What is the real rate for real estate commissions?

Share with

Last updated on January 4th, 2025 at 05:49 pm

What should I pay my real estate agent? Should I pay my real estate agent a 6% commission, these are just a few questions people ask. This article is written for real estate agents with suggestions on how to manage these and similar questions. Recently there was a question on Quora.com “Why should I pay my real estate agent 6%?”. That’s an excellent question. As a seller agents, you need to create a strategy specifically on the price. There are of course other considerations and you need a strategy for your entire approach but the home’s sale price is right at the top.

When deciding what percent commission to charge clients for listing their homes, real estate agents must consider a range of factors to ensure their fee is competitive, fair, and reflects the value of their services. Below are key considerations:

1. Market Standards and Local Competition

Table of Contents

Typical Commission Rates: Research the average commission rates in the local market.
Competitive Advantage: Position yourself competitively without undervaluing your services.
Market Conditions: Adjust rates in a buyer’s vs. seller’s market.

2. Property Value and Type

High-Value Properties: Luxury homes often have lower real estate commission percentages but higher absolute payouts.
Low-Value Properties: Smaller homes may require higher commission percentages to justify the work involved.
Unique Properties: Specialized marketing may require a higher commission.

3. Marketing and Advertising Costs

Photography and Staging: High-quality photos, videos, and staging can be costly.
Online and Offline Ads: Consider expenses for MLS listings, social media ads, and flyers.
Open Houses and Showings: Time and money invested in property showings.

4. Level of Service Provided

Full-Service vs. Discount Brokerages: Agents offering full service (staging, professional photography, marketing) can charge higher commissions.
A La Carte Services: Some agents offer tiered pricing based on selected services.

5. Time and Effort Involved

Days on Market: Properties that may take longer to sell require more resources.
Client Expectations: Some clients demand constant updates and high involvement.
Property Condition: Homes requiring significant effort to prepare for sale may justify a higher commission.

6. Brokerage Split

Agent-Broker Agreement: Determine what percentage goes to the brokerage.
Brokerage Fees: Some brokerages take a significant share of the commission.

7. Buyer’s Agent Commission

Incentivizing Buyer Agents: Offering a competitive split to buyer’s agents can attract more interest.
Market Norms: Follow regional standards for buyer agent commissions.

8. Economic Factors

Interest Rates and Economy: A slow economy might require flexible commission structures.
Local Real Estate Trends: Adapt to market shifts in home values and demand.

9. Experience and Reputation

Track Record: Experienced agents with a strong sales history can charge premium rates.
Specialized Expertise: Agents with niche expertise (e.g., luxury homes, historic properties, or investment properties) can justify higher commissions.

Client Testimonials: Positive reviews and referrals build confidence in your value.

10. Legal and Ethical Guidelines

State Regulations: Some states have rules or disclosures around commission structures.
Transparency: Clearly communicate your commission percentage and what services it covers.
Anti-Trust Laws: Avoid discussing commission rates with competitors to prevent price-fixing concerns.

11. Client Relationship and Negotiation

Client Expectations: Some clients may expect discounts or negotiation on commission.
Repeat Business: Offering flexibility to repeat clients or referrals can foster loyalty.
Performance-Based Incentives: Some agents offer sliding-scale commissions based on the final sales price.

12. Profitability

Net Profit Goals: Ensure your commission covers operational costs and generates profit.
Break-Even Analysis: Calculate the minimum commission needed to make the transaction worthwhile.
Time Investment: Consider how much time the transaction will require.

While commission structures vary, they should always reflect the value delivered, align with market norms, and transparently communicate benefits to the client. You should aim to balance competitiveness with profitability while maintaining trust and ethical standards.

One of the more difficult but not impossible tasks is to explain to home sellers that their home sale price has a big impact on the commission. You should explain why this is true. Here are a few suggestions:

Female real estate agent sign earn commission

Why the Cost of Selling a Lower-Priced Home is Higher as a Percentage of the Sale Price

When a home sells at a lower price—for example, $300,000 compared to $450,000—the costs associated with marketing, staging, and closing the sale remain relatively consistent. However, these fixed costs represent a larger percentage of the sale price in lower-priced homes. Here’s why:

1. Fixed Costs Stay the Same, Regardless of Price

Selling a home involves several fixed expenses that don’t change significantly based on the price of the property, including:

Professional photography and videography
Online advertising and MLS fees
Property signage and printed marketing materials
Hosting open houses and private showings
Administrative costs and transaction coordination

Example:

$450,000 Sale: Marketing costs might total $3,000, representing 0.67% of the sales price.
$300,000 Sale: The same $3,000 in marketing represents 1% of the sales price.

