Realtor fees aren’t really fees at all, but rather an investment opportunity. While it most certainly will cost you money to hire a real estate agent or Realtor, there’s a good chance their efforts will return more than the amount it cost to hire them. Having said that, I am convinced Realtor fees are not something today’s home buyers and investors should fear. If for nothing else, Realtor fees are a small price to pay for either selling a home faster and for more money or finding a home sooner and negotiating a lower price point.
It is worth noting, however, that Realtor fees are somewhat ambiguous and leave much up to question. What are Realtor fees? Who pays Realtor fees? Do Realtors work on commission? Better yet, what should you expect to pay for a good Realtor? The answers to all of these questions (and more) will be brought to light in the following guide.
What Are Realtor Fees?
Just as their name would lead you to believe, realtor fees are the cost of doing business with a Realtor. That said, these costs can seem intimidating and — at times — downright confusing, which begs the question: What are Realtor Fees?
Realtor fees are not an upfront cost but rather a percentage of the resulting sales price. In other words, the amount it will cost to hire a Realtor will depend on how much the home sells for. While there is no universal Realtor fee percentage, fees will hover somewhere in the neighborhood of six percent. Of course, some Realtors will cost less, but those genuinely worth the investment may cost even more. I maintain that a good Realtor is worth their weight in gold, but I digress; most will ask for a fair percentage of the sales price. For example, if you hire a Realtor at a rate of six percent and a home sells for $500,000, you could be looking at a $30,000 fee. However, it is worth noting that the Realtor fees are split between the buyer’s agent and the seller’s agent.
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Who Pays Realtor Fees?
I want to make it abundantly clear: there is no universal rule for who will pay the Realtor fees every time. Each transaction will represent different circumstances and possibilities, most of which can be negotiated. That said, it’s quite common for the seller to pick up the tab. For the most part, Realtor fees are usually paid by the seller at the closing table, as the fee is generally subtracted from the proceeds of the impending sale. More specifically, the seller usually pays the listing broker, who, in turn, shares the profits with the subsequent Realtor — the one who introduced the buyer.
Of course, as I already alluded to, there are exceptions. Some sellers may negotiate for the buyer to pay the fees at closing, but, again, that’s the exception. Just know this: sellers will typically pay the fees. Although, you may find some buyers offer to pay the fees to make their offer look more attractive amidst a bidding war. Again, anything is possible. David Bitton, the Co-Founder & CMO of DoorLoop, adds “ultimately, there is no uniform rule about who pays the fees because each transaction reflects a unique set of conditions and facts, the majority of which can be negotiated. Some buyers may even offer to pay the fees to make their offer more appealing to the seller while bidding on a home.
How Commissions Have Evolved
Real estate commissions have actually decreased over the last several decades. According to data from Bankrate, the average commission in 2021 was 5.5 — down from over 6 percent in the 1990’s.
However, the amount real estate agents make has not necessarily decreased. Because home prices have increased so much over the last several decades, a decrease in the overall percentage charged does not translate to lower earnings. Further, commissions have become somewhat more negotiable as agents are generally making more than in the past.
Realtor Fees FAQ: Everything You Need To Know
Whether you are a first-time homebuyer or a seasoned real estate investor, it is crucial to know about all the costs of purchasing a property. That’s where Realtor fees come in. Read through the following commonly asked questions and make sure you know what to expect when working with a Realtor.
How Do Realtor Commissions Work?
Realtor commission works the same as a Realtor fee. To be clear, Realtor fees and Realtor commissions are synonymous with each other. A Realtor commission is a percentage of the sales price and will be applied accordingly. However, it is quite common for the buyer’s agent and the seller’s agent to receive about half of the commission each. If the same agent represents both sides of a transaction, there’s a chance they will lower their commission. Every detail about a real estate agent’s commission and any transaction fees should be outlined in the contract you sign when hiring an agent. This is referred to as a listing agreement. It specifies how long the agent will represent you, typically between 90 to 120 days.
Usually, it is the landlord’s responsibility to pay rental agent fees. However, this is not required. In places like New York, tenants will pay the rental agent’s commission from time to time. The commission can also be 10% – 20% higher if a vacant lot is sold. This is because selling land is often more difficult.
How Much Does A Realtor Cost On Average?
On average, real estate agents and Realtors will charge somewhere between five and six percent of the sales price. There is no universal amount for how much an agent will make on a home sale. It is, however, possible to calculate how much a Realtor fee translates to in the average home sale.
