September 19, 2019

Clearing Up Commission

If you're in the market to buy or sell a home with a real estate professional, you may be wondering how they get paid. It's not how many homes they show you, how many open houses they host, or the volume of market analysis they provide. Rather, they get paid at the time of purchase, or sale, through a designated real estate commission fee.

What is commission, who pays for it and is there room for negotiation?

Before a seller signs a listing agreement with an agent, both parties must agree to the commission fee – the percentage of the sale price the seller agrees to pay when the house sells. This percentage is very important as it outlines how much the buying and listing agents can earn for their services, and how much the seller must pay out at closing.  Generally, this fee is the responsibility of the seller only, not the buyer.

Real estate commission typically ranges from 5% to 6% of the home's sale price and is split between the buying and listing agents (and their respective brokers). Sometimes the split is 50/50, but it can vary. The exact split depends upon a variety of factors such as market conditions and the fee is negotiable.

In Context: Every Number Matters

Graphic: Real Estate Commission Scenarios. Scenario 1: A home that sells for $200,000 with a 6% commission, split 50/50 between agents = $12,000 paid by seller, $6,000 to listing agent, $6,000 to buying agent. Scenario 2: A home that sells for $220,000 with a 5.5% commission, split 60/40 between agents = $12,100 paid by seller, $7,260 to listing agent, $4,840 to buying agent.

At the time of closing, the commission fee is taken directly from the sales proceeds of the house  and is split between parties. It's important to note that no one is taking home the entire chunk of change. Typically, the agents split their costs with their broker and they're also responsible for many business costs associated with the purchase or sale of the home.

To learn more about buying, owning and selling a home, visit MyHome® by Freddie Mac.

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