While the dollar amount is the same, the percentage relative to the sale price increases significantly in the lower-priced scenario.

2. Time and Effort Are Consistent Across Price Points

Whether selling a $300,000 home or a $450,000 home, an agent still needs to:
- Stage and prepare the property
- Schedule and manage showings
- Negotiate offers and contingencies
- Complete all necessary paperwork and legal steps
These tasks require the same time commitment regardless of price.

This means agents often invest just as much—if not more—effort into a lower-priced home as they would with a higher-priced property.

3. A Higher Relative Out-of-Pocket Investment

Agents often pay for marketing and preparation costs upfront with no guarantee of reimbursement if the home doesn’t sell.

On a lower-priced home, the agent assumes a greater financial risk because their upfront costs represent a larger portion of their commission.
The lower the sale price, the harder it becomes to cover these costs while maintaining a reasonable profit margin.

4. Commitment to Maximum Effort, Regardless of Price

A good agent will always give maximum effort, regardless of whether the home sells for $300,000 or $450,000.

However, the financial reality is that selling lower-priced homes involves a higher cost-to-commission ratio.
This means agents must work smarter and more efficiently to ensure that their investment of time and money is justified.

5. The Importance of Fair Commission Structures

When sellers understand the relative costs associated with different price points, they can appreciate why commission percentages remain consistent across various home values.

A commission structure tied to the sales price ensures that agents are fairly compensated for their time, expertise, and upfront investment.
It also incentivizes agents to deliver the best results possible, regardless of the home’s value.

Example:

“Whether your home sells for $300,000 or $450,000, my commitment to marketing, negotiating, and guiding you through the sales process remains the same. However, the fixed costs of selling your home—like professional photography, marketing, and administrative expenses—represent a larger percentage of the final price of a lower-priced home. This is why commission structures are designed to reflect the effort and costs associated with each sale.”

This explanation helps home sellers understand the financial dynamics of real estate commissions and why agents remain committed to delivering value, regardless of the property’s price point.

Why the commission is affected by the market? When it takes longer to sell, a realtor’s commissions are affected by higher selling costs. More effort to advertise, changes to the listing agreement, communication with clients, and if the property is empty, more drive-bys. The following discusses some perspectives from the seller’s point of view.

Why Real Estate Commissions May Vary Depending on the Market

The real estate market plays a significant role in determining how much time, effort, and money it takes to sell a home. In a seller’s market, homes often sell quickly with fewer expenses, while a buyer’s market may require more time, resources, and creative strategies to secure a sale. Here’s why commissions might adjust based on these market conditions:

1. Seller’s Market: Lower Selling Costs, Faster Sales

In a seller’s market, demand for homes exceeds supply, and properties often sell quickly and at—or above—asking price.

Key Reasons for Potentially Lower Commissions in a Seller’s Market:

Faster Sales Cycle: Homes spend less time on the market, reducing costs associated with open houses, showings, and ongoing marketing campaigns.
Fewer Price Negotiations: With multiple offers, agents may spend less time negotiating terms.
Reduced Marketing Efforts: Demand drives buyers to the property, requiring fewer paid ads or extensive outreach.

Example:
If a home sells in one week with multiple offers, the agent’s out-of-pocket costs and time investment are minimized, allowing for more flexibility in commission discussions.

2. Buyer’s Market: Higher Selling Costs, Longer Sales Cycles

In a buyer’s market, there are more homes for sale than buyers, leading to longer selling times and increased competition among sellers.

Key Reasons for Potentially Higher Commissions in a Buyer’s Market:

Extended Marketing Campaigns: Agents must invest more in paid advertising, premium MLS listings, professional photography, and virtual tours.
Staging and Presentation: Additional resources may be needed to ensure the home stands out.
More Time Spent on Showings: Agents often conduct multiple showings, open houses, and follow-ups to attract buyers.
Negotiation Challenges: More time is spent navigating offers, counteroffers, and contingencies to secure a deal.

