Realtor Fees: What Are They & Who Pays For Them?

Key Takeaways

  • While Realtor fees may appear to be an inconvenience, I can assure you that they are anything but.
  • Realtor fees for selling a house may sound like a lot, but a good Realtor should be seen as an investment in your future; there’s a good chance they will save you more than they cost.
  • While relatively simple, for one reason or another, Realtor commissions are misunderstood.

As far as I am concerned, Realtor fees aren’t really fees at all, but rather an investment opportunity. You see, while it most certainly will cost you money to align your services with an agent or Realtor, there’s a good chance their efforts return more than the amount it cost to hire them. Having said that, I am convinced Realtor fees aren’t something today’s home buyers and investors should fear. If for nothing else, Realtor fees are a small price to pay for either selling a home faster and for more money, or for finding a home sooner and negotiating a lower price point.

It is worth noting, however, that Realtor fees are somewhat ambiguous, and leave much up to question. What are Realtor fees? Who pays Realtor fees? Do Realtors work on commission? Better yet, what could you expect to pay for a good Realtor? The answers to all of these questions, and more, will be brought to light in the following Realtor fee guide.

What Are Realtor Fees?

Realtor fees, just as their name would lead you to believe, are the cost of doing business with a Realtor. That said, the costs associated with working with a Realtor can seem intimidating and — at times — downright confusing, which begs the question: What are Realtor Fees?

Simply put, Realtor fees are not an upfront cost, but rather a percentage of the resulting sales price. In other words, the amount it will cost to hire a Realtor will depend on how much the home sells for. And while there is no universal Realtor fee percentage, fees will hover somewhere in the neighborhood of six percent. Of course, some Realtors will cost less, but those that are truly worth the investment may cost even more. I maintain that a good Realtor is worth their own weight in gold, but I digress; most will ask for a fair percentage of the sales price. For example, if you hire a Realtor at a rate of six percent and a home sells for $500,000, you could be looking at a $30,000 fee. It is worth noting, however, that the Realtor fees are split between the buyer’s agent and the seller’s agent.

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Who pays Realtor fees?

Who Pays Realtor Fees?

I want to make it abundantly clear: there is no universal rule for who will pay the Realtor fees each and every time. Each transaction will represent a different set of circumstances and possibilities, most of which can be negotiated. That said, it’s quite common for the seller to pick up the tab. For the most part, Realtor fees are usually paid by the seller at the closing table, as the fee is usually subtracted from the proceeds of the impending sale. More specifically, the seller usually pays the listing broker who, in turn, shares the profits with the subsequent Realtor — the one that introduced the buyer.

Of course, as I already alluded to, there are exceptions. Some sellers may negotiate for the buyer to pay the fees at closing, but, again, that’s the exception. Just know this: sellers typically pay the fees, but with a few exceptions. You may even find some buyers offer to pay the fees to make their offer look more attractive amidst a bidding war. Again, anything is possible.

How Does Real Estate Commission Work?

To be clear, a real estate commission is the same as a Realtor fee; the two are synonymous with each other. A real estate commission is typically in the neighborhood of six percent, as I already stated with the Realtor fee. It is quite common, however, for the buyer’s agent and the seller’s agent to receive about half of the commission each. If the same agent is representing both sides of a transaction, there’s a chance they will lower their commission.

What Is The Average Realtor Fee?

Again, most real estate agents and Realtors will charge somewhere in the neighborhood of six percent of the sales price. Having said that, there is no universal average for how much an agent will make on a home sale. It is, however, possible to calculate how much that six percent fee translates to in the average home sale.

According to Zillow, the median price of homes that have sold in the United States rests at $229,200. So if you want to understand how much the average Realtor makes in fees on the average home sales price, simply take six percent of $229,200, which is $13,752. That means the average Realtor fee is somewhere in the neighborhood of $13,752. But remember, the fee is typically divided in two, as to pay both agents representing both sides of the deal.

How much does a Realtor cost?

How To Calculate Realtor Fees

In order to calculate Realtor fees, you must know three things: the sales price of a home, the number of agents in a respective deal, and the percentage they charge for their representation. Once you have those three numbers, calculating your Realtor fees is as simple as multiplying and dividing a few numbers.

Start off by taking the sales price of a home and multiplying it by the percentage the Realtor is charging. For example, if a home sells for $500,000, simply multiply it by the percentage the agent is charging. If they are charging the average commission I already spoke of, the equation would look like this: ($500,000 x 0.06), which gives you $30,000. Then, take that $30,000 and divide it by the amount of agents representing the deal, each of whom will get half.

Are Realtor Fees Included In The Closing Costs?

Realtor fees, otherwise known as commissions, are not included in a home’s closing costs. Whereas commissions are strictly for the representing agents, closing costs are the result of several miscellaneous fees (unrelated to the agents). For the most part, closing costs include, but are not limited to things like:

  • Loan processing
  • Title company fees
  • Surveyor costs
  • Deed recording
  • Insurance

Not unlike the Realtor fees, however, closing costs will depend greatly on the sales price of the home in question. Closing costs also tend to span a bigger spectrum, generally ranging anywhere from two to seven percent of the sales price.

Are Realtor Fees Included In Mortgage?

You will be happy to know that Realtor fees (or commissions) are not included in the mortgage. If for nothing else, it’s the seller that’s going to be paying the fees. Remember, more often than not, it’s the responsibility of the seller to compensate the Realtor or real estate agent.

How To Negotiate Realtor Fees

As with almost everything else in a real estate transaction, it is entirely possible to negotiate Realtor fees. In fact, the law states that said fees should be negotiable. Whether or not you can come up with a compromise, however, is another story. Just know this, it is possible to negotiate Realtor fees. Keep in mind, you typically get what you pay for. So while it is possible to negotiate with a Realtor, you may not necessarily want to.

How To Avoid Realtor Fees

The best way to avoid Realtor fees is to simply act as the buyer in a transaction. As I already alluded to, it’s the sellers that typically pay the fees at the closing table. However, if you can’t avoid the fees, perhaps you can lower them a little. If that sounds like something you would like to try, may I recommend taking the flowing actions with your Realtor:

  • Discuss everything up front and transparently
  • Determine if their fee is negotiable in the first place
  • Offer a competitive rate for the other agent in a deal
  • Let agents know you are shopping around

As far as I am concerned, Realtor fees are not the end of the world — far from it, in fact. I think they are a small price to pay in order to work with a truly great real estate professional. Provided you align your services with the right Realtor, there’s no reason you can’t look at their cost as an investment in and of itself; it’s quite likely that they will save you more money than they cost.

Are you more or less familiar with the workings of Realtor fees? Or do you perhaps get a little confused when they are brought up? Please feel free to let us know your thoughts on the matter in the comments below.

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Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies

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