How Much Is Real Estate Commission: Negotiations, Seller & Buyer Fees

Real estate commissions are indispensable to buying, selling, or renting out property. 

Whichever side of the deal you’re on, it’s important to know who pays the charges in the listing agreement.

So, how much is the real estate commission? Do the buyers or sellers pay? More importantly, how will the new federal regulation affect negotiations for these commissions and other real estate transactions?

We find the answers in this article.

What Is a Real Estate Commission?

A real estate commission is a portion of the proceeds of the sale of the property paid to agents as compensation for brokering real estate transactions.

Since there are no legal restrictions on how much real estate agents and brokers charge, the going rate varies depending on where you are and negotiations between buyers and sellers. 

A real estate commission is made up of a fee split between:

• Listing agent fee
• Listing brokerage
• Buyer agent fee
• Buyer brokerage

The real estate agents’ share of the commissions is typically higher than their respective brokerages. 

Based on new rules, which we’ll learn more about next in this article, buyers will begin to take more responsibility for paying real estate agent commissions.

Legal Changes from the U.S Department of Justice

For several decades, real estate commissions ranged between 5% to 6% of the total package of the property sale. This seller-funded commission was split between agents and the buyer’s brokerage. 

Recently, a series of antitrust lawsuits from home sellers alleged that the old arrangements were unfair, especially considering how cheaper commissions were in other countries. 

Their claims were based on industry regulations obligating seller agents to publish compensation offers for buyer agents in home listings. This act purportedly reduced competition while keeping real estate commissions artificially high.

The U.S. Department of Justice had reached a settlement with the National Association of Realtors in exchange for ending the practice but later withdrew from the agreement. Currently, the settlement is pending final approval in Missouri federal court. 

Implications for Sellers

While sellers aren’t obliged to fund the commission for the buyer’s agent anymore, they can still compensate the buyer’s agent to ensure they keep getting more clients for their property.

The main difference in the new arrangement for sellers is that compensation advertisements aren’t included on the MLS (Multiple Listing Service) or other NAR-affiliated listing platforms. 

This makes things fairer for sellers by eliminating buyers’ agents’ inclination to prioritize properties that promise higher buyer commission rates.

Implications for Buyers

Under the new terms, buyers will have to negotiate directly with their agents and brokers to have the commission accounted for in the property price or through other means.

With sellers under no obligation to bear the buyer’s agent costs, buyers may be required to make out-of-pocket expenses to make up for their agents’ potentially reduced earnings.

Who Pays the Real Estate Commission?

Traditionally, the agreement would often involve equally splitting the real estate commission between the buyer and seller. Here, the seller would negotiate compensation to be paid to the listing agents at the close of a deal while paying a portion of the commission to buyer agents.

Now, buyers have to negotiate a commission with their buyer’s agent before deciding who pays the buyer’s fees. When making offers, buyer agents may quote buy prices inclusive of their commissions to potential home buyers. 

This bumps up the overall cost of the real estate offer. Still, it can be agreeable for home buyers able to compensate buyer agents for enticing higher-paying clients to close deals for luxury real estate and other high-end properties. 

Buyer agents can request that the seller pay their agent commissions from the proceeds of the real estate deal. The buyer may also pay the buyer’s agent commission as separate, out-of-pocket expenses. 

Are Real Estate Agent Fees Negotiable?

While real estate agent fees have remained negotiable throughout the years, the new industry rules promise more flexible-term negotiation opportunities. 

Homeowners looking to make the most of a home’s sale price may prioritize agents with the lowest possible rates. This isn’t always the best option, as an agent’s commission funds the marketing budget, including multiple listings and promotions, which increase the likelihood of a sale. 

In instances where you found a buyer without the aid of a brokerage or agent, you can negotiate for a reduced agent’s commission for the buyer from the sale proceeds.

Considerations for Negotiating a Lower Commission

Negotiating a lower real estate agent commission can reduce your overall costs and make it more likely that you will get good deals as a seller.

Here are some considerations for negotiations:

1. Market Dynamics

For sellers, a homebuyer market with more demand than supply means that agents may be more amenable to lower offers, as there’s a better chance of making a sale.

In a more competitive homebuyer market, getting your agents to lower commissions may be more difficult as the process is more drawn out.

Understanding the predominant market trend can help you find the best times to buy or sell real estate while retaining profits.

2. Property Inspections

As a seller, having a valuable and attractive property makes negotiating lower rates with real estate professionals easier. 

Since the rates are not fixed, the chances of a high-priced sale mean potentially higher commission rates for the agent. This is usually the case if the listed property is in good condition and appeals to buyers with larger budgets. 

3. Nature of Agreement

Some real estate agents may charge reduced commissions if you’re an investor or company involved in multiple real estate dealings. 

In return for access to your expanded real estate portfolio, you can save money on buyer’s agent commission, other transaction fees, and closing costs

4. Your Role in the Process 

Some sellers willing to take on more responsibility in marketing their real estate property, such as through staging services, may be able to negotiate lower fees with real estate agents.

You can then leverage your increased involvement in the sale to agree on a discounted real estate agent fee. 

5. Fee Structure

Agreeing on a performance-based fee structure with your listing or buyer’s agent beforehand can incentivize them to get the best deals for your property. The fee structures can be time or price-based. 

As a seller, this serves as an incentive to maximize the value of your property, which can help offset some of the costs of a real estate agent’s commission. Conversely, negotiating a flexible fee structure can incur lower commission fees if a pre-agreed threshold isn’t met.  

Should You Opt for a Cheaper or Expensive Real Estate Agent?

Whether you’re negotiating with agents separately or looking out for discount brokers, reduced commission rates mean more profits and lower costs for sellers and buyers, respectively.

If you prioritize the lowest possible real estate agent fees, you’ll probably get slower and worse service. Using established brokers and real estate services may help you get the best deals as a home seller or buyer.

If you’re a physician looking to expand their portfolio into real estate assets, a financial planner like Physicians Thrive can provide the expert advisory you need to navigate this complex industry. 

Organize Your Real Estate With Physicians Thrive

Real estate can be a way for you to gainfully invest your high salary as a physician and plan growth strategies to transition from medical school to residency or private practice.

Physicians Thrive provides valuable advice on managing your private real estate portfolio effectively, from reviewing contracts to negotiating with real estate agents and brokerages.

You’ll increase your understanding of the housing market closing process and make profitable home sales. 

See how Physicians Thrive can help you leverage your real estate holdings as a doctor or surgeon to achieve your career, finance, and retirement goals!

Wrapping Up

A realtor commission is a crucial aspect of real estate investing. In previous years, sellers were obliged to advertise buyer agent compensations in property listings. 

Federal rulings today mean that this practice is no longer required. For home sellers, this regulation opens the market to the possibility of more favorable negotiations with real estate agents and their brokers.

While reduced real estate commission charges can help you save money, opting for more specialized and reputable financial bodies lends more weight to your selling position. This way, you’ll be better placed to request a higher asking price while finding a compensation strategy to cover commission costs. 

Want more help managing your assets or building a stable financial future? Start working with Physicians Thrive today!