Understanding the Average Realtor Commission
The average Realtor commission varies by locale and the complexities of the transaction. Rural areas often require higher commission to offset longer marketing times and lower volume. Highly populated areas become much more efficient and often have lower commissions because of the high volume and faster turnover. For the purposes of this article, I will be referring to the commission on a residential sale in Metro Atlanta. Prior to talking numbers, it is important to understand that the commission earned by a Realtor is not fully kept by the Realtor.
How Does the Commission Structure Work?
A seller agrees to a commission rate with a listing agent and proceeds to signs a listing agreement. The average realtor commission rate is based on the services offered by the Brokerage. Rates can vary from a flat fee to a percentage of the sales price. Once the deal is closed, the Listing Broker and the Buyer’s Broker split the commission as it was advertised. Of their split, they each then pay the agents.
Commission Breakdown for a Listing Realtor
Realtors never keep 100% of the money they charge to sell homes. This is because there are lots of parties at work in the process of selling a home. The Agent is paid by their Broker, who takes a percentage of the commission or a flat fee. The Agent also has expenses to the franchisor if they are part of a national brand. Additionally, they have taxes to set aside for, they pay advertising costs for selling the house, and then, if they’re lucky they will have enough money left over to reinvest in the growth of their business.
Example of Commission Breakdown
Lets take a $200,000 home in Metro Atlanta where the commission charged to the Seller is 10%.
The total commission paid by the Seller to the Listing Broker (the Agent’s office) is $20,000
The commission is then split (usually 50/50) to pay the Buyer’s Broker: -$10,000
The Listing Broker then takes their cut to cover office expenses commonly 30%: -$3,000
Now they pay their franchise fees to HQ (6%): $600
After all these expenses, the Realtor is left with: $6400 BUT THERE’S MORE!
The Realtor’s gross commission is $6400
Now they have to set aside taxes (30%): $1920
The Realtor had expenses for photos, video, and advertising on the MLS: $650
*This leaves a total income to the Realtor of $3830
Why are there so many people to pay?
Real Estate Agents can not work on their own. Georgia Law and the Georgia Real Estate Commission requires agents to work through a Broker. The Broker has additional education and licensing requirements in Georgia and is responsible for the actions of the Agents.
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Also, the Broker is responsible for training, providing support, and an infrastructure to allow the agents to do their jobs well. The Broker must employ accountants, attorneys, marketers, human resource agents, and more to ensure the proper operation of the brokerage.
Additionally, the brokerage operations the Agent is also responsible for paying for operating their personal business. Each agent is responsible for their own marketing which means they have as many, or more people to employ than the Broker. The agents have to contract with sign makers, online and print marketers, accountants, reporting agencies, website developers, and much more!
It takes a wide array of talent to run a business and building a real estate practice is no different than any other business. After all expenses are made, Uncle Sam needs his cut every April. These account for why the average realtor commission can be expensive.
Who Pays a Realtor’s Commission?
Each home sale involves two parties; the buyer and the seller. Both the parties have their agents handling the matters for a fixed amount of commission. Once the deal is closed and the commission is paid, it is split between both the parties as advertised in the MLS.
Now the question is; who pays a realtor’s commission? Technically; the Seller. It’s the Seller who pays the commission to their Broker. Their Broker then pays any other broker that is involved in the transaction.
Let’s say, a GA real estate commission is 5%. When a home worth $300,000.00 sells with an agent’s commission of 5%, the seller will emerge with $285,000.00 once the sale is closed.
However, the roles may reverse in FSBO as there is no listing agent involved.
In the event the homeowner decides to go FSBO but the buyer wants to hire an agent, then it’s the buyer who pays the agent.
In FSBO, there are no commission splits as only one side is working with an agent.
How can agents make more money?
The fastest way for a Realtor to make more money is through individual marketing. Agents are their own personal brand. Advertising their reputation can bring in more clients. Utilizing advanced marketing can be the difference between a career or a stint before moving on to something else.
