Who Pays Real Estate Agent Fees?
From the sales price to the down payment and the closing costs, there are a lot of numbers to keep track of when it comes to real estate transactions. One important number real estate agents should care about is the broker fee. They can vary significantly from one state to the next, and many buyers or sellers might wonder who exactly has to pay for it.
In this article, we'll take a closer look at what broker fees are, how much they can set a client back, and where that money comes from.
How Are Real Estate Agents Paid?
Most real estate agents get paid through commissions based on a percentage of the property's selling price. The commission is usually a percentage of the final sale price of a property. The amount of money agents make each year is determined by the number of successful deals and the commissions earned.
How Do Real Estate Commissions Work?
When a property goes up for sale, a listing agreement is entered between a broker and a seller. A listing agreement details the listing's conditions, including the broker's pay, often a commission. It's important to remember that commissions are always adjustable; however, commissions usually range from 5% to 6% of the final sales price but can be higher or lower depending on market conditions.
The sellers' and buyers' agents have commission-sharing arrangements with their sponsored brokers. This could mean they split 50/50, 60/40, or whatever arrangement they have previously agreed to.
How Are Commissions Split?
When it comes to splitting real estate commissions, it is often divided between a few people. Typically, the commission is split four ways:
- Listing agent (the agent representing the seller)
- Listing broker (the broker who employs the listing agent)
- Buyer’s agent (the agent representing the buyer)
- Buyer’s agent’s broker (the broker who employs the buyer’s agent)
Who Pays the Real Estate Commission?
Things become a bit murky when it comes to who exactly pays a real estate agent's commission. The seller pays the commission unless a split is agreed upon between the buyer and seller. The seller is typically responsible for paying the charge. However, the seller normally includes the charge in the purchase price of the property. As a result, the buyer is ultimately responsible for paying the charge, although indirectly. Most sellers include the commission in the asking price, either directly or indirectly, with a higher asking price.
How Do Commissions Affect Home Prices?
The seller pays the commission unless a split is agreed upon between the buyer and seller. Most sellers include the commission in the asking price, so the buyer may always pay a portion of the fee. Commission-sharing arrangements between the seller's and buyer's agents with their sponsored brokers can be 50/50 or any other arrangement.
Commissions indirectly influence buyer's prospective buyers, as sellers may be less willing to negotiate sale prices, leading to higher property prices, which can be challenging for buyers in competitive areas.
How Do Commissions Influence Market Dynamics?
The impact of commissions on housing prices is influenced by supply and demand dynamics. Sellers in seller markets with limited inventory may negotiate lower commission rates, leading to higher prices, while buyers may lower fees to attract buyers.
Important Features of Real Estate Fee Agreements
It is important to be transparent when it comes to real estate fee agreements. When writing up an agreement, there are important features to include that assure clarity and fairness. They are as follows:
- The agreement should include the names and contact information of the real estate agent or broker and the property owner or client to ensure accurate representation of all parties involved.
- A full property description, including the address, type of property, and any other unique information, should be provided for the property subject to the agreement.
- The commission structure, whether a percentage of the selling price, flat charge, or mix, is crucial in an agreement as it determines the commission rate or fee structure.
- The agreement should clearly outline the terms for commission earned by the agent or broker, such as locating a buyer, concluding a transaction, or obtaining a signed lease agreement.
- The agreement should detail payment details, including the commission payment method, date, and any additional terms or restrictions.
- The agreement outlines the agent's or broker's duties, including property promotion, negotiation, document creation, and client advocacy, to ensure mutual understanding of expectations.
- The agreement should outline termination or expiry conditions, including situations where the agreement can be canceled, such as nonperformance or contract violation.
What Are Referral Fees?
Besides their typical commission, agents can also be paid a referral fee. A real estate referral fee is a payment made to someone who refers a client to a real estate agent or brokerage. It's a common practice in the industry to compensate people for connecting clients with agents who can help them with their real estate needs. Think of it as a way of expressing gratitude for the connection.
Who Pays The Referral Fee in Real Estate?
Typically, the receiving agent or brokerage pays the referral fee after they successfully close the transaction that came from the referral. However, the payment of the referral fee in real estate depends on the specific agreement between the parties involved. This amount will be explicitly specified within a real estate referral agreement.
Who Pays Broker Fees In Each State?