According to Zillow, the median price of homes that have sold in the United States rests at $230,000. So if you want to understand how much the average Realtor makes in fees on the average home sales price, take six percent of $230,000, which is $13,800. That means the average Realtor fee is somewhere around $13,800. But remember, the fee is typically divided in two to pay the agents representing each side of the deal.
How Much Does A Realtor Charge In Fees?
As previously mentioned, Realtors typically charge a percentage of the final sale price in fees. However, this Realtor fee amount only equals the commission they will make from a given deal. There are still fees that can be incurred while the property is on the market. Depending on whether you are buying or selling, these can be important to look for. A few examples of Realtor fees, aside from commission, are as follows:
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Home Inspection: Realtors will typically request a home inspection and appraisal while the property is still on the market. This is to ensure the correct sales price and make sure there are no undiscovered issues with the property. Home inspection fees vary but can range anywhere from $200 to $400, depending on the market.
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Photography: While not all sellers opt for professional stagings, they should at the very least secure professional photographs for the listing. Many experienced Realtors will already have a professional connection when they take on a listing, and fees can vary accordingly. One thing is for certain: no matter what market your property is in, professional listing photographs will almost always pay for themselves.
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Staging: Staging is one of the best ways to hook potential buyers, but it does come at a price. Realtors will typically work with professional stagers, ranging from $400 to $500 a room per month. Again, these fees vary depending on the market and property size.
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Closing Costs: Technically speaking, closing costs are not included as part of Realtor fees. They are required costs at the end of a transaction. Therefore, it is important to keep them in mind. Closing costs cover loan fees, title company fees, insurance, taxes, surveyor costs, recording of the real estate deed, and more. Closing costs will vary with each unique home sale or purchase and range from 2% to 7% of the purchase price.
How Do You Calculate Realtor Fees?
To calculate Realtor fees, you must know three things: the sales price of a home, the number of agents in a respective deal, and the percentage they charge for their representation. Once you have those three numbers, calculating your Realtor fees is as simple as multiplying and dividing a few numbers.
Start by taking the sales price and multiplying it by the percentage the Realtor is charging. For example, if a home sells for $500,000, multiply it by the percentage the agent is charging. If they are charging the average commission I already spoke of, the equation will look like this: ($500,000 x 0.06), which gives you $30,000. Then, take that $30,000 and divide it by the number of agents representing the deal.
Are Realtor Fees Included In Closing Costs?
Realtor fees and commissions are not included in a home’s closing costs. Whereas commissions are strictly for the representing agents, closing costs result from several miscellaneous fees (unrelated to the agents). For the most part, closing costs include, but are not limited to things like:
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Loan processing: Lenders will charge for processing, credit checks, and other administrative duties when approving a loan. The exact amounts based on the financial institution, and can sometimes even be lumped together in one origination fee.
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Title company fees: Title fees typically make up the bulk of closing costs. These fees cover the title search, title insurance, and some settlement services.
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Surveyor costs: In many cases, a surveyor is necessary to check the boundaries and property lines surrounding a home.
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Deed recording: Many local governments will charge recording fees after the sale of a property in order to update county records. On average, recording fees are around $100.
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Insurance: Some lenders require homeowners to prepay one year of insurance costs at the time of closing. There may also be fees associated with private mortgage insurance, depending on the details of the loan.
Not unlike the Realtor fees, however, closing costs will depend greatly on the sales price of the home in question. As a result, closing costs also tend to span a bigger spectrum, generally ranging from two to seven percent of the sales price.
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Are Realtor Fees Included In A Mortgage?
You will be happy to know that Realtor fees (or commissions) are not included in the mortgage. If, for nothing else, it’s the seller that’s going to be paying the fees. Remember, more often than not, it’s the seller’s responsibility to compensate the Realtor or real estate agent.
Are Realtor Fees Negotiable?
As with almost everything else in a real estate transaction, it is entirely possible to negotiate Realtor fees. The law states that said fees should be negotiable. Whether or not you can come up with a compromise, however, is another story. Just know this, it is possible to negotiate Realtor fees. Keep in mind, you typically get what you pay for. So while it is possible to negotiate with a Realtor, you may not necessarily want to.
What is Dual Agency?
