How Do Real Estate Commissions Work?

On occasion, I’m asked about real estate commissions.

How does the commission get split?
Where is the money used?
How does it help sell my home?
Can you reduce the commission?

Let's start with describing why there is a commission...

A great real estate agent makes the process of selling a home much less stressful. They maximize your property’s worth, handle the extensive paperwork involved in a transaction, negotiate on your behalf and act as your advocate. The commission isn’t just payment for these services, it covers the expenses and fees incurred to get the deal done, too.

The exact commission is set when you hire your real estate agent. This will usually be a percentage of your home’s sales price, but sometimes it can be a flat fee. The national average commission fee is 5-8% of your home’s sales price. Once your home sells, the commission is paid to your real estate agent. 

Behind the scenes, it’s split in a few big ways:

Broker Fees: 

Every Realtor® works under a real estate broker or brokerage. The brokerage gets a share of every commission their agents make in exchange for benefits like training, software/technology tools, networking opportunities, marketing/advertising, contact information of potential buyers/sellers, access to the MLS, etc. The split can be as much as 50/50 but will vary greatly.

While I am the broker of McCallion & McCallion, I too pay a brokerage split to our company. It’s how we keep the lights on, pay our staffed employees, and continue to provide great service to our clients. 

Buyer’s Agent: 

Homebuyers do not pay their agents directly. Instead, the buyer’s agent is paid by sharing the commission of the seller’s agent. Like broker fees, the split can vary greatly, but usually, it’s 50/50. 

So, if the real estate commission is 6% total, typically, the buyer’s agent will receive 3% and the seller’s agent will receive 3%. Each agent will then have to pay their brokerage a percentage of that 3% commission, as explained above. 

Listing Expenses

Photography: 

Your home should be showcased in the best light possible, especially in a real estate market like ours, where many buyer’s are searching online from another state. That is why we hire a professional photographer to capture the images that we use to advertise your home in the MLS and in our other digital and print advertisements. 

Video Tours: 

Video used to be considered a nice bonus to complement an online listing. But now, videos have become a necessity. During the photoshoot, our professional photographer will use their fancy 360 cameras to capture a 3D virtual tour of your home. They also shoot a video walkthrough of the property for those who are not local and able to view your home in person. 

Online Marketing: 

Online marketing is more than just uploading your home’s photos to the MLS and calling it a day. Great agents will develop a strategy to give your home an impressive digital presence, including a dedicated page on their website, social media strategy, and content marketing (newsletters, online advertising, and other promotional efforts). 

“In Real Life” Marketing: 

From brochures and flyers, to yard signs, to local newspaper advertising, to open house outreach efforts… this is everything involved in attracting potential buyers to your home and helping other real estate agents get the answers needed for their interested potential home buyers. 

Other costs associated with real estate

Business Expenses: 

Most brokerages have other expenses, such as office overhead, employee salaries, association dues, paid technology tools and resources, coaching and training, etc. Even individual real estate agents have business expenses, such as the same association dues and technology subscriptions, but also any travel and time spent showing you properties or gathering the necessary information to help your transaction run smoothly. 

Referral Fees: 

Referral fees aren’t a part of every transaction, but we do experience a good amount of them. This occurs when another licensed agent refers a new client their way. When that client purchases a property, the referring agent receives a part of the commission as negotiated at the time of the initial referral.