Everything You Need To Know About REALTOR® Commission In 2023

Real estate estate commission fees are confusing.  This post will help you better understand REALTOR® commission and average real estate agent commission percentage when selling a home.  This includes information about the cost to sell a home with a REALTOR®.  I have also provided information about low commission REALTORS®, how to find a low fee REALTOR®, and tips to successfully negotiate for a lower real estate commission fee.

What Is REALTOR® Commission?

A real estate agent’s commission is the fee the agent charges a home seller to list and sell your property. Most often the real estate agent commission fee will be stated as a percentage of the sale price. However, some agents will offer a flat rate commission.

There is no standard real estate commission fee or rate. Antitrust and fair competition laws and regulations restrict real estate agents from consorting together to set a standard real estate commission charge. However, there are commonly used rates throughout a geographic area.  Average real estate agent commission throughout the U.S. is 4% to 7% of the home’s sale price.

The answer to how much is REALTOR® commission depends of the facts of each case.  You would need to know whether the REALTOR® charged a percentage of the sale price of a flat rate.

Things Sellers Should Know About Real Estate Fees

• Real estate fees are negotiable. There is no set REALTOR® commission rate.  Home sellers should feel encouraged to ask a real estate agent for a lower fee.
• Real estate fees are often split with another agent. Your property is likely to be placed into an MLS (multiple listing service). A requirement of this is to offer all cooperating brokers, or real estate agents who are members of the MLS, compensation if the cooperating broker brings a buyer for the property. Therefore, a portion of the real estate commission fee you agreed upon will likely be split with some other agent.
• Sellers typically pay the real estate commission fee.  It is the seller who puts the property into play in the marketplace and has utilized the network of real estate agents to get the home sold.  Due to this, the real estate commission fee is usually paid for by the seller.

Who Pays Real Estate Commission?

Typically, the seller pays the REALTOR® commission rate or fee. This is due to the fact the seller is the one who introduces the property to the marketplace. Let me break this down into pieces.

A seller wants to sell a property. The seller hires a real estate agent. This is often called the listing agent. The listing agent and the seller agree upon a real estate commission fee. Let’s use a 5% as a typical real estate commission for this example.

The listing agent is then likely to place the property in the MLS. The listing agent may then offer a portion of the real estate commission fee to a cooperating real estate agent or broker. For example, the listing agent may offer 2.5% of the 5% commission to a cooperating broker. The cooperating broker or agent is a real estate agent who represents a buyer.

In conclusion, the seller hiring a real estate agent is the triggering event causing the property to be introduced to the market by using the network of real estate agents it is most often the seller who pays the real estate commission fee.

Are REALTOR® Fees Included in Closing Costs?

REALTOR® fees are not included in closing costs. Real estate agent fees and commissions are a professional service fee outside of the closing. Closing costs are limited to the transactional costs and fees to complete the purchase. Therefore, a REALTOR® commission fee can not be included as a closing cost. Closing costs are typically limited to:

• Loan Origination Costs – Most lenders will charge a fee for originating the loan. You will likely see an origination charge or processing charge and additional itemized charges related to producing the mortgage.
• Title Company Fees – Title company fees are a closing cost. These will include a settlement fee and a title insurance policy fee.
  Land Survey Reports – If a survey of the land was required in order for the property to be sold it can typically be considered a closing cost.
• Deed Recording and Other Government Filing Fees – Each state and local municipality will have recording fees. This is to record the transfer and the mortgage against the property.
• First Year of Homeowner’s Insurance – If you are buying the property with a mortgage the lender will require the property to be insured. Due to insurance being a condition of obtaining the loan the first year of premium paid at closing can typically be considered a closing cost.
• Escrow Impounds – Escrow impounds are a payment towards your property tax and homeowner insurance escrow payout in the future. Depending on when those are next due your lender may ask that two to five months of each of those be collected at closing. In that instance, those costs can typically be considered a closing cost.

How Does Real Estate Commission Work?

It’s important to know how much a real estate commission an agent actually earns.

Split With Buyer’s Agent

The listing agent will most likely offer a portion of the commission to any other agent representing a buyer. This is often required when a listing agent submits a property to an MLS. Buyers’ agents need motivation and enticement to bring their buyers and help their buyers buy your home.

Split With Managing Broker

A real estate agent’s managing broker is likely to take anywhere from 10% to 50% of the earned real estate commission. Most real estate agents work for a brokerage house which is led by a managing broker. The managing broker will take their cut first.

Marketing Costs

Real estate agents begin spending money to market your home before it even goes on the market. Photos, videography, printed materials, and signs all cost money. Yes, real estate agents spend money to get your home sold. And, if the home does not sell, this money is lost. Real estate agent fees are typically contingent on the home selling.

Self-Employment Tax

The typical real estate agent is self-employed. Self employed people must pay the self-employment tax. As of 2023, the self employment tax is 15.3% of net earnings. This is to fulfill both what employers hold from employees earnings and the gap of what is covered by an employer if the agent had one.

Earnings

Finally, what is left over is the agent’s earnings. However, there are even more deductions at this step, but I will leave those calculations for another day. The other expenses include state and federal income taxes and business expenses not directly correlated to your listing but necessary in order to be in business as a real estate agent.

