Selling a house involves a trinity: buyer, seller, and real estate agent. The buyer gets a new home, the seller gets to cash a big check, and the real estate agent gets compensated in the form of a commission for all their hard work putting this deal together.
There’s a lot of confusion out there about real estate commissions, from who pays them to exactly how much it is. Plus, a recent settlement by the National Association of Realtors® (NAR) taking effect on Aug. 17, 2024, has also led to changes with commissions.
Here’s everything homebuyers and sellers need to know, plus how to negotiate a real estate agent commission.
One common misconception when it comes to real estate commissions is that there is a standard fee or percentage within the real estate industry. In truth, there is no common price. A real estate commission is negotiated between a real estate agent and either the homebuyer or seller.
In the past, home sellers often paid the commission for both the seller and buyer. But as of Aug. 17, 2024, that has changed so that sellers pay their own agent and buyers pay their own. However, home sellers can offer to pay a buyer’s agent in order to make their listing more appealing to cash-strapped homebuyers who may not have much money left over after their down payment to pay their own agent.
Real estate agents usually don’t earn a base salary; they work only on commission.
From this fee, real estate agents usually pay for their own advertising and marketing, insurance, and business license. Additionally, commissions are paid only when a home’s title transfers. That means an agent may work with a seller for many months—and through many offers—before getting paid.
Commissions are always negotiable; that’s the law.
Whether or not sellers can negotiate what they think is the perfect rate is another matter, says Denise Supplee, a real estate agent in Pennsylvania and co-founder of SparkRental.com.
Keep in mind, you get what you pay for. If a real estate agent easily agrees to a lower commission, how great will that agent be at negotiating in general?
As a homebuyer or seller, you want a real estate agent who can broker the best sale price and terms. So a real estate agent who caves quickly on his own pay may also cave when you’re counting on them to fetch you the best possible price. Plus, for many listing agents, the marketing dollars for a property come from their commission, so a lower fee could mean less advertising for your property.
As of Aug. 17, NAR guidelines say that commissions must be disclosed to their clients for approval, in writing, in advance of any payment.
All told, if you aren’t sold on the exact commission fee quoted, ask the real estate agent to explain what goes into that fee. They should provide you with a list of the work they’ll perform, a marketing and advertising schedule, and a probable length of time to get the property sold.
To learn more, check out our Guide to Real Estate Commissions, which covers everything homebuyers and sellers need to know.
Margaret Heidenry is a writer living in Brooklyn, NY. Her work has appeared in the New York Times Magazine, Vanity Fair, and Boston Magazine.
