Who Pays Realtor's Commission

Updated February 3, 2021 . AmFam Team

A realtor’s commission is the real estate agent’s fee for their services. It is typically a percentage of the sales price of the home and it may be split between buyer’s and seller’s agents. Let’s look deeper into how this affects homebuyers.

Have you ever wondered how realtors are paid? Generally speaking, a realtor’s commission is the fee they receive for helping you sell or buy a home. It’s usually a percentage of the purchase price of the home. Let’s look closer at how that works.

In a commission setting, a realtor only gets paid when a home is sold or purchased. They don’t get paid for the time they spend at open houses, showing hopeful homebuyers new listings, working out offers, or completing paperwork.

What Is a Seller’s Agent in Real Estate?

If you’re looking to sell your home you may want to hire a realtor to handle the process for you. It is important to note that using a realtor is not legally required and many people sell their home by themselves (For Sale by Owner — FSBO). But using a realtor can help speed up the process, ensure you get a fair price, bring buyers to the table, and as a bonus they know how to navigate the mountains of paperwork involved in a home sale.

Sometimes a seller’s agent is also referred to as a listing agent because they’re the ones who list the home for sale. If you’re selling your home and using an agent, you’ll establish a contract that sets the commission price. This can vary and you can actually negotiate the percentage that they’ll be paid and how that will be split. But the standard today is a 6% commission with 3% going to your realtor and 3% going to the buyer’s agent. This 50/50 split is typical but it’s not a rule and you may see different ratios.

What Does a Seller’s Agent Do?

If 3% of your total home sales price seems like a lot, it might help to look at what a seller’s agent does for you.

Competitive market analysis. Your realtor should look at home comparisons in the area and establish a competitive market analysis that gives you an idea of what your home is worth. Your home may have unique features or it could have issues that may affect the asking price, but this research is a great starting point.

Curb appeal and staging. Remember that your realtor looks at houses all day long and spends most of their time with people who are interested in buying a house. They know what appeals to home buyers and what buyers don’t like. They will often give you some tips to help you improve your curb appeal and stage the inside of your home. Try not to take it personally if they suggest making a change — they’re just trying to help you appeal to more buyers.

Marketing the house. There are a lot of elements that get rolled into the sale of your home. Some things your realtor may do are posting for sale signs, Multiple Listing Service (MLS) exposure, newspaper ads, internet advertising and social media buzz. They will also use that all-important word of mouth marketing and speak to other realtors.

Representation during negotiations. Once an offer is made, your realtor can guide you through the offer, counter offer, acceptance, contingencies, and all other pieces of this complex transaction and contract.

Closing help. Your realtor may then coordinate between your lender and the title company to make sure all of the necessary documentation is in place. That way, when you come to that all-important, final day, the closing day, you’ll have everything in place and will be ready for signing. They may or may not come with you to the home closing, this often depends on their schedule, but if you’d really like them there, you can request that they come.

One tip when picking a seller’s realtor — you can interview several realtors and ask them what they will do for you and what percent they charge. If they know you’re shopping around, they may be more interested in negotiating the percentage they receive.

What Is a Buyer’s Agent in Real Estate?

Just as a seller’s agent represents the home seller, the buyer’s agent represents the home buyer. When you’re buying a home, having a realtor on your side can help you find the right property and negotiate a fair price. But, it should also be noted that you don’t need a real estate agent when buying a home. You’re welcome to find a home on your own and handle the paperwork by yourself or with the assistance of an attorney.

The real estate commission for a buyer’s agent also comes from the purchase of the home and is typically based on the sales price. They get paid at the time of closing and receive payment from a split of the seller’s commission. One thing to note is that the buyer’s agent’s fee is not negotiable, it’s already been determined by the seller’s contract with their realtor, that is if you’re working on the traditional fee basis.

What Does a Buyer’s Agent Do?

Your realtor will have you sign a contract that will list what they will do for you specifically, but you can expect the following:

Confidentiality. You’ll be telling your agent information about your situation that the seller shouldn’t know — you can expect them to protect anything you tell them in confidence. Imagine that you’re in a situation where you have to move soon. If that information was shared with the sellers they may want to hold firm on the price rather than negotiate because they know you’re in a desperate situation.

