What Are REALTOR® Fees And Who Pays Them?
Victoria Araj5-minute read
November 28, 2022
When you’re buying or selling a home, there’s no one more invaluable to have at your side than a good REALTOR® or real estate agent. They are there to guide you, to hold your hand, to be your sounding board and keep you moving forward into your new home. And when it’s all said and done, they earn their fees for the services they have provided.
Let’s discuss what REALTOR® fees are, how they work and if they’re worth the additional cost.
What Are REALTOR® Fees?
REALTORS® and real estate agents are professionals who work hard to help sellers and buyers through the selling and home buying process. However, REALTORS® are agents who have earned an advanced designation from the National Association of REALTORS® (NAR) through study, experience and a demonstrated record of character and integrity.
Real estate agents meet the educational and licensing requirements of the state where they operate professionally. They can perform all the same professional services as REALTORS®. For the purposes of this article, we’ll use the terms “REALTOR®” and “agent” interchangeably, as the designation does not alter the fee structure.
Commission fees (also called REALTOR® fees) are a percentage of a home’s sale price the agent earns for completing a real estate transaction, although there are some agents who work on a flat fee basis. They earn their fees if, and only if, they sell your house or help you buy your next home. That means they don’t make anything if you don’t buy or sell.
Who Pays REALTOR® Fees?
REALTOR® fees are typically paid by the seller at closing. If the seller chooses not to work with an agent and offers their home for sale by owner (FSBO), they may be asked to pay the buyers’ agent’s fees. If they agree and the sale is completed, the seller will pay those fees at closing.
How Do Real Estate Commissions Work?
Commission fees are charged as a total pre-tax amount that is immediately split between the buyer’s agent and listing broker. Generally, each agent then splits that fee further with their brokerage, their support staff and any newer agents who helped them complete the sale. If a dual agent completes both sides of the transaction, they’ll probably reduce their commission since they don’t have to split the fee.
Are REALTOR® Fees Included In Closing Costs?
REALTOR® fees aren’t usually included in the home buyer’s closing costs. Instead, the real estate commission is paid by the seller. Since buyers pay more in closing costs than sellers, it makes more financial sense to have the seller pay both agents’ commissions. The home seller can also afford to cover both commissions because the cost is already built into the sale price of the home.
How Much Are REALTOR® Fees?
Typically, real estate commissions total 5% – 6% of the home’s purchase price. There are no federal or state laws that regulate commissions. They may vary from one location to the next or one brokerage to another. If a house sells for $300,000, the seller or buyer can expect to pay between $15,000 and $18,000 in fees.
Total Fees Paid
There are numerous factors that can affect the percentage an agent charges. The total home price, housing supply, market trends and cost of living can all have an impact on what you’ll pay as a seller.
Can REALTOR® Fees Be Negotiated?
Because they aren’t regulated, agent fees can be negotiated. If you feel like you can handle some of the legwork that goes into preparing your home to be listed, you might ask your agent to reduce your fees.
If your home ends up selling for significantly less than the asking price, agents might be open to reducing their fees. It never hurts to ask and seasoned agents won’t be offended when you do.
Do REALTORS® Add Value To Sales Transactions?
For buyers and sellers alike, a real estate agent can add a significant amount of value. Let’s compare FSBO homes to agent-assisted home sales.
According to NAR, FSBOs accounted for 7% of home sales in 2020. The typical FSBO home sold for $260,000 compared to $318,000 for agent-assisted home sales. If a FSBO home sells for $318,000 instead of the average $260,000, the seller would pay a 6% commission of $19,080 and still pocket an additional $38,920 from the sale. That’s a clear value!
What are you paying for when you hire an agent? Their expertise, their relationships and their time. They know how things work and they can keep things moving.
When problems arise, they can keep everything on track. We tend to think of agents as being the people who show us houses, but that’s a fraction of what they do. The real work is in taking us from the starting line and pushing us over the finish line.
Sellers’ agents, also known as listing agents, have a fiduciary duty to protect the interests of the sellers. The services they provide include, but are not limited to, helping sellers:
- Get their homes ready to list
- Set an asking price
- Stage the home
- Make sure sellers make all required disclosures
- Put marketing materials together
- Run open houses for potential buyers and their agents
- Help sellers navigate the inspection and closing process
Buyers’ agents have a fiduciary duty to protect the interests of the buyers. The services they provide include, but are not limited to, helping buyers:
- Figure out how much house they can afford
- Get initial approval for a mortgage
- Narrow down what they are looking for in their next home
- Visit homes
- Find comparable sales to help buyers figure out how much to offer
- Negotiate the sales contract, making sure buyers are protected by adding contingencies as needed
- Conduct a thorough home inspection by recommending inspectors and helping buyers analyze the results
- Manage the appraisal process
- Answer questions regarding closing costs
In some limited cases, agents will work with both buyers and sellers. If they’re helping buyers interested in purchasing a FSBO home, they might need to assist the sellers. This includes things like making proper disclosures, providing needed access and information, and advising them on practices and procedures.
Buyers’ agents must disclose dual agency to both parties and make sure they understand the conflict and risk of assuming both roles. In several states, dual agency is prohibited by law.
Will I Get A Statement Of Costs From My Agent?
When you list your home with a listing agent, you will sign a listing agreement that will note any transaction fees (typically to cover the cost of document storage and management) and all the commissions that you will be expected to pay at closing.
The listing agreement also states how long the agreement will remain in place, usually 90 to 120 days. If your home hasn’t sold in that time, you can extend the agreement or choose a new agent.
The Bottom Line: Professional Service Warrants Professional Fees
While paying another fee in the selling or buying process may seem like an unnecessary expense, hiring a REALTOR® or real estate agent can be worth the cost. Not only do they make sure your purchase agreement and documents are correct, they also offer knowledge and experience along the way.
To continue learning, read about closing costs at the same time so you can better prepare for the next steps of the process.
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