The Home Seller’s Core Question: Where Does My Money Go?
One of the biggest expenses you’ll encounter when selling your home is the real estate agent’s commission. It’s a significant portion of your sales. If you’re wondering what the costs involved are, this guide will give you a transparent breakdown of real estate agent commissions.
Understanding the Standard Commission Model
When you list your home for sale with a real estate agent, a commission structure is typically agreed upon upfront. This real estate commission is usually a percentage of your home’s final sale price. The nationwide average real estate commission percentage across the U.S. is 5% to 6% of a home sale’s price (Investopedia).
- On a $400,000 home sale, a 6% commission equals $24,000.
- This commission fee is paid out of the sale proceeds at closing. It might seem like a straightforward number.
- However, the crucial part is understanding that this amount doesn’t go directly into the listing agent’s pocket, according to Bankrate.
Where the Commission Money Really Goes: The Agent’s Real Pay
This is where many sellers get curious. The commission structure is designed to compensate multiple parties involved in the real estate transaction.
The Split Between Brokerages
The total commission is almost always split between the two brokerage firms involved in the sale: the listing agent’s brokerage and the buyer’s agent’s brokerage. The split is typically 50/50.
The Agent’s Share
Each real estate agent splits their portion of the commission with their managing broker. This split can vary significantly based on the agent’s experience level, their agreement with the firm, and the services provided.
An experienced agent with a high sales volume might have a more favorable split. New agents, however, might start with a lower percentage.
- For instance, that $12,000 going to an agent’s brokerage might be split again.
- The agent takes home anywhere from $6,000 to $9,000 before their personal business expenses.
Agent’s Business Expenses: Average Real Estate Agent
It’s also vital to remember that most agents, including commercial real estate agents, operate as independent contractors, even though they have respective brokerages. It means they’re responsible for a wide array of their own business expenses, including:
- Marketing and advertising
- Office space
- Equipment and technology
- Professional association dues, like the National Association of Realtors
- Transportation
- Insurance
- Self-employment taxes
These expenses can significantly impact an agent’s income. The average annual expenses for real estate agents can range from $5,000 to $20,000 or more, as stated in this guide by Placester. Thus, the net income for a real estate agent is often less than half of that.
Visualizing the Impact: Calculating Your Net Proceeds
Understanding commission directly affects the amount of money you, the seller, walk away with.
Here’s a simplified “Sample Net Sheet” to illustrate:
It shows why understanding where your money goes is vital for budgeting and planning your next steps.
The Alternative: Selling Your Home without Commission Fees
The idea of paying substantial real estate commissions is a deterrent. This is where alternative selling methods come into play. Companies like iBuyHomes offer a different path: a direct cash offer on your home.
This model eliminates the need for real estate agent commissions entirely. Instead of listing your home on the open market and waiting for a potential buyer, you receive a direct offer.
It can be a compelling option for sellers prioritizing speed, and certainty, and avoiding the traditional costs and hassles associated with a conventional sale.
A trade-off: A traditional sale with a real estate agent may yield a higher top-line price. However, it comes with commission fees, staging, showings, and potentially lengthy closing processes.
How Much Does a Real Estate Agent Make? A Look at Average Real Estate Agents’ Income
The commission is the primary way real estate agents earn money, even those selling commercial properties or in the luxury real estate market. A commercial real estate agent also earns from commission. But their average salary is different.
Their actual take-home pay from the real estate market can vary widely depending on various factors.
According to the U.S. Bureau of Labor Statistics‘ salary data, the national average real estate agent’s salary in 2022 was $65,850.
According to the National Association of Realtors, the top-earning real estate agents can earn upwards of $250,000 or more per year.
Real estate agents often benefit from referrals and positive interactions with past buyers and potential clients.
Higher property values translate to higher commissions. It means that if agents can sell a multi-million-dollar luxury real estate property, they get a larger commission than if they sell a lower-priced home, even if the average commission rate is the same. They can earn more money or more profit if the home’s sale price is higher.
Most agents with years of experience in the industry receive higher salaries than those who are still new in the business of selling homes. They may still earn good money, though. But if they could sell high-demand houses and attract more clients, their salaries would also go up.
Should You Hire an Agent or Go the Other Route
Real estate agents play a vital role in the real estate industry. They guide clients through the complex home buying or selling process. Understanding the commission structure, the various factors that influence an agent’s income, and how real estate brokers get their cut is key for aspiring agents and homeowners.
If you’re considering the traditional route or even commercial real estate, we hope this guide has clarified the costs involved.
If you’d like to see your home’s price without agent commission or showing hassles, get your free, no-obligation cash offer from iBuyHomes today.