It might be tempting to search for questions online like "Who pays the broker commission in Texas?", "Who pays the broker fees in North Carolina?" or "Who pays the broker commission in Florida?" depending on the state you're in. But the truth is, in almost all residential real estate transactions, the seller usually pays the realtor fees. These fees are typically deducted from the sale proceeds at closing before the seller receives their net profits. Just like commission rates and referral fees, this is always negotiated. In some rare occurrences, the seller can get the buyer to cover any fees, especially if it's a seller's market.
How Much Are Agent Fees In Each State?
The commission rate and the cost of the house in a real estate transaction directly affect the total amount of a real estate agent’s fee. This means that working with a real estate agent will cost more in areas where houses are more expensive.
The formula to figure out the realtor fees would be:
Home Price x Commission Rate/100 = Broker Fees
Don’t worry. We already did all of the math for you. By looking at the average commission rates and home prices across the country, we can determine the average realtor fees in each state. Let's start by going in alphabetical order, starting with Alabama.
State
Average Commission Rate
Average Home Price
Average Realtor Fees
Alabama
5.44%
$206,044
$11,209
Alaska
4.99%
$345,363
$17,234
Arizona
5.43%
$409,038
$22,211
Arkansas
5.44%
$178,744
$9,724
California
4.91%
$728,134
$35,751
Colorado
5.52%
$539,640
$29,788
Connecticut
5.12%
$358,906
$18,376
Delaware
5.44%
$358,686
$19,513
D.C.
4.96%
$627,158
$31,107
Florida
5.40%
$383,063
$20,685
Georgia
5.76%
$306,278
$17,642
Hawaii
4.99%
$834,583
$41,646
Idaho
5.36%
$435,374
$23,336
Illinois
5.24%
$236,049
$12,369
Indiana
5.67%
$222,592
$12,621
Iowa
5.67%
$200,038
$11,342
Kansas
5.67%
$210,742
$11,949
Kentucky
5.44%
$190,037
$10,338
Louisiana
5.44%
$182,959
$9,953
Maine
5.12%
$351,375
$17,990
Maryland
5.11%
$387,872
$19,820
Massachusetts
4.84%
$558,313
$27,022
Michigan
5.64%
$218,684
$12,334
Minnesota
5.41%
$315,122
$17,048
Mississippi
5.44%
$162,292
$8,829
Missouri
5.73%
$227,347
$13,027
Montana
5.36%
$427,886
$22,935
Nebraska
5.67%
$243,012
$13,779
Nevada
5.02%
$412,244
$20,695
New Hampshire
5.12%
$429,421
$21,986
New Jersey
5.13%
$451,559
$23,165
New Mexico
5.59%
$279,763
$15,639
New York
4.97%
$411,304
$20,442
North Carolina
5.60%
$309,861
$17,352
North Dakota
5.67%
$242,261
$13,736
Ohio
5.81%
$205,800
$11,957
Oklahoma
5.59%
$188,453
$10,535
Oregon
4.99%
$485,475
$24,225
Pennsylvania
5.53%
$243,859
$13,485
Rhode Island
5.12%
$413,948
$21,194
South Carolina
5.63%
$273,977
$15,425
South Dakota
5.67%
$284,308
$16,120
Tennessee
5.44%
$291,354
$15,850
Texas
5.59%
$294,336
$16,453
Utah
5.36%
$506,072
$27,125
Vermont
5.12%
$332,149
$17,006
Virginia
5.23%
$360,873
$18,874
Washington
5.29%
$562,936
$29,779
West Virginia
5.44%
$146,578
$7,974
Wisconsin
5.67%
$262,652
$14,892
Wyoming
5.36%
$325,091
$17,425
Broker Fees By State
As you can see from the chart, the amount of broker fees can vary widely depending on what state you're located in. For example, Colorado's broker fees are nearly triple those in Arkansas. Meanwhile, the broker fees in Oregon and New Jersey differ by only $1,000 despite being on different sides of the country. The state with the lowest average broker fees in the country would be West Virginia, with $7,974, while the highest would be Hawaii, coming in at a whopping $41,646. Remember, these are only averages. These numbers can be higher or lower depending on the specific city you are in and the commission rate that is agreed upon.
Considering how much broker fees are, it’s crucial for real estate agents to be open and transparent about them when working with their clients. Be sure to discuss this information with them beforehand to show them how much it might cost to work with a real estate agent. Overall, it's money well spent when they realize what an experienced and knowledgeable agent they have working for them.
Get Certified Today
Are you getting ready to become a real estate agent? The first step is to get your license. Head to our website to view our pre-licensing courses offered in various states. You can also sign up for AgentCampus's online exam prep course to improve your chances of passing on the first try. Check out our full catalog of courses and sign up today!