Find potential homes. The realtor will make notes on what you’re looking for and then they’ll scour the MLS and other home listings for you. Some realtors have great connections with other real estate professionals and will even know about upcoming listings before they become public.

Go to showings. Your buyer’s realtor will set up appointments to see homes, showings, and go to them with you. Feel free to share your real thoughts on the property as it will give your realtor an even better idea of what you want.

Expert knowledge. A great realtor knows their region and has their pulse on the current market. They’ll be able to give you advice on the estimated value of the home and of comparable homes. They might also be able to point out some concerns or plusses you didn’t notice.

Representation during negotiations. The buyer’s realtor will help you make an offer on a home. Then both buyer’s realtor and the seller’s realtor will work back and forth to come up with a fair deal. Your realtor can have a wealth of information here that’ll help you understand the process and prepare you for negotiations.

Closing help. Much like a seller’s agent, your realtor may help ensure paperwork is ready for the closing and they may attend the closing with you.

What Is a Real Estate Dual Agent?

What about a realtor who represents both the buyer and the seller? This is referred to as a dual agent and it’s not legal in some states. If dual agency is legal in your state, it’s still wise to tread carefully here. You may not get the full representation you had hoped for or the feeling of someone on your side through the process. But the benefit of using a dual agent is you’re likely to save on the commission.

Remember, any commissions you paid to realtors are tax deductible, so you’ll want to be sure to include it on your taxes this year.

The process of buying a home is both thrilling and exhausting. There’s a lot of paperwork and it can take a while to find the home that speaks to you but there’s nothing quite like that feeling of coming home. Your American Family Insurance agent (Opens in a new tab) is on your side and will help you protect that new home with homeowners insurance that’s customized to your unique needs.

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    Choosing your new apartment isn’t an impulse decision. The choice you make will have an impact for a long time. There are many different things to consider as you tour one possible home after another. On top of that, landlords and management companies work hard to make them all seem perfect.

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    How Much is Rent & the Security Deposit?

    Any apartment hunter should ask themself this crucial question: “How much should I spend on rent?” Setting a budget ahead of the search helps narrow the possibilities. You’ll save time by eliminating options that are too expensive.

    Still, relying on online listings alone may not be enough. It’s better to personally ask the landlord, whether by calling, emailing, or visiting. Make sure to also bring up the security deposit, as well as any other upfront costs they may ask of you. This will save you from unpleasant surprises before you sign anything.

    How Much are Utilities and What Do I Cover?

    Every apartment complex handles utilities differently. Water, electricity, air conditioning, heating, gas, and more may be split between landlord and tenant. Then there is the matter of which ones you’ll need to get yourself. Your apartment may come with cable and wi-fi, but you may be responsible for them on your own.

    Only your landlord will know for sure, and they should be clear about what’s expected of you. Before leasing an apartment, you should ask what utilities are available and which ones are covered. Record the answers, factor the costs into your budget, and look for the place that offers the most for the least.

    How Does Parking Work?

    Some apartment complexes have their own parking lots, with many spaces reserved for tenants and a few set aside for guests. Others may give residents access to a dedicated structure, providing greater security — but possibly at a higher cost. Others still may only offer street parking, which can be expensive to maintain.

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    What’s the Pet Policy & Is There a Deposit or Fee?

    The pet policy won’t matter to every apartment hunter. If you have a furry friend or might want one someday, make this one of their first questions to ask when touring an apartment. A “no” answer is no deal, no matter how great the other perks may be.

    Some landlords may allow pets if you pay a one-time deposit or additional monthly fees. Make sure to keep that in mind during your search.

    What Amenities are Included?

    Utilities cover the most vital parts of a home — the things that make living there comfortable. Amenities are the complex’s welcome bonuses — the things that make living there enjoyable. Common examples include clubhouses, swimming pools, public kitchens, communal laundry machines, and fitness rooms.

    Amenities are great for those who use them, but their presence can justify higher rent. As your landlord takes you through each selling point on your tour, ask them whether these perks are included with your price. Also, make sure to consider if you’ll even use them.

    Do I Need Renters Insurance?

