If you are a property seller, expect that the total real estate commission will cost you somewhere around 3.5 – 6% depending on who you use, the value of the property and the going rate in your area. Thus, on a $5 million house, the total real estate commission will range from $175,000 to $300,000. Typically, 2.25-3% of that goes to the agent and their broker who represents the buyer of your property and the remainder goes to your (the seller’s) agent and broker. On each side, the agent usually makes between 50-80% of that commission and the broker makes the remainder to cover overhead and profit. Your agent may also pick up the cost of staging, some repairs, inspection reports and other costs.
If you are the buyer, you aren’t actually paying any commission. However, on the closing, you will see your agent’s broker being paid out of the proceeds – so indirectly you are paying some of the commission because the purchase price is “inflated” by that same 2.25 – 3%.
When people list their houses, most people use an agent that is either a friend or relative, referred to them by a friend or relative, helped them buy their house, or sent them a mailer.
What are some alternatives if you are looking to save some money on the sale of your property?
- You could do a for sale by owner (FSBO), but you would only be saving the seller’s real estate commission (1-3%) because if your buyer came in through an agent, like most do, you would still owe a buyer’s agent a commission. I do NOT recommend this strategy. Most buyers think FSBOs are not motivated sellers and don’t want to waste their time. Also, a lot of work will fall on you, the seller. In addition, you will definitely be paying the cost of staging and other costs.
- You could find an agent that offers a lower seller’s commission. Redfin is probably the most visible one of the “discount” brokers, but I don’t have much experience with them and don’t see many listings by them. A reduced commission should may mean that you receive inferior service or a lower price. Email me if you want an agent recommendation.
Even though I am a broker, I have always used an agent to sell each one of my houses and always recognize the value of using a real estate agent. Don’t cheap out on this. If saving money on the transaction is important, email me for suggestions.