Once Agents have the marketing down, they should consider if the franchise fee is worth it? Moving to an independent brokerage often times means less fees.
Initially, Realtors gain about 5-6% more in each check when all else is similar. This happens because indie brokerages aren’t franchises and don’t require the fee to the franchise.
Realtors could also increase their rates. Unfortunately, supply and demand keep the market at bay. Commission rates are found at all percentage levels, but the average realtor commission is dependent on the services the Seller engages a REALTOR for. A full service listing with video marketing, advertising budget and high end marketing will b the same rate as a limited service “list and forget” brokerage.
Are Commission Rates Negotiable?
Commission rates are always negotiable, but ultimately up to the Brokerage. A brokerage that has higher agent fees may be less likely to negotiate their rate. This is because the broker will take a larger percentage of the commission. In lower fee brokerages, the agent may have more profit margin to negotiate.
However, when it comes to working with an independent agent, one that is their own broker, reduced commission percentages are still hard to get. Most homeowners do not have the potential to wheel and deal with a highly skilled professional for a reduced commission. The only possibility of a cheaper deal is simply asking if they are willing to lower their fees.
What is the average Realtor commission for a Buyer’s Agent?
In Georgia, the commission is typically paid by the Seller. This is done by the Listing Broker sharing a portion (usually 50%) of their commission.
What does a commission breakdown look like for a Buyer’s Agent?
The Buyer Agent’s commission breakdown looks very similar to the Listing Agent’s commission breakdown. They pay their broker, but they also may need to split their commission further if they are on a team. The Buyers Agent will pay for the MLS access, any advertising they do in their own name and other similar business expenses. One large expense that a Buyer’s agent has the vehicle maintenance and travel costs. Fortunately, they can offset this expense at tax time.
How long does it take to find a buyer a home?
When listing a home for sale, we can usually estimate the time it will take before it sells at any given price. Its not quite as easy to estimate the length of time it takes for a Buyer to find a home. Some buyers can walk into the first home they see and purchase it! Another buyer could be passively looking for the right home for the last 10 years! The length of time determines the value of the commission.
A buyer client that goes under contract quickly has a much higher $/hr equivalent. A buyer client that has been searching for years has made the agent commission have a very low $/hr rate. It is important that the Realtor be aware of this possibility and cut ties with that buyer early so as to keep a higher $/hr equivalent.
What is the average realtor commission for a Buyers Agent?
The average realtor commission for a Buyer’s agent is usually 50% of the commission of the Listing Agent. In urban areas it will be common to find commissions between 2-3%. In rural areas, they can be found between 2-4%.
In low price or cheap housing, a buyers agent may set a minimum commission that they will work for. If this is the case a Buyer may be responsible for paying the difference between the commission offered by the listing broker and the minimum commission.
How Is Sales Commission Calculated For Real Estate Agents?
How much commission a listing agent is paid is in the hands of a seller. However, not many agents explain it to the seller. Rates are negotiable in the marketplace, but a Broker may impose a minimum office rate for their agents to charge. Sellers should shop around and interview multiple agents to see the differences in value between firms. A Seller may find two firms charging the same rate, but offering completely different services. Once the Seller chooses a brokerage, their rate is locked for the duration of their contract. Once it goes under contract the Seller will pay the agreed upon commission at the closing table.
Why Are the Average Realtor Commissions in Residential Real Estate So High?
There are many main factors that help determine the average commission rates of a realtor.
- How the agents are paid.
- Risk of spending a marketing budget and the property does not sell
- Marketing costs (photos, 3D, video, ads)
- Payment structure
How the agents are paid – In the majority of US states, the negotiations over commission are held between the seller and the listing agent. Both the parties agree on a commission rate that is suitable for both the seller and the agent. The average real estate commission percentage falls between 2-7 percent.
