A guide to real estate commissions.

Real Estate Commissions Explained

Real estate commissions can sometimes be a mystery; on the one hand, you want to be wary because it will take a substantial amount of money out of your pocket. Still, on the other, you can only benefit from employing a real estate agent who truly knows their stuff. So here’s the gist: usually, the seller pays for the real estate commission, and if you’re looking to rent, typically, the landlord pays.

The percentage varies from agency to agency but is generally 5-7%. And that fee is more than just money lost! It goes towards administrative paperwork, marketing services, listing home tours, and negotiating offers, so you might get more as a seller than you initially pay in commission. We hope this has helped give you an overview of real estate commissions. Do get in touch with us if you have further queries.

What are real estate commissions?

Real estate agents don’t get paid when a buyer or seller fakes interest in a home or when a home goes on the market. Actually, they get their paycheck once a deal is closed! So if you’re working with a real estate agent, you can expect 3-7% of the final sales price to go toward that agent’s commission.

For example, on a home selling for $200,000, 6% would equal $12,000. While it might seem unfair at first glance, remember that your agent won’t pocket the entire commission – part of it will go to the buyer’s agent too — and also consider that your agent worked diligently over weeks or months to ensure your offer gets accepted and you end up satisfied with your purchase.

Who pays the commission?

Did you know that when it comes to commission payments, home sellers usually foot the bill? Yes, that’s right; most of the time, the seller pays for the commission of both their listing agent and the buyer’s agent, in case the buyer has one.

Usually, these agents split up the commission between themselves. So, for example, if a $200,000 home sells at a 6% commission fee, both agents will get $6,000 each from that amount. Of course, how much each agent receives in terms of split depends on their experience; newer agents may earn a smaller percentage than experienced ones with more sales or homes with higher value.

How do real estate agents earn their commission?

Real estate agents are the key players in any property transaction. They are highly trained professionals who possess a great deal of knowledge about the real estate industry. They work hard to help buyers and sellers navigate the entire process of buying or selling a home, from negotiating contracts to arranging inspections and closing on a property.

Agents typically earn their commission by facilitating these transactions and successfully closing deals between both parties. They also often provide:

  • Valuable market insight to their clients.
  • Connecting them with resources like contractors.
  • Financing options.
  • Other related services can make managing a real estate investment easier.

In short, real estate agents play an invaluable role for people who want to invest in property, making it possible for buyers and sellers to get even better returns on their investments.

Here’s a list of some of the activities Realtors provide:

  1. Market analysis: Realtors conduct a thorough market analysis to determine the value of a property and establish a competitive asking price.
  2. Property staging: Realtors may assist in staging the property to make it more appealing to potential buyers, leading to faster sales and higher offers.
  3. Advertising and marketing: Realtors use various advertising and marketing strategies to promote a property, such as listing it on multiple listing services (MLS), using social media, creating virtual tours, and designing high-quality brochures.
  4. Open houses: Realtors host open houses to showcase properties to potential buyers and generate interest.
  5. Networking: Realtors build relationships with other agents, lenders, and industry professionals to find potential buyers or sellers and collaborate on transactions.
  6. Negotiation: Realtors represent their clients in negotiations with buyers, sellers, and other parties to achieve the best possible outcome.
  7. Contract preparation and review: Realtors prepare and review contracts, ensuring that all necessary documents are properly executed and that all legal requirements are met.
  8. Home inspections and appraisals: Realtors coordinate home inspections and appraisals to assess the condition and value of a property.
  9. Market updates: Realtors keep their clients informed about the latest market trends, changes in property values, and other factors that could impact their transaction.
  10. Closing coordination: Realtors coordinate the closing process, ensuring that all parties are prepared and all necessary documents are correctly signed and filed.
  11. Coordination with title companies: Realtors work with title companies to ensure that all necessary paperwork is completed correctly and that all title and ownership issues are addressed.
  12. Financing assistance: Realtors can assist buyer clients in finding financing options and securing a mortgage if needed.

