How Realtor Fees Work: Trends, Breakdown and Negotiation

When making high-value real estate transactions, you simply cannot dispense with realtors.

They’re key to closing deals and ensuring that buyers get the best possible deal. They also help sellers bring their homes to the attention of high-paying buyers.

For their services, these agents charge realtor fees, the workings of which still remain a mystery to many homebuyers and homeowners looking to make a sale.

History of Real Estate Agent Commissions

In the past, the average real estate agent commission was about 5% of the home’s sale price, evenly split between the buyer’s and seller’s agent and paid out by the seller. For instance, if a house were sold for $300,000, the seller would pay around $15,000 as commission.

The rise of online home listings and discount brokerages has impacted this traditional practice. Now, things are a bit different.

The Impact of Recent Legislation

In a 2023 trial involving homeowners in Missouri, the National Association of Realtors (NAR), and other real estate brokerages, the jury ruled in favor of the homeowners.

Industry practitioners were deemed guilty of antitrust violations, artificially manipulating the real estate market to keep realtor fees high. In the aftermath of the ruling, the homeowners were awarded millions in damages, and the NAR also agreed to revise its professionals’ commission practices.

What is the Agent’s Commission

The real estate agent’s commission is a fee paid to the brokers of a real estate transaction: the selling agent and the buyer’s agent.

The real estate commission consists of:

• Listing/selling agent’s fee
• Sellers brokerage fee
• Buyer’s agent’s fee
• Buyer’s brokerage fee

Since realtors don’t earn salaries, the fees are their primary earnings. As a seller, you can expect them to work hard to bring a property to the attention of prospective buyers. The same is expected if you’re on the purchasing end of the deal.

Seller vs Buyer Fees

While sellers were previously obliged to pay the entire fee, separate from the home’s final price, legislation changes mean that they now only have to pay their real estate agent.

This rule change means that the listing agent cannot simply offer the property to buyers who pay them the largest fees, leveling the playing field for all involved.

Sellers can still opt to pay the buyer’s agent’s commission, but it’s not compulsory. Also, if a seller offers to pay the buyer’s agent, the fee can’t be advertised in the listing.

Buyers must now negotiate fees with their agents and sign service agreements before inspecting or touring the property. Homeowners should note that these legislations and fee stipulations only apply to realtors licensed with NAR.

How Does the Realtor Fee Payment Work?

The seller and buyer pay realtor fees to their respective agents, and the brokerages take a cut.

At the start of proceedings, the seller and their agent must agree to the commission rate in the listing agreement.

When the deal is closed, the commission is deducted from the seller’s proceeds and paid to both agents. With evolving trends in the real estate industry, the buyer’s share of the realtor fee is factored into the home’s purchase price.

Sometimes, sellers can bypass paying real estate agent fees by proceeding without an agent. Depending on the arrangement, they may still have to pay a commission to the buyer’s agent if they are involved.

What Do the Real Estate Agent Fees Cover?

Real estate agent fees cover various activities, depending on whether it’s the buyer or seller that’s involved.

For sellers, the costs cover:

• Photography and videos
• Home staging
• Online listings
• Print advertising
• Open houses and private showings

For buyers, these include the costs of:

• Comparative market analysis
• Insights into neighborhood trends, buyer preferences, and property values
• Property search
• Financing guidance (referring buyers to financial advisors or mortgage lenders)

Who Pays The Closing Costs?

While there’s no hard rule as to who covers the closing costs in a home sale, the bulk of the amount is usually paid by the buyers. Like your average real estate commissions, closing costs are also negotiable.

Closing costs typically include all the associated out-of-pocket and overhead fees, such as:

• Insurance
• Homeowner association fees
• Recording of the real estate deed
• Loan processing
• Title company fees

The closing costs of a home sale can vary depending on the sale price and amount to roughly 3.5% of the final price.

If you’re conducting real estate transactions through a lender, the Real Estate Settlement Procedures Act stipulates that buyers receive an estimate containing all associated closing costs.

Do Lower Commissions Mean Lower Home Prices?

Real estate industry legislation over the past few years may point to a gradual reduction of the overall costs associated with purchasing a home. Recent research lends weight to the opposite.

While reduced real estate agent fees do reduce the value of the transaction, they could result in pricier homes in the future. This is because the value of homes generally rises over time, and relatively reduced costs associated with sales can enhance their worth.

Negotiating Real Estate Agent Fees

Realtor fees are negotiable, a fact that is surprisingly unknown to many first-time homebuyers and sellers.

Real estate agent costs can be negotiated as either flat fees or as commission percentages based on the home’s sale price.

Negotiating With the Listing Agent

The listing agent, otherwise known as the seller’s agent, is responsible for marketing your property and attracting potential buyers. Your ability to get top dollar for your property rests on how motivated they are to do the job.

You can decide to negotiate a fee with your listing agent by incentivizing them to do their best. Per the new NAR regulations, this approach means that your property can’t be advertised on a multiple listing service.

Still, most real estate agents know other creative ways to promote your home to prospective buyers.

Negotiating With the Buyer’s Agent

The buyer’s agent represents the buyer’s interests and ensures that deals are closed favorably. Like listing agents, the buyer’s agent is incentivized by the commission, which is typically included in the final sale price of the property.

When negotiating with a buyer’s agent, you should ensure that they have enough incentive to close the deal quickly to avoid missing out on prime property due to protracted negotiations.

You can also offer non-cash incentives, such as paying some of the buyer’s closing costs or being flexible on your move-in date.

Dual Agency

Sometimes, both the buyer and seller are represented by the same real estate agent or broker. While this arrangement isn’t always illegal, it can cause confusion regarding how the fees are paid.

Although it’s possible to save costs by using a dual agency for real estate transactions, it’s important to ensure that there’s no conflict of interest.

In most states, the law requires that such agencies fully disclose their status to their clients and obtain written consent from both parties. Other states, such as Maryland and Colorado, heavily restrict dual agencies to avoid problems.

If you’re negotiating realtor fees with a dual agency, you should always ask questions upfront and hire a lawyer to ensure that your interests are protected.

Protect Your Investment Interests With Expert Financial Advisory

Despite the rise of discount brokerages and other institutional competitors, traditional realtors continue to be important players in the real estate industry.

Recent rule changes mean that sellers aren’t exclusively burdened with realtor fees. Still, there’s more to real estate transactions than simply finding the next available realtor. Closing costs and negotiations should be considered, as should the potential need for mortgage lenders.

As a busy medical professional, you need expert advisory services to guide your financial decisions, especially as they apply to real estate investments.

The experts at Physicians Thrive boast years of experience catering to the needs of medical professionals, all with proven results!

See how we can help you make the best of your next real estate investment!