online platform that connects buyers and sellers with top-rated agents, the national average real estate commission in 2023 was 5.37%, with 2.72% going to the listing agent and 2.65% going to the buyer's agent.
However, this average can vary significantly by state and by market conditions. In some states, such as California and Massachusetts, where properties are more expensive and sell faster, the average commission was below 5%. In other states, such as Iowa and Arkansas, where properties are cheaper and sell slower, the average commission was above 6%.
The commission rate can also depend on the type of property being sold. For example, luxury homes may have lower commission rates than starter homes because they require less marketing and generate more profit for the agents. Conversely, distressed properties may have higher commission rates than regular properties because they require more work and risk for the agents.
How to Negotiate a Lower Commission
If you are a seller or a buyer who wants to save money on real estate agent commissions, you may be able to negotiate a lower rate with your agent. However, this is not always easy or advisable.
First of all, you need to understand that agents are not obligated to lower their commission rates for you. They have to pay for their own business expenses and share their commission with their brokers. They also have to provide quality service and value to their clients. If they lower their commission too much, they may not be able to cover their costs or deliver on their promises.
Secondly, you need to consider that a lower commission may not necessarily result in a better deal for you. For example, if you are a seller who hires a listing agent with a low commission rate, they may not have enough budget or incentive to market your property effectively or negotiate the best price for you. This could lead to a longer time on the market, lower offers, or more contingencies. In the end, you may end up losing more money than you saved on commission.
Similarly, if you are a buyer who hires a buyer's agent with a low commission rate, they may not have enough time or resources to help you find the best property for your needs or guide you through the buying process. This could lead to missed opportunities, poor decisions, or legal issues. Again, you may end up paying more than you saved on commission.
Therefore, before you try to negotiate a lower commission with your agent, you need to do your research and compare different agents based on their experience, reputation, track record, and value proposition. You also need to be realistic and respectful about what you can ask for and what you can expect in return.
Some possible scenarios where you may be able to negotiate a lower commission are:
- You are selling and buying with the same agent (dual agency). In this case, the agent may be willing to lower their commission because they are earning from both sides of the transaction.
- You are selling a high-value property that requires less marketing and generates more profit for the agent. In this case, the agent may be willing to lower their commission because they are earning a higher amount from the sale.
- You are selling a property that is in high demand and sells quickly. In this case, the agent may be willing to lower their commission because they are spending less time and effort on the sale.
- You are buying a property that is listed by the same brokerage as your agent. In this case, the agent may be able to negotiate a lower commission with the listing broker because they are keeping the commission within the same company.
Of course, these scenarios are not guarantees that you will get a lower commission. They are just examples of situations where you may have some leverage to ask for a discount. Ultimately, it is up to the agent and their broker to decide whether they are willing to lower their commission for you or not.
Final Thoughts
Real estate agent commissions are a complex and variable topic that depends on many factors. The average commission rate in the US is around 5% to 6% of the sale price, but it can vary by state, market, property type, and agent agreement. The commission is usually paid by the seller at closing and split between the listing agent, the buyer's agent, and their respective brokers.
If you want to save money on commissions, you may be able to negotiate a lower rate with your agent in some situations. However, you need to be careful not to compromise the quality of service or the outcome of the transaction. A lower commission is not always a better deal.
The best way to find an agent who can offer you a fair and competitive commission rate is to compare different agents based on their qualifications, reviews, results, and value propositions.
