When you are buying or selling a home, there is so much paperwork and associated costs that it can seem overwhelming to know what goes where. Another aspect of the list of expenses that can sometimes seem vague is how much of these costs actually go to the real estate agent(s). In this article, we will outline what portion of the costs are given to the real estate agents.
Real estate agents make their income off of the commission that is made when they sell or buy a house. The commission rate is typically 6% in Pennsylvania, where 3% goes to the buyer’s agent and 3% goes to the seller’s agent. It is divided evenly. Typically, the commission is earned after the settlement has taken place. This means that while they are working hard to sell a home or find a buyer, they are not paid for that until your house has been bought or sold, depending on the circumstances. So who pays the commission? The seller or the buyer? In the following article by realtor.com, they answer this question in detail:
Technically, the total commission is always paid by the seller at the settlement table, where the fee is subtracted from the proceeds of the home sale.
However, in a sense, the buyers are paying the commission because they’re paying to buy the house and the sellers have taken the REALTORS®’ commission into account when determining a listing price. The commission is split at the settlement table between the listing agent’s brokerage and the buyers’ agent brokerage; then the agents themselves are paid by their brokers.
The commission is paid by the seller and it is taken from the proceeds of the sale. It is said that the seller pays the commission. This article claims that the buyer is indirectly paying the commission because simply put, they are buying the house where the overall price has the commission included in it.
The percentage of the commission is not fixed and can be negotiable. Many realtors will not take a commission that is less than 6% and some realtors even charge more for special circumstances. Realtors warn that anyone who is buying or selling a home should be cautious about using a realtor who is willing to negotiate commission price. In the following article by realtor.com, they discuss commission negotiations:
What Percentage of the Sale Price Do Realtors Charge?
I can tell you that I do not taking listings for less than 6%. Sometimes I even charge 15%, if the situation is extraordinary. I do this because I work very hard for my clients, spend lots of money on marketing, network with colleagues and clients internationally, and take no more than 2 clients at a time.
I caution you about working with agents that will take less than the customary commission percentage. The reason I say this is simple: If the agent cannot negotiate well enough to keep their own money, how will they successfully negotiate keeping your money? You want an agent that knows their worth and knows the value of your home. You want your agent to know what values support the price they charge you, just like you want them to know what values support the price they are selling your house for.
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This article claims that if you can talk your realtor into lowering their commission rate then you might have to pay less, but you also might be losing quality of work. In general, realtors who lower their commission rates tend to take on too many clients at once and therefore, will not give your house the attention that it requires in order to sell it or in order to find the right buyer. This translates into your sale or purchase taking a lot longer than necessary which also ends up being more costly.
Not all of the commissions are split right down the middle. An agent can act as a dual agent where s/he represents both the seller and the buyer. This means that they will get the entire 6% of the commission. An agent would prefer to act as a dual agent so that they can earn the 6% and represent both sides of the sale. Dual agency is not legal in all 50 states but in Pennsylvania, it is legal. In the following article by About.com, they discuss what dual agency is:
Dual Agency in a real estate transaction means the listing broker represents both the seller and the buyer. A dual agent must not disclose confidential information to either party and must operate in a hands-off manner. A dual agent cannot get the highest price for the seller and the lowest price for the buyer — it is impossible.
Dual agency can happen even if the buyer is represented by an agent other than the listing agent if that agent is also employed by the same broker.
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A single agent can work as a dual agent or dual agency can be established if there are two agents who are licensed by the same broker. However, as this article mentions, it is impossible to get the highest price for the seller and the lowest price for the buyer. Therefore, it is better to have your own agent.
If you do want to try to save some money and negotiate the commission rate with your realtor, then there are certain aspects of this negotiation that you should know about. Since the commission can be the second highest expense after your mortgage, you might think that it is the best option for you. In the following article by Nolo, they discuss some aspects that you might want to take into consideration when negotiating the commission:
Negotiate the Agent’s Commission When Selling Your House
Of course, some agents may simply refuse. They’re under pressure from the company they work for to keep commissions high — plus they’ll have to work out an agreeable split with the buyer’s agent.
Go to the top. Seek out the broker, rather than the real estate agent who holds your listing. The broker has the power to pull strings, negotiate his or her cut with the agent, or otherwise help you get a discount.
Also think about how you can reduce the agent’s work on the physical condition of your home, too. A real estate agent knows he or she will have to work harder if your home isn’t model home ready and may be less likely to reduce the commission. Ideally before the agent even sees the place, add curb appeal to get shoppers excited about the property, and spiff up the inside so that it’s clutter free, sparkling like a gem, and laid out for easy navigation. Consider spending some of that commission break on a professional stager.
Whether it’s the dead of winter in some locales or the pre-school summer doldrums in others, selling in the slowest seasonal periods can be the best times to find a real estate agent who’s hungry for work, even at a cut rate.
This section was originally found on the “Nolo” website which can be viewed here.
This article claims that if you want to negotiate the commission rate, then you might have to do some of the leg work yourself. This includes staging your own home, increasing curb appeal and even hosting the open houses. It also mentions trying to sell your house during the off season when realtors do not have as much work and might be more flexible.
Overall, the way that a real estate agent gets paid is through earned commission. In Pennsylvania, the earned commission is 6% which is traditionally divided between the seller’s agent and the buyer’s agent. The seller typically pays the commission although the commission is usually included in the price for the home. It is best to hire your own agent because a single dual agent cannot give you the best price when purchasing a home if they are also representing the seller who also wants to find a buyer who will pay the highest price. If you do hire an agent, you can negotiate your commission rate to a lower one if you follow the above tips.