Understanding Real Estate Agent Fees: How They Work & Who Pays Them

Understanding Real Estate Agent Fees: How They Work & Who Pays Them

by The CE Shop Team

How Much Are Average Real Estate Agent Fees?

When you make the decision to get into real estate, it’s exhilarating. The thought of helping someone find their dream home is amazing. However, there is a lot to know to succeed in this industry. And as you’ve no doubt gathered by now, it can be confusing to get started. How you make money as a real estate agent is probably the most confusing aspect of all.

In this guide, we will walk through everything you need to know about real estate agent’s fees, who pays real estate agent’s fees, and the standard real estate agent fee. This guide will also give you an indication of what average real estate agent fees are as well as answer the question: How much are real estate agent fees? One of the main reasons people get into real estate is financial security, so it’s important that you understand how real estate agents are paid.

If you’re feeling intimidated, don’t worry! We’ll make it as easy as possible to understand how you make money as a real estate agent.

What Are Real Estate Agent Fees?

A real estate agent fee is the payment received by real estate agents after making a sale on a property. It is usually paid to the brokerage for which the real estate agent works and is then split based on the agreed-upon contract. The standard real estate fee is 6% of the sale, though it can sometimes be closer to 5% on average.

Competition is often fierce when it comes to real estate agents’ fees. But keep in mind that all fees are negotiable before they’re put to paper. If you don’t think your percentage is fair, speak up! An agent sets their real estate agent fee rate with the buyer or seller before the transaction occurs, then writes their fee rate into the contract, so it never hurts to see how you can balance the scales.

In simple terms, a real estate agent’s fees are based on the final selling/buying price of the property as defined in the brokerage’s contract with their real estate agent. That’s how you find the average real estate agent fees and who pays the real estate agent fees, though we’ll explain those concepts in greater detail shortly.

Since two real estate agents are usually involved in the buying and selling of a home, the real estate agent fees are typically split evenly between the buyer and seller agents as outlined in the contract. On occasion, this might mean one agent receives a larger portion of the fee than the other. Sometimes this inequality occurs if the buyer agent puts in more work than the seller agent based on prearranged plans.

Lawyers occasionally get involved to determine which agent gets the larger cut of the real estate agent fees. If this sounds like too much legal red tape, the standard real estate agent fee tends to work out fairly based on the amount of work each agent put in.

As mentioned, though, the buyer and seller agent can't keep the entire fee for themselves. Part of their fee goes to the broker since they are the ones who spend money to keep the entire brokerage profitable. If someone is acting in a dual agent capacity, they’ll still be required to split their commission with their brokerage, but they won’t have another agent with whom to split the pot.

Pro Tip:

Establish your real estate agent fee early with your client to avoid confusion and conflict during closing.

Who Pays Real Estate Agent Fees and Commission?

At this point, you probably just asked yourself: OK, but who pays real estate agent fees? This part of the process can get confusing, but some agents work strictly with standard real estate agent’s fees as their main income. Helping someone buy or sell a home can take a lot of time, meaning the average real estate agent fee is perhaps not seen for weeks or months.

For this reason, some agents also take a small salary from their brokerage. Nevertheless, the real estate agent fees are generally paid by the seller of the home. They agree to a contract before any work is done, indicating that they will pay a percentage of certain real estate agents' fees to both their buyer agent and the selling agent.

As you work toward becoming an agent, you’ll decide what type of real estate agent you want to become. Remember, you should not expect a huge percentage of real estate agent fees when you start out. It is always exciting to get your first split of real estate agent's fees, but it will take time to start getting substantial payments.

Then again, who pays real estate agent fees and how much are real estate agent fees depends on where you work as an agent. If you work in wealthier communities that could mean the standard real estate agent fee is substantially higher. In this scenario, it might mean getting larger real estate agent's fees earlier and watching those fees grow substantially as you gain more experience.

Are Real Estate Agent Fees Negotiable?

Absolutely. No federal or state laws exist to set specific real estate agent's fees rates, which is why your real estate commission varies based on the state where you practice real estate. Equally, the lack of laws specifying real estate agent fees allows those commissions to be negotiated.

How this negotiation works is occasionally complicated, despite sellers having the freedom to work with agents on negotiating commissions. Negotiations are a legal affair since no one has the right to set a commission at a specific percentage, though as we mentioned earlier, the average real estate agent fee is about 5-6%.

Are Real Estate Agent Fees Included in Closing Costs?

It’s crucial to know that closing costs are independent of real estate agents’ fees. As experts from across the industry have laid out, closing costs are fees that are paid when someone closes on a home. In most instances, closing costs include:

  • Insurance: According to Investopedia, homeowners insurance is a form of property insurance that covers losses and damages to a residence.
  • Surveyor costs: The lender may require a survey of the property before closing. As Whyrealty points out, this is done to confirm that the property’s boundaries are correct.
  • Title fees: These are any costs that relate to the purchase or sale of property. According to Wallethub, most of these costs are quite common and necessary for the transfer of ownership.
  • Loan processing: This means reviewing the mortgage application, making sure the borrower has provided all of the necessary paperwork, and verifying that all information is accurate.

What Is Dual Agency?

Perhaps you have heard the term "dual agency" in the real estate industry and never understood what it meant. Dual agency means an agent performs double duty, acting as the agent for both a buyer and a seller during a house transaction. While a rare occurrence, dual agency sometimes occurs by happenstance.

In smaller markets, dual agency is more likely to occur. With that said, dual agency is a little risky because it is illegal in some states. As of now, Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont determined that the practice of dual agency is illegal.

These states are big real estate regions, so this might sound disconcerting. Still, at only seven states, you have 43 other states where you can practice dual agency.

A major pro to being a dual agent is a seller can better negotiate with the agent on the standard real estate agent fee, bringing a larger portion. As a downside, problems can arise if an agent has to relay something personal about a home being sold. For instance, what if the agent found out something about the people living in the home that could make the home sell at a lower price? A dual agent would never be able to impart personal information to the buyer or seller if they’re representing both parties, making it a difficult position to perform well in.