Dual Agency is when the real estate agent or Realtor represents both the buyer and seller in a given transaction. In this case, the agent would be tasked with balancing the interests of both parties. As you can imagine, a dual agency can be tricky. That’s why several states have even made this practice illegal. In states where dual agency is allowed, agents must tell both buyer and seller that they represent both sides of the transaction.
Many home buyers and investors will often opt against dual agency situations to prioritize their best interests. Some believe a dual agent setup could reduce the overall Realtor fees (they will not be split between two agents). It is entirely up to you to decide whether to work with a dual agent or not when you encounter the option. While this situation is not particularly common, it does happen.
Who Pays The Rental Agent’s Commission?
Depending on the rental agreement, the landlord or tenant will pay the rental agent’s commission. To back up for a moment: a rental agent is similar to a real estate agent, except rather than working with buyers and sellers, they work between landlords and tenants. A rental agent’s commission will typically be between one month’s rent and 15 percent of the annual rent. Depending on the area, these fees will normally be paid for differently. For example, in larger cities, renters are often responsible for rental agent commissions. No matter which side of the transaction you are on, make sure you know who is responsible for the fees before deciding to work with a rental agent.
What Is A Commission Split?
Realtors don’t get to keep their full commission if they work for a brokerage. Usually, they’ll split their commission equally with their broker, but other split structures are possible. For example, an agent might get to keep more of the commission as they gain tenure at their brokerage. These splits help cover overhead costs for running the agency, such as advertising, office expenses, and equipment.
What If The Seller Refuses To Pay?
If a seller refuses to pay Realtor fees, then the responsibility will fall on the buyer; however, this rarely happens without other concessions. Consider possible reasons why a seller would attempt to avoid Realtor fees. Are they listing the property without a real estate agent? Is the sale price under market value? Are any repairs being taken care of before closing? More often than not, if a seller tries to negotiate with the buyer to pay Realtor fees, there will be a reason. Remember that the home buying process is full of negotiations, and while rare, you may encounter situations such as this.
How Do You Save Money On Realtor Fees?
The best way to avoid Realtor fees is to act as the buyer in a transaction. As I already alluded to, the sellers typically pay the fees at the closing table. However, if you can’t avoid the fees, perhaps you can lower them a little. If that sounds like something you would like to try, may I recommend taking the following actions with your Realtor:
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Discuss everything upfront and transparently: It is always a good idea to know what you can expect when buying something before you spend money on it. For example, it is important to know if you can pick your seat (or if that will cost extra) when buying a plane ticket. The same logic applies to working with a Realtor. Ask what their services are before you start working with them; that way, you know exactly how they can help you.
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Determine if their fee is negotiable in the first place: As you choose an agent to work with, do not be afraid to ask if their fees are negotiable. Realtors and agents will often let you know right away what to expect when working with them. Remember to pay attention to their demeanor when asking, though, as their answer may provide insight into how it will be to work with them on the property.
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Offer a competitive rate for the other agent in a deal: It can be difficult to find a balance between saving money on Realtor fees and trying to sell your home quickly. To do so, always make sure the commission you are offering is competitive in your market area. Sellers can run into problems by offering a low commission for the buyer’s agent, which can sometimes result in fewer agents showing your property.
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Let agents know you are shopping around: There is no rule stating that you have to work with the first agent you find. It is always a good plan to interview multiple prospective agents. Get information on their services, commission, and a general feel of what it is like to work with them. After you have a few options in mind, go with the agent that seems like the best fit for your situation.
For Sale By Owner
For sale by owner (FSBO) listings are one way to reduce the overall commission paid in a real estate transaction. Though, the seller will be responsible for the listing agents responsibilities. This includes photographing and marketing the property to potential buyers. Sellers will also need to negotiate with buyer’s agents and navigate the closing process alone.
If you have experience in the real estate industry, this may seem like a simple enough task. However, a lot goes into marketing a property and you could sacrifice the best price by attempting to handle the job alone. It is also important to know that the transaction will still have a buyer’s commission, so FSBO properties will not avoid these costs entirely. That being said, some owners find this to be the best method. Consider your options and learn more about FSBO properties before attempting to list a property yourself.
Summary
As far as I am concerned, Realtor fees are not the end of the world — far from it. They are a small price to pay to work with a truly great real estate professional. Provided you align your services with the right Realtor, there’s no reason you can’t look at their cost as an investment in and of itself; it’s quite likely that they will save you more money than they cost.
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