Different commission structures and how to negotiate the best deal

Navigating the world of real estate agents and commission structures can be confusing, but finding the best deal when buying or selling a home is essential. While standard rates range from 5-6%, many agents offer different structures, such as flat fees or tiered rates.

Flat fee commissions typically mean you pay an agreed-upon amount up front, regardless of how long it takes to sell your property – with no hidden charges. Be aware with a flat-fee commission; a percent commission is usually offered to a buyer agent through the MLS.

Tiered rates are also a popular choice and can see you paying a lower percentage on the first part of the sale price, followed by a higher percentage on the remaining balance. Each option can offer significant savings compared to percentage-only commissions, which depend on your property’s sales price.

Before you settle on a commission structure:

  • Do your due diligence – research and compare multiple agents’ rates and services.
  • Ask questions about their experience and track record.
  • Look into their marketing strategies.
  • Get a sense of how willing they are to work with you.

This can help ensure that you come out on top!

Upfront costs related to real estate commissions

When considering selling a home, it is essential to remember that the majority of real estate commissions are usually paid at closing. The seller typically covers this cost as part of their closing costs. This means there are usually no upfront costs related to real estate commissions for sellers.

However, there may be other expenses to consider prior to listing the property on the market. For example, a seller may want to pay for home staging, repairs to the property, or marketing materials such as brochures and flyers. While these additional costs can add up quickly, they should be considered when creating an accurate budget for selling and preparing a home for potential buyers.

Sometimes, a Realtor may charge an upfront ‘marketing fee’ to be deducted from the commission at closing. This is usually done when there may be a lot of costs for the agent out of pocket, and they feel it may take a long time to sell the property and have the possibility of losing the listing to another Realtor when their agreement expires.

What other services do real estate agents provide

Real estate agents can provide many services beyond just buying and selling properties. Here are some other services that real estate agents may provide:

  1. Property management: Some real estate agents also offer property management services, which involve managing rental properties on behalf of owners.
  2. Real estate consulting: Real estate agents may provide consulting services to help clients make informed decisions about their real estate investments.
  3. Relocation assistance: Real estate agents may assist clients in relocating to a new area, including helping them find a new home and providing information about the local community.
  4. Referrals to other professionals: Real estate agents may provide referrals to other professionals, such as attorneys, lenders, and home inspectors.
  5. Market research and analysis: Real estate agents may conduct market research and analysis to help clients determine the value of a property or assess market trends.
  6. Negotiation and representation: Real estate agents represent their clients in negotiations with buyers, sellers, and other parties and may help clients achieve the best possible outcome in their real estate transactions.
  7. Contract preparation and review: Real estate agents prepare and review contracts, ensuring that all necessary documents are properly executed and that all legal requirements are met.

A fee will probably be paid when using these services. But overall, real estate agents provide a variety of valuable services to help clients navigate the complex process of buying, selling, or managing real estate properties.

What else to know about commissions?

Commission fees and terms should always be specified in the listing agreement you sign when hiring an agent. Generally, these agreements last 90 to 180 days.

It’s also worth noting that commission is usually higher when selling a vacant lot or property, as it typically takes longer to market and sell land – commissions can range from 10-20%.

Lastly, if you’re buying a house at auction, it’s not uncommon for there to be a 5% “premium” or commission charge. When selecting an agent, remember that good agents don’t come cheap – sometimes you have to pay more for quality services – however, they’ll usually be able to get you the best price and terms.


When it comes to selling a property, there is no one-size-fits-all solution. Realtors provide various services beyond buying and selling properties, such as property management, consulting, relocation assistance, and more. In addition, sellers need to consider any additional costs associated with the sale, such as home staging or repairs, before listing their property on the market.

Commission fees should be thoroughly discussed between you and your agent before signing any agreement to ensure that everyone understands what they are paying for in terms of quality service. With these tips, you can confidently embark on your journey toward successful real estate transactions!