How Does a 3% Real Estate Agent Commission Work?

November 23rd, 2021
How Does a 3% Real Estate Agent Commission Work?

There is no such thing as a standard or required real estate agent commission. Are you surprised?

While most U.S. markets average 5 to 6% total commission, this number is generally not required. Rather, agents negotiate their commission rates. In many cases, the total commission is split equally between the listing and buyer agents, resulting in a 2.5 to 3% real estate commission for each. 

The seller generally pays the entire real estate agent commission for both sides of the transaction. Theoretically, the listing agent is paid for marketing and representing the sellers' property throughout the transaction. In contrast, the buyer agent is paid for bringing a ready and willing buyer to purchase the property. 

Real estate agents base commission on the agreed-upon sale price for the property. If you know the sale price, you can use our commission calculator to determine what you might be paying. 

What does the listing agent's 3% real estate commission pay for

When you are ready to sell your home, you'll choose a listing agent to represent your interests and market your home. Here's what their commission pays for:

  • Compensation for their time and professional expertise
  • Pre-marketing activities such as advice on staging and improvements to maximize the value of your home
  • Preparing marketing materials including photography, copywriting, videography, printing, and mailing
  • Listing your home on the local multiple listing service (MLS) and affiliated websites and portals
  • Compensating them for event planning open houses, broker's open houses, and other showing opportunities
  • Fielding offers and providing fiduciary level advice and representation throughout the negotiation process
  • Representing your interests during and after the home inspection process and in subsequent negotiations
  • Guiding you through the complexities of the closing process and coordinating following purchase timelines, if required.

What does the buyer agent's 3% real estate commission pay for

What does the buyer agent do to earn their share of the real estate agent commission? Their services include the following:

  • Working with buyers to determine their budget
  • Ensuring buyers are financially qualified to purchase a property
  • Identifying eligible properties in the buyer's target market and creating a curated list for consideration
  • Scheduling showings 
  • Accompanying buyers to properties 
  • Writing and submitting offers 
  • Coordinating the collection of escrow funds for the earnest money deposit
  • Conducting negotiations 
  • Providing fiduciary-level advisory services on behalf of the buyers
  • Facilitating the home inspection process and subsequent negotiations on the buyers' behalf
  • Managing the complexities of the transaction through closing
  • Coordinating prior sales timelines

What is fiduciary-level service?

Real estate agents are legally and ethically bound to fulfill their clients' fiduciary duty. This provision is the highest level of service, putting the client's needs and interests first. That means that your real estate agent can't allow a seller to charge more for their house or allow a buyer to overpay—simply to drive up the price and their commission. Instead, the agent must do what's best for the client every time, on every transaction.

What happens in the case of dual agency

In some cases, a listing agent may have buyer clients interested in a property you are selling. In that case, your listing agent may refer clients to another buyer agent or suggest representing both of you through a dual agency process

Remember that you have every right not to participate in dual agency. Many real estate agents do not suggest dual agency due to the difficulty of providing fiduciary-level services to both parties in the same transaction. Talk to your agent about your preferences before agreeing to this option.

How to obtain a reduced commission on your real estate transaction

If you would prefer to pay less than the standard 3% real estate agent commission to each agent in your transaction, you have a few options. However, in most cases, you will still be responsible for paying the buyer agent unless you reach an agreement for the buyer to pay them.

For Sale By Owner

If you have an extensive network of friends and acquaintances in your market, you may choose to sell your home yourself. In some cases, if you have a qualified buyer, you can negotiate a reduced rate with your real estate agent for transaction management services only.

Negotiating a reduced commission with your agent

You may be able to negotiate a reduced commission with your real estate agent, especially if they are new and looking to gain experience. If your agent is open to a reduced commission, find out whether there will be a reduction in the services they provide or pay for as well.

Working with a flat fee or reduced commission brokerage

Some brokerages use a different compensation model, providing real estate services for a flat fee or a reduced commission. Some offer a la carte services that you pay for as needed, or a variety of agents may serve you rather than having a specific, dedicated listing agent.

Trying to determine how much it will cost to sell your home? Check out our commission calculator to crunch the numbers. RentSpree offers comprehensive resources to make every aspect of the real estate sale, purchase, and investment process more transparent.