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Real estate commissions are a costly part of buying or selling a home.

In order to get an accurate estimate of how much you’ll pay in commission, you need to know what kind of commission you’ll be paying and what the average rates are.

The Different Parties That Pay Real Estate Commissions

Simply put, the homeowner and the buyer are the two parties that pay real estate commission.

Commission rates vary depending on who is paying them and what type of commission structure is being used.

Some common commission structures include seller paid commissions, buyer paid commissions, and broker commissions.

The Seller’s Commission: A Percentage of the Sale Price

The seller’s commission is a percentage of the sale price that a real estate agent receives. Seller’s commission is usually 5-6% of the sale price.

The Buyer’s Commission: Also A Percentage of the Sale Price

Homebuyers usually end up covering the cost of commission since selling homeowners nearly always raise the sale price to make up the loss.

For example, if the commission on a house is $10k, you can be certain that the seller will try to raise the final price by at least that much.

Also, when a house is sold, the seller’s agent and the buyer’s agent split the commission.

The Broker’s Commission: Also A Percentage of the Sale Price

The broker’s commission is a percentage of the sale price and may be paid by the property seller and/or the property buyer.

The exact amount and percentage to be paid is usually included in both the buyer’s and seller’s contracts.

Nuances of Real Estate Commissions: An Overview

There are many nuances when it comes to real estate commission, so it’s important to know what you’re getting yourself into when you decide to buy, sell, or broker a property.

Other varieties of commission include base commissions, escalating commissions, and loyalty programs.

Base commission can be a flat fee or a percentage of the sale price, while an escalating commission is tied to how much money you bring in. Some brokers also offer loyalty programs that reward repeat buyers or sellers.

All of these often run in tandem with each other, so finding what works best for you is essential.

What Is Base Commission? Further Explored

Base commission is simply the commission that real estate agents receive for the purchase or sale of a property. It’s different from other commissions that agents may receive, such as contingency and referral fees.

Base commission is typically paid by the buyer or seller, and in many cases, by both the buyer and the seller.

What Is Escalating Commission? Further Explored

An escalation clause is a provision in a real estate contract that states that both parties will increase the amount of money they will spend as negotiations continue, if necessary.

An escalating commission is specifically used when a buyer is willing to pay more commission to an agent in order to land their dream property.

When negotiating an escalation clause, buyers and sellers should review their contracts carefully and make sure that all costs are covered, including any potential escalation commission rates.

What Are Loyalty Programs in Real Estate Terms? Further Explored

Real estate agents offer loyalty programs to their clients in order to keep them as customers. These programs offer commission discounts, free services, and other benefits.

Loyalty programs can be a valuable tool for agents, as they help attract and keep customers. They can also be a valuable tool for home property buyers and sellers who frequent the real estate market.

Loyalty programs should be disclosed to buyers and sellers in the contract. Buyers and sellers should also understand their rights and responsibilities when it comes to these programs in order to avoid any misunderstandings or disputes down the line.

Average Real Estate Commission Rates

What is the Average Real Estate Commission Rate for Real Estate Agents Across the USA?

Real estate agents earn commissions of 5-6% of the final sales price on average. This means that, on a $200,000 home, the agent will earn $10,000 to $12,000.

In some parts of the country, average real estate commission rates can be as high as 7-8%.

What Are the Top Five States Where the Average Real Estate Commission Rate is Lowest?

The five states with the lowest average real estate commission rates are Massachusetts, California, Columbia, New York, and Alaska.

Rates in each state are as follows:

4.85% – Massachusetts

4.91% – California

4.96% – Columbia

4.97% – New York

4.99% – Alaska

These rate are much lower than the national average of 5.37%.

In fact, only two other states, Hawaii and Oregon, charge less than 5%. Their rates are both around 4.99%.

The low average real estate commission rates in these states are due to a number of factors.

(1) In Massachusetts, for instance, the state government has played a role in promoting low commissions by mandating that all real estate licensees charge a certain amount.

(2) In New York, the state has a strong regulator presence in the real estate industry and imposes tight restrictions on how much agents can earn.

(3) Alaska has low population density, which leads to lower agent fees and costs for buyers and sellers alike.

What Are the Top Five States Where the Average Real Estate Commission Rate is Highest?

As you can imagine, in some states, the average real estate commission is much higher than in Massachusetts, New York, etc.

(1) North Dakota and South Dakota are fifth on the national list with average real estate commission rates of 5.66 percent. Again, these rates are very high.

