How To Determine A Fair Real Estate Broker Commission

There are various steps to determine a fair real estate broker commission. Every year, about 90% of property owners looking to sell their homes work with a real estate agent. Usually, real estate agents make a living by earning commissions. The commission comes directly from the transaction’s sale proceeds when closing a sale. Typically, agents only receive commission when a sale closes. As a real estate investor, consider the commission price, payment due date and included services before starting the sales process. Real estate is one of the best investments in the USA. Follow these steps on how to determine a fair real estate broker commission.

Determine Split

First, determine the split between agents when discovering a fair real estate broker commission. Typically, there are two agents involved in a property sale, the seller’s agent and the buyer’s agent. Of course, both agents earn a percentage, or real estate agent commission, of the property’s complete price when the sale closes. Percentages differ per state. For example, New York real estate licensed agents’ average a split where the seller’s agent gets about 53% while the buyer’s agent receives about 47%. Commission is added to the final sale proceeds resulting in the property buyer paying most of the fee. Surely, you can discover a fair real estate broker commission by determining the split between agents.

Consider Market Environment

Secondly, consider the market environment when determining a fair real estate broker commission fee. Average realtor commission rates range between 5% and 6%. However, this number is affected by market events such as real estate booms, the Great Recession and COVID-19. During the real estate boom of 2005-2007, rates fell because there increased options available for sellers and buyers. Then, during the Great Recession, rates went back up due to fewer agent options. More so, sellers would pay more for assistance from agents and brokers. Furthermore, commission rates decreased to about 4.8% during COVID-19. Of course, changes in the market and in trends can affect how much goes to your agent. Certainly, consider market environment to determine a fair real estate broker commission fee.

Establish A Rate

Next, establish a commission rate when determining a fair price for your real estate broker. Agents can earn straight commission, base plus commission or draw against commission. Straight income incorporates sales price and rate. You will multiply your total property price by your state’s rate (sales x rate) such as the average of 4.72% in New York. Or, your agent can ask for a base pay plus the multiplication of property price and rate (Base + (sales x rate) = income). Certainly, work with your real estate agent to establish a rate for a fair commission.

Calculate Commission

Then, calculate commission when determining a fair rate for your real estate broker. For a straight commission, take your agreed upon percentage and divide it by 100. Then, multiply it by the purchase price. For example if the property cost $132,000 at 6.3% (132,000 x .063) your agent would earn $8,316 as commission. With a base plus commission agreement, the agent will receive an extra payment. For example, you would pay them the $8,316 plus about $1,000 for a base fee resulting in about $9,316. Of course, agree upon a commission rate to calculate commission and determine a fair rate for a real estate broker.

Negotiate With Your Agents

Finally, negotiate with your agent to determine a fair real estate broker commission. There are various ways to lower your agent’s commission rate. In fact, if you need help purchasing a property, there are various real estate financing options. Consider giving your agent a referral. Your agent may offer a discount if you bring him more business. Or, you can buy a new property with that agent. You may be able to cut the percentage from selling by agreeing to buy with them. As they get money as your buyer’s agent, they might make more on the deal. Additionally, consider selling in the slow season. They may provide a better deal because they usually have fewer clients and need more business. Of course, you can always find an agent who charges less. Certainly negotiate with your agent to determine a fair real estate broker commission.

There are several steps to determine a fair real estate broker commission. First, determine the split between agents to discover how much your agent should make. In states such as New York, the seller’s agent makes more in commission. Secondly, consider the market environment. Real estate booms can decrease rates while times of hardship can increase rates as sellers are willing to pay more. Next, work with your agent to establish a rate through straight commission or base plus commission. Then, calculate commission by multiplying the total property cost by the agreed upon percentage and adding any extra fees. Finally, negotiate with your agent to make deals or reduce costs. Surely, follow these steps to determine a fair real estate broker commission.