Payment structure – although the average commission rates in real estate can be significant, not every agent enjoys a handsome income. Most fail to make a successful career out of it and end up falling under the poverty line. This is because a many new agents underestimate the difficulty of the real estate industry.
The payment structure in real estate is primarily based on two models, progressive percentage model and a transaction free model.
The transaction fee model requires the agent to pay a transaction fee with each sale.
In progressive percentage model, the more an agent sells, the more commission he gets to keep. Agents who follow this model have varying cuts going to the brokers based on their experience.
New agents usually see their 50% commission going to the brokerage. On the other hand, the agents with relatively more experience give less to their brokerage.
How Is The Commission Of A Real Estate Agent Determined?
The commission of a real estate is determined by the seller and the listing agent. A commission that is beneficial for both the parties is agreed. Upon the completion of a transaction, the commission is then split between the listing and the buyer’s agent.
How Do Realtors Find Customers?
The primary resource of earning for realtors is the customers, and the average realtor commission percentage depends on how many sales they close per year. The higher the sales, the greater the commission.
To make new customers and take their sales graph higher, realtors have to use different strategies. The most effective one is meeting people in person. Although online marketing plays its part too, it cannot replicate the personal interaction which often leads to new clients and cements a relationship.
Some of the tactics the realtors use to grow their customer list may include:
- Doing open houses
- Working with networking group
- Making frequent contacts with their friends/family members, asking them to spread the word about their occupation
- Door knocking
And many more. The more value a realtor/agent adds, the more customers he is likely to make, hence the more commission.
How Much Hours On Average Do Real Estate Agents Spend Per Client?
A precise estimate is hard to give. However, the average amount of hours a realtor spends per client goes between 35-40 hours. It can be higher or lower depending on the nature of the deal.
Usually, a buyer’s agent spends more hours with his client than, but it can vary from client to client. The needs of every client are different, and so is the amount of time spent with them.
How Do Realtors/Real Estate Agents Track Their Listings?
When a realtor ads a home for sale to the listings, it goes straight into the MLS database. The database then gives it the exposure on a larger scale. Besides, a large number of realtors also keep a personal database to store the contact information of just about everyone they know.
What Is Commercial Real Estate?
A traditional way to define a commercial real estate is that any residential building with more than six units is a commercial property. Moreover, any non-residential building that serves commercial enterprises is also a commercial building.
Some of the examples of commercial real estate may include:
- Distribution centers
- Apartment buildings
- Gas stations
- Mixed use buildings
- Parking garages
Do Commercial Real Estate Agents Receive A Salary?
Similar to residential real estate agents, commercial agents also receive compensations in the form of commission. The average realtor commission in commercial real estate can be significantly higher than the residential side of the industry..
There are agents who have sold multimillion dollar buildings for just 1% commission. Then there are agents who have managed to make around 6% from a lucrative deal. It all depends on the value the agent is providing to the Seller
How Do Buyers Find A Commercial Real Estate?
Most buyers start off with making an outline of what type of property they need and what is their spending capacity.
Then they proceed to make contact with a local realtor/broker. These real estate professionals know the market trends, the amount of commercial property available and can assist buyers to decide which course of action is best for their goals.
How Do Commercial Agents Find Buyers?
Commercial realtors use just about similar approach as residential realtors do to find buyers. They rummage through newspaper, television and social media ads and seek referrals from their friends/family and former clients.
Who Makes More – Residential Or Commercial Realtor?
Although the cycle of sales in commercial real estate is slower, the realtor commission rate is much higher than residential real estate. This is because the price of commercial properties is significantly higher than residential ones.
An average commercial real estate deal is worth 3-4 million dollars. On the other hand, the median sale price of an existing US home is just around $154,000.00.
Based on the sales, the average realtor commission per annum in commercial real estate is around $85,000.00. On the contrary, their residential counterparts just manage to make around $39,000.00 yearly.
*The rates and expenses used in the example do not reflect the offerings of Sellect Realty and are estimated numbers based on real live scenarios.