Example Of How Much Commission A Real Estate Agent Makes

This is a realistic watering down of a real estate commission fee as it moves through all of the parties.

• Howard Homeseller has a home to sell with a sale price of $400,000. He hires Lisa Listing-Agent to sell the property. Lisa Listing-Agent charges a 5% commission which equals $20,000.
• Lisa Listing-Agent submits the home to her MLS and offers an agent who brings a buyer 2.5% of the real estate commission fee. Now, Lisa Listing-Agent has reduced her share of the commission to $10,000.
• Lisa Listing-Agent gets everything she needs to correctly market the property. This includes
  • $200 for photos
  • $200 for an edited video tour
  • $100 for a sign to be placed at the property, and
  • $100 in printed brochures and flyers
• Lisa Listing-Agent sells the property for $400,000 and earns her $10,000 commission share of the 5% commission.
• She turns in the check to her managing broker who takes 20% of the commission earned leaving her with $8,000.
• Lisa deducts her self-employed income tax percentage of 15.3%. This brings Lisa Listing-Agent’s earnings down to $6,776.
• Now, Lisa Listing-Agent deducts $600 marketing costs specific to this home sale and is left with $6,116.
• Assuming selling the home took 40 hours of work, which is reasonable, Lisa Listing-Agent earned $154.40 per hour.
• Though it may sound like a high hourly rate, keep in mind Lisa Listing-Agent still has other expenses related to being a real estate agent and income taxes to pay.  The $20,000 commission you agreed to pay has been watered to barely more than $6,000 paid to the agent you hired to do the work to sell your home.

How Do You Calculate REALTOR® Fees?

The first step to calculate REALTOR® fees is determining how the fee is stated.  There are some real estate agents who charge a flat rate fee.  However, a percentage of the sale price is the much more common format.

To know how much the real estate commission will be simply multiply the listing commission rate by your forecasted sale price.  This will produce the real estate agent’s fee amount in dollars.

When calculating REALTOR® fees know what you are calculating.  There are three different numbers to think about when trying to determine a real estate agent’s fee.  And which one matters to you may depend on whether you are the buyer or the seller.  The three numbers are:

• The total real estate commission fee
• The amount of the total real estate commission fee the REALTOR® is offering to any other real estate agent who brings a buyer for the property, and
• The remainder which is what the listing agent will keep if the property is sold to a buyer represented by a cooperating broker

2023 Real Estate Agent Commission Fees In Northwest Indiana

REALTOR® fees in Indiana are similar to what is charged in other parts of the country.  Indiana home sellers are most likely to be quoted between 4% and 7% real estate commission rate from other agents.  However, the Quadwalls Real Estate Team thinks this is too high. My team and I work with a low real estate commission fee in Indiana.

What Is Quadwalls Commission?

If you are looking for a low commission REALTOR® in Indiana, contact us.  The Northwest Indiana real estate agents on the Quadwalls Real Estate Team offer some of the lowest advertised REALTOR® fees in Indiana. The image below displays our fee which is based on the original list price of your home. Quadwalls offers some of the lowest Indiana REALTOR® fees.  Click here to learn more about our full-feature home selling service and low real estate commission fees.

How To Save Money On REALTOR® Fees

Indiana home sellers have numerous ways to lower the real estate commission fee.

• Know if the agent is willing to negotiate.  Ask the real estate agent before he or she even comes to your home whether or not the agent’s real estate commission fee is negotiable.
• Let agents you interview know there is competition.  Real estate is a competitive industry.  I know I have had times early in my career when it was a little slow.  I have lowered a commission fee on the spot just to lock up the business.  Let agents know you are shopping around.
• Share with the agent the opportunity to help you purchase a home.  If you will also be purchasing a home as you sell your home let the agent know this.  An agent may be more willing to lower the real estate commission fee if the agent knows there is an opportunity for more business immediately.
• Making your home easy to sell will get real estate agents to lower their commission fee.  We all like an easy day at work, right?  If you have a great home, in good condition with an excellent aesthetic, appear easy to work for, and are willing to list your home at a reasonable price on day one you have a good chance at being able to negotiate for a lower REALTOR® commission fee.

Conclusion

A real estate commission fee is the rate charged by a real estate agent to sell a property. Commission fees are negotiable. However, keep in mind the listing agent is unlikely to collect the entire fee. Real estate agents often split the fee with a buyer’s agent, must kick up to a managing broker, and pay their expenses and taxes.

By shopping around you can find a lower real estate commission fee. The best way to successfully negotiate for a lower real estate commission fee is to have a home that is easy to sell, will be priced correctly, and a seller who seems easy to work with.  Northwest Indiana home sellers can contact Quadwalls.com to get a lower real estate commission fee.  Or, feel free to visit our home selling page where you can learn all about our full feature home selling service and low real estate commission fees.

About Quadwalls.com

Quadwalls.com is a real estate website founded in Valparaiso, Indiana by a Northwest Indiana REALTOR®. Quadwalls.com and its Quadwalls Connected Agents are committed to helping homebuyers and sellers make better decisions and save money when selling and buying real estate.