Example:
If a home stays on the market for six months, the agent must continue investing time and money in marketing, communication, and administrative tasks—all without a guarantee of a sale.

3. Risk and Upfront Costs to the Agent

Agents often bear significant upfront costs in both markets, including:

Professional photography and staging
Online and print advertising
Marketing materials and signage
Administrative and transactional support

In a buyer’s market, these costs compound over time as the home remains unsold, increasing the agent’s financial risk.

4. Market-Adjusted Commission as a Reflection of Effort and Risk

In a seller’s market, agents might have the flexibility to offer slightly reduced commissions because the probability of a quick, successful sale is higher.
In a buyer’s market, higher commissions may reflect the additional time, effort, and financial investment required to close the sale.

This adjustment ensures that agents can continue to provide high-quality service, regardless of market conditions.

5. Why Commission Structure is Fair in Both Markets

Performance-Based Pay: Agents only get paid when the home sells, regardless of how long it takes or how much they’ve invested upfront.
Shared Goals: In both markets, the agent and seller share the same objective—selling the home for the best possible price and terms.

Example:

“In a seller’s market, homes tend to sell quickly, reducing my time and marketing costs. In a buyer’s market, I may need to invest significantly more time, money, and effort to attract the right buyer and close the sale. Commissions can sometimes reflect these realities, but rest assured that my goal remains the same in any market: to deliver exceptional service and help you achieve the best possible outcome.”

This explanation helps sellers understand how market dynamics influence the selling process and why commissions may be adjusted to align with the time, effort, and financial risk involved in each scenario.

Its important for real estate agents to fully explain what happens to that commission. Conventional wisdom indicates that the sellers’ agent gets the entire commission to keep. Your client should understand the split of the commission fee. Consider explaining the following to your client:

Understanding How Real Estate Commissions are Distributed Between Agents and Brokers

One common misconception among home sellers is that the full commission percentage goes directly to the listing agent who sells their home. In reality, real estate commissions are split between multiple parties: the listing agent, their broker, the buyer’s agent, and the buyer’s broker. Here’s a breakdown of how a 5.5% commission is typically distributed and what agents actually take home after expenses and broker fees.

1. The Initial Commission Split (5.5%)

When a seller agrees to pay a 5.5% commission, it’s usually split evenly between the listing side (representing the seller) and the buying side (representing the buyer).

2.75% to Listing Broker (Seller’s side)
2.75% to Buyer’s Broker (Buyer’s side)

Example of a $400,000 Home Sale:

Total Commission: $400,000 × 5.5% = $22,000
Listing Broker Share: $11,000
Buyer’s Broker Share: $11,000

At this point, neither the listing agent nor the buyer’s agent has seen a dollar yet—the brokers hold the commission.

2. Broker-Agent Split

Real estate agents work under licensed brokerages, and commissions are further split between the broker and the agent. National averages suggest the following splits:

Newer Agents: 50% agent / 50% broker
Experienced Agents: 70% agent / 30% broker
Top Producers: 80-90% agent / 10-20% broker

For this example, we’ll use a 70/30 split, which is fairly common among experienced agents.

From Each $11,000 Broker Share:

Agent (70%): $7,700
Broker (30%): $3,300

So, both the listing agent and the buyer’s agent receive $7,700 each.

3. Agent Expenses and Taxes

Agents are independent contractors, responsible for covering their own expenses and taxes from their commission earnings. Typical expenses include:

Marketing and advertising fees
Professional photography and staging costs
MLS membership fees
Continuing education and licensing fees
Transportation and client hospitality expenses
Self-employment taxes (around 15.3%)

Agent Net Income Example After Expenses:

Gross Commission: $7,700
Taxes (approx. 15.3%): -$1,178
Expenses (approx. 20% of commission): -$1,540

Net Take-Home Pay: $4,982

Out of the $22,000 total commission paid by the seller:

Each agent ends up taking home around $4,982 after broker fees, taxes, and expenses.

