Real Estate Agent Commission 101 for Sellers

Understanding which agent does what in a real estate transaction and who pays for their services is very important, and we’re going to go over all the details today. But before we deep dive into information on real estate agent commissions, let’s start with a couple of simple definitions: 

  • A listing agent is a real estate professional who helps homeowners sell their home.
  • A buyer’s agent is a real estate professional who helps home shoppers find and purchase a home.

Agents can choose to focus on buyers or sellers or represent both. Now let’s dig into the details.

Do you have to use an agent?

Approximately 29% of all sellers are now opting to sell their own homes either completely on their own or with limited services of a real estate agent, such as entry of the listing on to the MLS. This trend is in part due to technical advances that have opened up access to services that used to be unavailable to home sellers. This option has also become popular because there are are big financial benefits associated with selling your own home.

photodune-5032575-writing-a-check-s.jpgWho pays for what?

The seller typically takes on all the agent fees in a real estate transaction. As to what the amounts are, there are two common circumstances and one not-so-common circumstance.

  1. If both the buyer and seller use an agent:
    The seller pays a commission for both the listing agent and the buyers agent; typically 3% each for a total of 6%.
  2. If one party uses an agent and the other doesn’t:
    If the buyer uses an agent and the seller does not, the seller is still expected (though not required) to pay the buyer agent. If a seller uses an agent and the buyer doesn’t, typically the listing agreement between the listing agent and the seller states that the listing agent gets both commisions, i.e., double payment, the full six percent.
  3. If neither the buyer or seller uses an agent:
    The seller doesn’t have to pay anything, but since 88% of buyers use a buyer agent, this fact-pattern is an extremely rare circumstance.

What are the “rules” for agent commission rates?

If you sell your own home, do you have to pay a buyer’s agent commission? If so, can you get away with offering less than 2-3%? Well, sure. But should you?

Probably not. Though not mandated by law, we highly recommend that you offer the normal rate of 2%-3% for a number of reasons:

  • You get access to a larger pool of potential buyers:
    According the National Association of Realtors, 88% of buyers purchased their home through an agent in 2015. If you are offering a low or no commission, the agents representing these 88% of buyers won’t have any incentive to promote your home. That means it may take you significantly longer to sell your home.
  • You have a better opportunity to spark competition:
    The more agents you have promoting your property, the more likely you are to incite competition amongst home shoppers. Buyers who are competing to purchase your property will inevitably have to increase their offer to beat each other, raising your final sales price.
  • It’ll be easier to find qualified buyers:
    Agent’s often pre-qualify their buyers prior to showing them properties. With nearly 90% of buyers obtaining financing to purchase, you will have a better chance of finding ready, willing and able buyers to purchase your home by offering a buyer agent commission.
  • A great buyer’s agent can save you time:
    During escrow, there is usually a general home inspection, an appraisal, a termite inspection and final walk-through. All of these may require you to take time off work to be present. The buyer’s agent will often schedule these inspections and be present for most or all of the appointments, which can save you time.

    The bottom line is, you want to be sure you have the local buyer agents in your community working to sell your property.

Hopefully, this post gave you a good overview on real estate agent commissions. If you have any questions, ask them in the comments. We’re happy to help!

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