(2) Wisconsin comes next with an average real estate commission rate of 5.67 percent, followed by (3) Missouri, which has an average real estate commission rate of 5.72 percent.

(4) Georgia is the state with the second highest average commission rate at 5.76 percent.

(5) Ohio crowns the top five states with an average real estate commission rate of 5.81 percent.

Apart From State Averages, What Factors May Influence the Average Real Estate Commission Rate You Pay?

When looking to buy or sell a home, even after looking at the state averages, you may be asking, what other factors could influence the average real estate commission rate you pay?

This is a question with a lot of different answers, although what influences your commission rate can be boiled down to a handful of factors.

A. The Type of Property

The type of property that a real estate agent represents will impact the commission rate.

For example, if the agent represents a commercial property, the commission rate will be higher (most likely) than if they represent a residential property.

Additionally, the location of the property can affect the commission rate.

If the property is in a high-traffic area, the commission rate will probably be higher than if it is located in a quieter area—unless of course the agent is showing a luxury property in one of Las Vegas’ secluded enclaves.

B. The Price Range of the Property

If you are looking to buy a home, you should also note that the property price will influence the average real estate commission rate you pay.

In general, properties that are more expensive tend to have lower commission rates because the single sale will generate a higher return for the real estate agent.

However, this isn’t always the case. In fact, some lower-priced properties can also have low commission rates, as long as the agent knows that they’ll be successful in closing them and can move onto other properties quickly.

C. The Size of the Property

The size of the property will influence the average real estate commission rate you pay. This is because the size of the property increases or decreases the number of hours required to sell it.

For example, inspecting an 8-bedroom home takes more time than a single bedroom apartment. And larger properties almost always require more time and effort to sell.

D. Broker/Agent Experience

One reason why your expected real estate commission rate will change based on the broker’s or agent’s experience is because more experienced brokers and agents will be able to negotiate a higher sale price.

On the other hand, a beginner agent without much experience closing deals will have to accept a lower commission rate from their client.

E. Current Market Conditions

Current market conditions will influence the average real estate commission rate you pay.

For example, if there is a shortage of available properties for sale, then the commission rate will go up in order to compensate the real estate agent.

Conversely, if the market is saturated with properties for sale, then the commission rate will fall in order to entice buyers to commit.

Interest rates also influence how much commission real estate agents charge.

F. Number of Subagents

In most real estate transactions, there are two agents working together – the “listing agent” and the “selling agent.”

The number of subagents involved in a particular transaction will have a significant impact on the average real estate commission rate that is paid.

G. The Bargaining Power of Buyers and Sellers

The bargaining power of buyers and sellers will influence the average real estate commission rate that is paid.

When the bargaining power of buyers and sellers is high, they are more likely to be able to get a lower commission rate from the real estate agent.

Conversely, when the bargaining power of buyers and sellers is low, they are more likely to pay a higher commission rate.

Frequently Asked Questions (FAQs)

Do Both Buyers and Sellers Have To Pay Real Estate Commission Fees?

There is a myth that only sellers have to pay real estate commission fees, but in reality, both buyers and sellers have to pay them.

In some cases, the commission will be an amount that is paid outright rather than calculated as a percentage of the sale price.

Regardless of how your commission is calculated, it’s smart to be aware of your potential obligation to pay the real estate commission fee.

We strongly recommend consulting with an experienced real estate agent if you are unsure what you will be charged.

What Are Some Tips for Negotiating Lower Commission Rates?

Be prepared to be both determined and persistent when negotiating a lower real estate commission rate.

Here are some tips to help you get what you want:

Be aware of your rights and understand the business. This will help you know what to ask for and how to stand up for yourself when negotiating.

Be honest with your agent about your budget and needs. Establish a realistic expectation of what you’re willing to pay and stick to it. If your agent tries to push you in the other direction, be firm but polite in communicating this back.

Bring documentation with you that shows your commitment to the deal when meeting with your agent or broker. This could include a drafted agreement, recent mortgage quotes, credit reports, etc.

Can I Buy or Sell Real Estate Without an Agent?

Yes, you can buy and sell real estate without an agent. However, it’s important to be familiar with the rules and regulations of the specific state in which you are buying or selling.

You also need to be aware of any local requirements, such as laws that pertain to buying and selling.

For example, in some cases, you may need to get pre-approval from a lender or other third party before making any offers on properties.

Conclusion

In conclusion, it is important to know what the average real estate commission rate is in your area before you get started. This will give you a better idea of what kind of money you are likely to spend on closing costs, broker fees, and other related expenses. Make sure to ask your real estate agent for a written breakdown of their fees.