4. Why This Matters for Home Sellers

When sellers see a 5.5% commission, they might assume the listing agent receives all of it. However:

Half goes to the buyer’s broker and agent.
A significant portion of the remaining share goes to the listing broker.
The agent then deducts taxes, expenses, and business costs.

In the end, agents receive only a fraction of the total commission—far from the full 5.5%.

5. Incentivizing Buyer’s Agents

Another important point is that listing agents offer part of their commission to buyer’s agents to ensure maximum exposure and buyer interest in the property.

If the buyer’s agent commission isn’t competitive, fewer agents may be motivated to show the property to their clients.
A fair split ensures that both sides are equally invested in closing the deal successfully.

6. Closing Example Breakdown on $400,000 Sale at 5.5% Commission

Stage	Amount ($)	Details
Total Commission	$22,000	5.5% of $400,000
Listing Broker Share	$11,000	50% Split
Buyer Broker Share	$11,000	50% Split
Listing Agent (70%)	$7,700	Agent Share
Buyer Agent (70%)	$7,700	Agent Share
Taxes & Expenses	~$2,718	(Taxes + Costs)
Agent Take-Home	$4,982	Final Net Pay

7. Thoughts for Sellers

“When you see a commission percentage, it’s important to understand that it doesn’t all go into one agent’s pocket. It’s carefully divided between buyer’s and seller’s agents, and their respective brokers, and covers significant costs associated with marketing and selling your home. In the end, each agent takes home only a fraction of the total commission—but remains fully committed to delivering value and results for you.”

This explanation helps sellers appreciate the structure behind real estate commissions and the value agents bring to the transaction.

The United States Justice Department has become involved in the real estate industry by issuing some guidelines and rules. You already know that commissions are required. The major issue is that of who is actually paying real estate agent fees. Explaining this to home sellers and home buyers can be challenging. Your broker has already explained how this can be done. REAgentComm.com does not want to become involved in that relationship.

You already know that there is nothing wrong with explaining to your seller that “tradition” has directed the real estate agent’s commission to the selling broker for distribution to the buyer’s agents brokers. They have a choice, they can do what has always been done to the satisfaction of your previous clients or they can suggest something else. There is however an argument for explaining to the sellers why it’s a critical part of the agent’s services including the efforts made by buyer’s agents.

The following are some points that can be explained to your seller about permitting your broker to share the total commission with another broker who will cooperate in bringing to you a prospective buyer. Reiterate that this has been the system for a long time. Check the information below on the history of our system:

The Critical Role of Buyer’s Real Estate Agents in Selling a Home

When selling a home, the buyer’s real estate agent plays a vital role in bringing qualified buyers to the property, guiding them through the buying process, and ultimately closing the deal. Many sellers overlook just how essential these agents are, but industry statistics reveal the significant impact they have on successful home sales.

1. The Numbers: How Many Homes Are Sold Through Buyer’s Agents?

National Association of Realtors (NAR) data consistently shows that around 87% of home buyers use a real estate agent to help them find and purchase a home.
In most transactions (around 89% according to NAR reports), the buyer and seller are represented by different agents.

This means that nearly 9 out of 10 homes sold are facilitated by a buyer’s agent who works on behalf of the buyer to:

Find homes that match their client’s needs.
Coordinate showings and inspections.
Provide comparative market analysis (CMA).
Negotiate price and terms on behalf of their clients.

Without buyer agents, the pool of qualified buyers viewing a seller’s home would shrink dramatically.

2. Buyer’s Agents Bring Qualified Buyers to the Table

A key advantage of working with buyer’s agents is their ability to bring pre-qualified and motivated buyers to a property.

They ensure buyers are financially prepared to purchase.
They filter out casual browsers or those not serious about buying.
They guide buyers through mortgage pre-approvals and other financial requirements.

Without buyer agents, sellers would face more unqualified leads, wasted time, and frustration from offers falling through.

3. Buyer’s Agents Advocate for Their Clients—But Also Facilitate the Sale

While a buyer’s agent is obligated to represent the best interests of their client, they also play a facilitating role in the transaction:

Communicating clearly with the seller’s agent.
Resolving issues from inspections or appraisals.
Keeping the transaction on track toward closing.

Buyer’s agents are problem solvers who help ensure deals don’t fall apart due to misunderstandings or missed deadlines.

