Why A Real Estate Commission is 6% — And Why You Might Not Need to Pay It
This post originally appeared under Haus seller resources. For more information on home selling, visit haus.com.
If you’re thinking about selling your home, chances are you’ve heard about expensive real estate commissions. The commission is usually 5–6% of your home’s selling price. This means that if you sold your house for $500,000, your agent would receive a $30,000 cut and your check would be reduced to $470,000. If that same house sold with a 5.5% commission, you would have saved $2,500. Commission prices can be shocking — even slightly lower fees can make a big difference.
In 2002, economists Natalya Delcoure and Norm Miller compared real estate commissions across different countries. They found that most similarly industrialized countries charged 1–5% to sellers compared to the 6% charge in the United States. Today, despite technology changing many parts of the process, the U.S. still has one of the highest commissions among the world’s industrialized countries at 5.5% on average. Most other countries have seen significant drops in the past decade.
America at 5–6% commission has one the highest commission rates in the world. However, sellers today have more options because of new trends and tools. If you are thinking about selling your home, it’s important to understand your options and how commissions work.
How the commission works
Commissions are the residential real estate industry’s backbone. When a seller pays the 6% fee, it is split between different parties in the transaction. Typically the buyer’s agent receives half of the commission. If the 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 — in many cases, sellers have to pay for these things on top of the commission.
Agents may justify their commissions by telling you that only they can increase your home’s selling price, but this claim is not always true. Real estate agents want their commission even if you get a less desirable offer in the process.
Why 6%?
A 6% commission for real estate agent representation has been the standard rate in the real estate industry for more than 50 years. That rate emerged in the 1940s, when the National Association of Realtors engaged in price fixing. Although the Supreme Court later ruled that this practice was illegal, its judgment did not have much of an impact. Local real estate boards continued to suggest the 6% rate without fixing it outright. Despite numerous lawsuits brought against the real estate boards in the 1970s, 6% remained the standard rate.
In some situations agents charge a lower fee. Higher-priced homes that use full-service agents generally sell for a commission as low as 4–5%. Fees also shift during unpredictable markets. For example, in 2011 the average nationwide commission was 5.4%. The average commission currently hovers between 5–6%, though recent changes and emerging technologies are likely to push it lower.
Not The Only Game In Town
One of the biggest benefits of working with a real estate agent — and one of the primary justifications of the commission — is her 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 agents and brokers share information and cooperate on deals. In most cases, they also syndicate listings out to the major online real estate sites where buyers are looking for homes to purchase.
However, there are now sites that allow you to list on the MLS for a flat fee or as part of a package. There are also ways to unbundle the services of a real estate agent. There are even home listing sites that allow you to list your home for sale without using the MLS. The main benefits of the brokerage are shifting — sellers can do a lot more on their own.
Seller Options
Today, there’s an emerging trend that enables sellers to pick and choose which real estate services they want. These options allow sellers to get professional help for some tasks while saving money by doing other jobs like photographing their home and organizing open houses on their own.
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.
Some real estate agents are open to negotiating a commission rate. This option can be very effective for sellers with high-value homes or sellers in hot markets. You may also be able to negotiate a lower rate if you sell your home in a bad market or ask a broker directly. Be sure to choose your agent carefully and work out all these details before signing a contract.
Some real estate agencies are also responding to consumer pressure by offering alternative pricing models. Flat-fee options are becoming more common. Some agents will also let you list your home on the MLS and pay a fixed rate.
You have options. Don’t feel like you have to pay a 6% commission. You can save thousands of dollars if you know how the system works.
At Haus, we are helping homeowners sell their home by providing them with the information to navigate the process, access to real estate experts and a transaction platform on which to conduct the sale, all for significantly less than the traditional process. For more information, go to haus.com.
