If you’re selling your home, you know about expensive real estate commissions. The standard real estate commission for the seller’s agent is usually around 3% of your home’s selling price and can be as high as 5%.
This means that if you sold your house for $200,000, your agent would receive a $6,000 cut and your check would be reduced to $194,000. If that same house sold with a 1% commission, you would have saved upwards of $4,000. That is a lot of money! Real estate agent commission prices are upsetting - even slightly lower fees for the home seller can make a big difference.
In 2002, economists Delcoure and Miller compared real estate commissions across different countries. Today, the U.S. still has one of the highest real estate commissions among the world’s industrialized countries at 5.5% on average with the seller’s and buyer’s agents combined commissions.
Most other countries have seen significant drops in the past decade. But America remains steady at 3% seller’s commission, which is one of the highest commission rates in the world.
If you want to avoid the high commission fees, home sellers today have more options because of new trends and tools. If you are thinking about selling your home, you need to understand your options and how real estate commissions work.
How Real Estate Commission Works
Commissions are the residential real estate industry’s backbone. When a seller pays the fee, it is split between different parties in the transaction. Typically, the buyer’s agent receives half of the commission. If the real estate agent is working with a broker, the broker gets a portion as well. The remaining portion can pay off your home’s marketing, open house, and other selling costs, if it was negotiated with the agent.
Why a 3% Commission?
A 3% commission for real estate agent representation has been the standard rate in the real estate industry and has been a constant for home sellers.
The standard real estate commission rate emerged in the 1940s with price fixing. Although later ruled illegal, its judgment did not have much of an impact and real estate boards continued to suggest the 3% rate.
In some situations, real estate agents charge a lower fee such as a high end, expensive home. Fees also shift during unpredictable markets. For example, the average nationwide commission was 2.7% in 2011. The average commission currently hovers between 2.5-3%.
One of the biggest benefits of working with a real estate agent is their access to the Multiple Listing Service (MLS). The MLS is a private real estate information database that is only available to agents and brokers. The MLS helps real estate agents and brokers share information and cooperate on deals.
Home Seller Options
Now you can pick and choose which real estate services you want. This option allows you to get professional help for some tasks while saving money by doing other jobs like photographing your home and organizing open houses yourself. Many sellers opt to sell their home for sale by owner as well.
Home sellers can go further and organize sales themselves. This used to be difficult because agents could not collect commissions from sellers who did not hire a representative. As a result, agents did not show these self-marketed homes to their buyers. But with online listing services, it has become easier to match buyers and sellers without an agent.
You have options! Home sellers shouldn’t have to pay the standard 3% commission in today’s real estate market. You can save thousands if you know how the system works.