4. The Commission Structure Reflects the Value of Buyer’s Agents

When a seller agrees to pay a commission (e.g., 5.5% of the sale price), it’s typically split 50/50 between the listing and buyer’s brokers. This split reflects the critical role that buyer’s agents play in completing the sale.

Breakdown Example on a $400,000 Home Sale (5.5% Commission):

Total Commission: $22,000
Listing Side (Agent + Broker): $11,000
Buyer’s Side (Agent + Broker): $11,000

Without offering a competitive buyer’s agent commission, sellers risk:

Fewer showings and less interest from agents.
Reduced visibility in agent-driven networks.
Potential delays or failure to sell the home.

5. Buyer’s Agents Have Access to a Network of Buyers

Buyer’s agents have access to Multiple Listing Services (MLS), where most homes are marketed.
They maintain client databases filled with motivated buyers.
They have relationships with other agents who might have the perfect buyer.

Without buyer’s agents, sellers lose access to this highly targeted audience.

6. Negotiation Expertise

Buyer’s agents are skilled negotiators who help their clients make strong offers while balancing the needs of the seller.

They smooth over objections and concerns from their buyers.
They address appraisal gaps, repair requests, and contingencies.
They reduce the likelihood of deals falling apart during the negotiation phase.

This collaborative role is key to moving transactions forward.

7. Final Thoughts: The Seller’s Investment in Buyer’s Agents Pays Off

When sellers offer a competitive commission to buyer’s agents, they are:

Incentivizing buyer agents to prioritize their property.
Ensuring maximum exposure to a larger pool of pre-qualified buyers.
Improving their chances of a smooth and timely sale.

Key Takeaway:

“Nearly 90% of homes are sold with the help of a buyer’s agent. These professionals don’t just bring buyers—they bring qualified, motivated buyers who are ready to act. Offering a fair commission to buyer’s agents is not just a cost—it’s an investment in maximizing your home’s marketability and securing a successful sale.”

This explanation underscores the critical role buyer agents play in the home-selling process and why their contribution deserves recognition in commission structures.

Knowing the history of real estate commission rates can be helpful in your discussion. Following the data we are providing on this topic, you will find the average real estate commission paid by state showing that there is great variation. Even within states, there can be great variation. The Realtor’s fee as real estate agents know is based in part on competitive markets and the home value. Even closing costs vary by market. Real estate agent commissions are now and always have been subject to negotiation which the data below indicates.

Real Estate Commission Rates and Home Prices by State

Average Real Estate Commission Rates and Home Prices by State

This table provides an overview of average real estate commission rates and average home prices across different U.S. states. The data reflects typical commission structures and market values as of the most recent reports.

State	Average Commission Rate	Average Home Price
Alabama	5.52%	$235,000
Alaska	4.99%	$345,000
Arizona	5.68%	$410,000
Arkansas	5.72%	$200,000
California	5.14%	$760,000
Colorado	5.58%	$580,000
Connecticut	5.38%	$450,000
Delaware	5.18%	$350,000
Florida	5.53%	$410,000
Georgia	5.84%	$360,000
Hawaii	5.39%	$860,000
Idaho	5.69%	$450,000
Illinois	5.29%	$280,000
Indiana	6.08%	$250,000
Iowa	6.15%	$200,000
Kansas	5.80%	$230,000
Kentucky	5.69%	$220,000
Louisiana	5.20%	$220,000
Maine	6.00%	$300,000
Maryland	5.46%	$410,000
Massachusetts	5.25%	$580,000
Michigan	5.93%	$250,000
Minnesota	5.53%	$340,000
Mississippi	5.62%	$210,000
Missouri	5.79%	$240,000
Montana	5.67%	$420,000
Nebraska	5.71%	$230,000
Nevada	5.08%	$450,000
New Hampshire	5.19%	$400,000
New Jersey	5.17%	$540,000
New Mexico	5.83%	$320,000
New York	4.66%	$650,000
North Carolina	5.56%	$340,000
Ohio	5.81%	$220,000
Oregon	5.43%	$490,000
Pennsylvania	5.44%	$265,000
Texas	6.00%	$340,000
Washington	5.67%	$615,000
Wisconsin	5.86%	$290,000
Wyoming	5.50%	$320,000

Source for average commission rates; FastExpert’s 2024 survey of 580 agents and Realtors published 2023. Forbes Advisor’s report on median prices by state published in 2023.

