Over the years, our team has fielded a lot of questions about real estate commissions. As agents, we’re frequently asked questions like: How big is our cut? What services do our fees pay for? And what’s to stop our clients from getting rid of the middleman and going it alone?
The truth is, some people decide to navigate real estate transactions without professional guidance, and some are successful. But before you decide which approach you want to take, you should understand what a real estate agent can (and can’t) do for you — and how much you can expect to pay if you work with one.
If you’re wondering whether hiring a real estate professional is worth the money, read on to learn how agent fees break down…
The Basics
No doubt about it: there are a lot of misconceptions about how we agents earn our fees. Many professional service providers charge by the hour — like lawyers or movers, for example — and some clients assume that we use the same model. In reality, we only get paid if a deal is successful. Put simply, if a home doesn’t sell, the agents involved generally don’t receive a penny.
From a consumer’s perspective, this arrangement removes a lot of the financial risk that would otherwise accompany working with a different professional, even within our same industry. Let’s look at it this way — it can take anywhere from three days to three months to simply locate a listing that might suit a particular clients’ lifestyle. If we charged that client by the hour (or even the day) for the time we spent helping them, our costs could end up even more expensive than the home itself!
The second major misconception has to do with who pays us. There are two agents in a typical real estate transaction — one who works on the seller’s behalf, and one who represents the buyer. You might expect that each side gets paid by the client who hired them. Not so. When a deal is completed and the seller receives their money, they then automatically pay a percentage of their earnings from the sale in commission to the agents on both sides of the deal.
Real estate agent commission fees aren’t the only costs you should be aware of ahead of time if you’re planning on buying a home. To learn more about which fees you can expect to incur (and when), read our blog post on the Hidden Costs of Buying a Home You Need to Know Now.
How Much Do Sellers Pay?
The commission that comes out of a transaction is typically between four and six percent of the final sale price of a home. In most cases, the commission is usually divided in half, meaning that each agent gets 50 percent of the overall amount.
Since sellers are responsible for paying this amount, it might sound like buyers receive professional services for free, but that’s certainly not the case. The fees are built into the transaction, so in actual fact, it’s the buyers who are providing compensation for the agents when they purchase their new home.
Sellers should know that while four to six percent is quite standard across the real estate industry, you may be able to negotiate this down to a lower amount with your agent. Just be aware that it’s not just about getting your own agent to agree to the lower commission rates, however.
The commission you’re willing to provide to the buyer’s agent will also be visible on your MLS listing. Although we as agents are bound by RECO, our governing body, to show all properties regardless of commission, there are some buyer agents who are less likely to show homes when the commission rate offered to them is lower than that of a comparable property. It’s a frowned-upon practice, but it does happen.
With that in mind, offering a percentage that’s on par with what’s being offered in your neighbourhood will be a better approach to helping you attract the attention of buyer’s agents (and, by extension, home hunters). The last thing you want here is to sacrifice what could be a very lucrative sale for you just because you want to save a few dollars in real estate agent commissions fees.
Remember; the more competition you can create in the form of eager bidders fighting it out for your home, the more chance you have at fostering a bidding war and driving up the final sales price of your home. While that means more money goes to the agents, it also means more money in your pocket at the end of the closing day too.
Want to learn more about the advantages as a seller of creating competition between buyers for your home (and how to handle them)? Read our related blog posts all about bidding wars and how to navigate through intense negotiations successfully here:
- How Sellers Can Make the Most of a Hot Market
- How to Survive a Bidding War
- What Is a Bully Offer—and Should You Make One?
Which Services Are Included?
Now you have a fair idea of what you can expect to pay in agent fees if you work with a professional. But what exactly will you be paying for? The answer is, it depends.
Pricing, marketing, qualifying buyers, negotiation expertise — it all falls under the umbrella of what a good seller’s agent should provide. That said, the specifics will vary from one professional to the next.
For example, some agents include staging and photography as part of their services, which sounds enticing, but can drastically vary from one agent to the next. The quality of a staging job or the standard of a home improvement project or even the quality of the images captured of your home may differ significantly depending on which agent you go with.
That’s why it’s important to research your listing agent’s previous work, look through their Sold Listings page online (should they have one), read their Google Reviews, and if possible, personally speak with some of their previous clients to see if they were pleased with the service. Learn as much as you can about a listing agent and what they’ll actually provide you with beforehand and the process of choosing one to assist you with your sale becomes markedly easier.
If you’re a buyer, an agent that earns their commission will be able to provide you with a long list of value-added services too. A great buyer agent will help you find homes that meet your unique criteria of needs and wants. They’ll also be able to help you submit compelling offers for those homes, as well as negotiate optimal deals for you on your behalf.
Most importantly, a talented buying agent will help you feel calm and composed through the entire process by guiding and informing you through each stage of their approach. As is the case with sellers, buyers should have an in-depth discussion with any professional they’re considering working with about the services that will be included, as well as any qualified references they may have (or you might find on your own).
At Woolcott Real Estate, we believe that going to extra mile for our clients should be the bare minimum we offer to them. Whether you’re a home buyer or seller, you can learn more about the value-added services we offer to all of our clients through our informative pillar pages below.
The Bottom Line
The decision of whether to work with a real estate agent or opt not to, whether you’re a buyer or a seller using the FSBO (For Sale By Owner) method, is a completely personal decision. The being said, if you do decide to hire a professional real estate agent, one thing is for certain — you deserve to know how your money will be spent.
Before agreeing to work with an agent, be sure to have a direct conversation with them about their commission rates and what (exactly) you’re going to receive in exchange for paying them. If they become uncomfortable with the conversation or dismiss your question under the guise that their rates are an ‘industry norm’ without detailing what their process looks like and includes, then they’re probably not going to provide you with any sort of premium real estate services.
Find out the latest news about the real estate in some of our recent posts:
- What’s Your House Really Worth?
- Housing Market Predictions for 2023
- How To Negotiate A Real Estate Contract
Every Realtor® should be comfortable articulating what their services include, no matter if they’re acting as a buyer or seller’s agent. The more you request clarification and transparency from an agent, the more you’ll feel comfortable with their rates of service, and that’s a luxury every client can afford.
Interested in learning more about real estate agent fees and services? Or, anything else related to buying, selling, or investing in real estate? We’re always available to schedule a chat. Contact us here to start a no-pressure conversation — we’re happy to answer any questions you might have about real estate!
