When going into a project as sizable as selling a house, there are a number of costs and considerations to take stock of before taking the plunge. Hands down, one of the largest expenses you’ll face in this process is real estate commission — that is, the amount you pay to a real estate agent for their work in facilitating the buying or selling of a home. In 2022, the national average Realtor commission rate was 5.37%, and this number is predicted to increase in 2023.1
Unfortunately, average Realtor commission rates are also one of the more difficult variables to project, since commission rates fluctuate over time and can vary widely based on where you live. The good news for you is that, while it’s good to know this average going into the decision to buy or sell, these averages don’t necessarily determine what you’ll end up paying. These rates can be negotiated for a lower rate with your real estate agent — and doing so could save you thousands of dollars.
When a homeowner decides to sell their property, they solicit the help of a listing agent and work together to arrive at a commission rate that’s agreeable to both parties. This rate is informed by factors like the location of the home, national trends driving the real estate market, and the negotiating terms of both the seller and the agent. The total real estate commission is split between the seller’s agent and the buyer’s agent, with each agent generally paying a portion of their share to their brokerage.
For example, if you were to sell your home for $300,000 with a 5.37% real estate commission, that would mean $16,110 from your sale would go toward the real estate agents who facilitated the sale. Both the seller’s agent and the buyer’s agent would net around $8,055 (the split isn’t always 50/50). Since this is a commission rate, you don’t have to worry about shelling out that amount to Realtors up front. This payment is only made once the sale of your home is finalized.
While the cost is typically discussed as a seller’s expense, in reality, it’s usually assumed by the buyer. This is because homeowners are often able to factor real estate commission costs into the asking price they set for their home. Although they may not be able to reach the full asking price, a portion of the commission will hopefully be covered this way.
As previously mentioned, average Realtor commission rates are in flux at any given moment. But what specific factors are working to determine that rate? Here are a few things that may be causing spikes or drops in the real estate commission rate, as well as some things unique to your situation that may be impacting your negotiation power when entering the market:
While there are many other considerations at work in determining your real estate commission, these are a few that you might want to keep in mind as you prepare to sell.
According to Fannie Mae, home price growth will slow in 2023 — they predict the annual growth rate will peak at 4.4% and fall below 3% by the end of the year. Compounded by high interest rates and a weakened economy, it’s estimated that demand in the housing market overall will slow. While we might imagine these things would suggest lower rates, during the economic recession of 2007, commission rates rose.2 Thus, we might see increases again in 2023.
Despite economic uncertainty on the horizon, many real estate experts predict that large numbers of millennials will be looking to enter the market for the first time, as homeownership seems to be trending over renting among this group.3 This means that, although the overall market may be slow, you may find yourself searching for a home in a hot market and therefore be able to negotiate a very reasonable real estate commission rate.
While much about 2023 is up in the air, there are likely things within your control that can help you negotiate lower-than-average Realtor commission rates. Take stock of your home and your plan to sell — can you improve the desirability of your home, use data about the market in your area to better situate yourself, or leverage your real estate connections to secure a lower rate? Focus on what’s within your control to get the best deal possible.
Source 1: Clever: "Current Average Real Estate Commission." Accessed January 25, 2023.
Source 2: Bankrate: "Real estate commissions fall to new lows as homes fly off the market." Accessed January 25, 2023.
Source 3: Chicago Agent Magazine: "Real Estate Market Predictions 2023." Accessed January 25, 2023.
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