1980’s sellers and buyers were separately represented and commissions were split

The History of Home Sellers Paying Both Listing and Buyer Agent Commissions

The practice of home sellers paying both the listing agent’s and buyer agent’s commissions has been standard in the U.S. real estate market for over 100 years, evolving alongside the growth of organized real estate and the Multiple Listing Service (MLS).

1. Early Real Estate Practices (Pre-1900s to Early 1900s)

Before real estate licensing laws existed, agents represented only sellers.
Buyers were often unrepresented or had to negotiate their own deals.
Commissions were entirely negotiable but typically paid by the seller since they were the primary party benefiting from the sale.

Key Change:

In 1908, the National Association of Realtors (NAR) was founded (then called the National Association of Real Estate Exchanges). The NAR standardized many real estate practices, including the sharing of commissions.

2. The Introduction of MLS Systems (1920s-1950s)

The MLS (Multiple Listing Service) began gaining traction in the 1920s and 1930s.
The MLS was built on the principle of cooperation and compensation, where listing brokers offered a portion of their commission to any broker who brought a qualified buyer.
This formalized the practice of sellers indirectly compensating buyer agents through their listing agents.

Why It Happened:

The system aimed to encourage cooperation between brokers by creating financial incentives to share listings and bring buyers.

3. The Buyer Agency Revolution (1980s-1990s)

Before the 1980s, even buyer’s agents technically worked on behalf of sellers.
Legal changes clarified the concept of buyer agency, formally allowing agents to represent buyers exclusively.
However, the seller-paid commission structure remained intact as the industry norm, largely due to its simplicity and buyer expectations.

Key Event:

In the 1990s, many states required clearer disclosure about agency relationships. Sellers continued paying commissions because buyers often couldn’t or wouldn’t pay out of pocket for representation.

4. Why Sellers Continue to Pay Both Commissions Today

Market Incentives: Offering a commission to buyer agents increases the likelihood of showings and offers.
Buyer Affordability: Many buyers cannot afford to pay their agent out of pocket on top of a down payment and closing costs.
Customary Practice: The seller-paid commission system became entrenched as the norm, reinforced by MLS rules and industry standards.

5. Challenges to the Current System

Recent lawsuits and regulatory scrutiny are questioning whether sellers must pay the buyer’s agent commission.
Discussions are ongoing about decoupling commissions, where buyers would pay their own agents directly.
Some markets have experimented with buyers paying their agents, but this model hasn’t gained widespread adoption due to affordability concerns.

6. How It Works Today

Commissions are still negotiable, but the typical structure sees the seller paying a total commission (e.g., 5.5%), which is split between the listing broker and the buyer’s broker.
Sellers understand that offering a competitive buyer agent commission remains essential for attracting buyer traffic and offers.

Summary Timeline:

Pre-1900s: Sellers paid agents; buyers were largely unrepresented.
1908: NAR established; standardization of commission-sharing practices began.
1920s-1950s: MLS systems formalized commission-sharing between listing and buyer agents.
1980s-1990s: Buyer agency became formalized, but sellers continued paying both commissions.
2000s-Present: The model persists, though debates about reform are ongoing.

Why This Matters for Sellers Today:

“The tradition of sellers paying both agents’ commissions dates back over a century, built on a foundation of cooperation, market efficiency, and buyer accessibility. While the system has evolved, offering a fair buyer agent commission remains a powerful incentive to attract qualified buyers and ensure a smooth, successful sale.”

This historical perspective helps sellers understand why they pay both realtor commissions and how it contributes to an effective and cooperative real estate market.

Buyer agent compensation

This article does not discuss how to talk about Buyer’s Agent fees directly. The commission payment and splits discussed above touch on the topic. Another article will more fully go into offers of compensation by buyers vs sellers and related real estate trends.

Please join Real Estate Agent Commissions and use our exclusive system to post commissions that your seller is willing to pay buyers’ agents. Check out our membership page. Read some of our other blog articles and listen to our podcast

Tagged in :

ReAgentComm.Com