    Home insurance is for houses. If you live in an apartment, you look for renters insurance instead. In fact, some places make it mandatory for all residents. Be sure to ask your landlord in advance so you can make any arrangements you need.

    This practice is all about liability. Landlords have their own insurance, but it’s based on their duties and would only cover their share of the damages. Renters insurance offers protection for your living space and your belongings. Even if it’s not required, getting your own policy could bring you peace of mind.

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    Applying for an apartment can be complicated and time-consuming. You might have to pay fees, undergo background checks and other screenings, and more just to see if you qualify. This may be preferable to the alternative: apartment listings that promise no credit check may be scams.

    You could always learn about each step of the application process as you go. Still, it never hurts to know ahead of time, especially if there are any fees and risks. If anything is unclear, the landlord should explain it to you.

    What Should I Know About Rent Increases?

    A variety of factors can change the value of an apartment. Examples include market shifts, new installations, repairs and replacements of fixtures. Your rent will likely not change for the duration of your lease. Once the time comes to sign again, though, your monthly payments may very well go up.

    This may not seem like a pertinent question when starting a lease. Still, making it one of your questions to ask when touring an apartment could be useful. How your potential future landlord approaches the matter can tell you what to expect. At the very least, it can help you choose whether to look for a new place well before your lease ends.

    What are the Lease Length Options?

    How long are you looking to stay at your next apartment? One year, two years, longer, less? Not everyone has a plan in mind, which means the apartment’s available options may give you an idea of what to expect in the future.

    Landlords always inform apartment hunters about the duration of their lease. However, you might need to probe them for other available options. Be sure to make this one of your questions to ask before leasing an apartment, even if they only mention one length that sounds good. They might have something better.

    Can I Make Changes to the Rental Unit?

    Your apartment may come pre-furnished, but it’s unlikely to be pre-decorated. Few people are content with blank walls and sparse spaces. Most prefer to personalize and beautify their home with art, decorations and other belongings.

    Unlike houses, apartments usually only have temporary residents. The building’s owner may not allow certain kinds of changes, believing they may hurt the unit’s future value. Take the time to go over policies. That way, you can get a better idea of how you’ll make your space feel like a home.

    How Do Maintenance Requests Work?

    Besides rent, tenants might only interact with their landlord through maintenance requests. After all, it’s the complex owner’s duty to keep everything in their apartments running smoothly. If your shower stops pumping heated water or your lock gets sticky, maintenance will get it fixed.

    Asking about the process of filing maintenance requests can give insights to how landlords view this responsibility. Does the process seem straightforward or complicated? Are approvals easy, or do they require a great deal of evidence and demonstration? The answers may reveal how long this landlord will let you live with inconvenience. Few questions to ask about apartments are more revealing than this.

    What’s the Guest Policy?

    In most cases, a guest policy doesn’t apply to someone who’s just visiting for a few hours. It covers situations where someone might want to stay at a tenant’s apartment for a few days or longer. Depending on the terms of the policy, you might even need permission for someone to spend the night.

    Don’t just assume that any landlord would be okay with your best friend crashing on your couch for a while. Get the details on the guest policy before moving in. They’ll tell you what permissions they’d grant and how you can get them granted.

    What’s the Neighborhood Like?

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    How Soon are You Looking to Fill the Unit?

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    Do I Need a Cosigner?

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    What Furnishings & Appliances are Included?

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    How Much Notice Do You Give Before You or a Representative Shows Up at the Property?

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    What’s Your Late Fee Policy?

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    What’s Your Subletting Policy?

    Subletting is when a renter temporarily moves out and lets someone else cover their lease. A landlord may refuse to rent to your candidate if they don’t meet their requirements.

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    Know the Best Questions to Ask When Renting an Apartment

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    Even while you’re still apartment-hunting, it’s never too early to start thinking about renters insurance. If you have any questions about that, feel free to contact an American Family Insurance agent. Once you’ve learned what we have to offer, you can get a quote online and get protection for your next home.

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    Why Do I Need a Home Inventory?

    Whether you’re a homeowner or a renter, everyone can benefit from a home inventory!

    If you ever have to make a claim, a home inventory is a great asset to have, especially after stressful events like theft, storm damage or a fire (take a look at how one renter used their home inventory after facing an apartment fire).

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