Calculating real estate agent commissions

by Sundaybell on September 7, 2012

So how much do real estate agents actually make in commission?

Calculating a real estate commission is actually quite easy.

When selling your home:You take the value of your home (let’s use the industry average of $360,000) and you calculate it by the amount of commission your real estate agent is asking for to sell it, as well as what you have agreed to give the buyer’s agent. The industry average is somewhere between 5-7% total commission: which is usually a 50/50 split between your selling agent and the buyer’s agent. Let’s use 5% total as the average for this example.

If you do the math:

$360,000 x 5% = $18,000 (this is the total amount you would pay if you agreed to a 5% overall commission for the sale of your property).

When buying a home, the same type of equation applies, however, you, as a homebuyer, are not paying the commission directly. It’s the home seller that pays the actual commission.  That said, keep in mind that the amount of commission is in the total value of the home (i.e., the amount you are paying in total for the property you are about to buy).

Using the same example, if the home you are buying is $360,000, it means that there is $18,000 of home equity in the commissions being paid, so the value of the property is $18,000 less, or a total of $342,000.  This is why, in some instances, especially when getting into the average home price, or higher, a number of consumers are asking for buyer’s rebates from their real estate agents.  To learn more about buyer’s rebates, click here.

So what’s a fair real estate commission?

This is entirely up to you.  Real estate agents are a valuable asset in the sale and purchase of properties.  They are trained to ensure you are getting the best value for your dollar and protect you during the sale or purchase of a property by offering the expertise you may not have. They are licensed professionals that are there to help, not hinder.

Another consideration is that the individual real estate agent you hire, unless they are the broker of record, does not receive the entire commission. See the difference between REALTOR®s and real estate brokers by clicking here.  The individual real estate agent likely has an agreement with their broker to split commissions. It might be a flat fee per transaction or a percent of their total commission.  In addition to this, real estate agents have to pay monthly and annual fees in order to maintain their licenses, they have costs of running their businesses and also pay for advertising to ensure if you list your home with them they are working in your best interest to get your home sold as quickly as possible, and for the right price.

So when you are considering the overall real estate commission, whether it would be to your listing agent, or if you are working with a buyer’s agent, the commission is sliced and diced in many ways.  That said the total real estate commission you are comfortable with is entirely up to you.

Sundaybell is an online service allowing homebuyers and home sellers the opportunity of learning more about real estate and meeting and interviewing real estate agents in their area while remaining anonymous.

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