Why Does the Seller Pay Both Realtor Fees?

Real estate commissions are a significant financial aspect of selling a home, typically paid by the seller. These fees compensate real estate professionals for their expertise, marketing, and negotiation skills. Understanding these commissions is important for any homeowner considering listing their property. The costs associated with real estate agent services are often factored into the home’s sale price, making them an indirect expense for both parties. This article explores the common practices surrounding real estate commissions, how they are managed, and the various models available to sellers.

Understanding the Standard Commission Structure

The typical real estate commission in the United States ranges between 5% and 6% of the home’s final sale price. This single commission, paid by the seller, is usually divided between two brokerages: the one representing the seller (listing agent’s brokerage) and the one representing the buyer (buyer’s agent’s brokerage). This division incentivizes buyer’s agents to show properties listed on the Multiple Listing Service (MLS), as they know their efforts will be compensated.

While the seller covers the entire commission, the buyer’s agent maintains a fiduciary duty solely to the buyer. This means the buyer’s agent is bound to represent the buyer’s best interests, including negotiating the lowest possible price. The commission paid from the seller’s proceeds funds the buyer’s agent’s services, without shifting their loyalty. Each brokerage then splits its portion of the commission with its individual agents based on internal agreements.

Historical Factors Behind Seller Payment

The practice of sellers paying real estate commissions for both agents has historical roots in the United States. This system became formalized with the establishment of early real estate organizations, such as the National Association of Realtors (NAR) in the early 20th century. These groups began standardizing commission structures to encourage cooperation among brokers.

Early real estate exchanges, which evolved into today’s Multiple Listing Services (MLSs), facilitated broader market exposure for properties. By offering a portion of the commission to the agent who brought a buyer, sellers gained access to a wider network of potential purchasers. This cooperative compensation model became entrenched because it maximized property exposure and increased the likelihood of a sale.

How Commissions are Calculated and Disbursed

Real estate commissions are calculated as a percentage of the home’s final gross sale price, not the initial listing price or seller’s net proceeds. This amount is typically paid at the closing of the sale, usually through an escrow or title company.

At closing, the total commission is deducted from the sale proceeds. The escrow or title company then disburses the funds according to a Commission Disbursement Authorization (CDA) form provided by the listing brokerage, which specifies the split between the listing and buyer’s brokerages. Sellers do not pay these fees out-of-pocket before closing; they are integrated into the financial transaction at the time of ownership transfer.

Negotiating Commissions and Seller Net Proceeds

Real estate commissions are not fixed by law; they are negotiable between the seller and their listing agent or brokerage. The widespread perception of a standard 5-6% rate is largely a result of industry tradition, not a legal mandate.

Several factors can influence commission negotiability. In a seller’s market, agents might be more flexible with rates due to lower marketing expenses and faster sales. The property’s value also plays a role; agents may accept a lower percentage on a high-value home, as the dollar amount of their commission would still be substantial. Any reduction in the total commission directly increases the seller’s net proceeds from the sale, as commissions are a direct deduction from the gross sale price.

Different Home Selling Models

While the traditional full-service real estate model involves a percentage-based commission, alternative selling methods exist. One option is For Sale By Owner (FSBO), where sellers market and sell their home without an agent, potentially saving both listing and buyer’s agent commissions. However, FSBO sellers take on all responsibilities, including marketing, negotiations, and paperwork.

Flat-fee brokerages charge a set amount for their services rather than a percentage of the sale price. This fixed fee offers predictability in costs. Some flat-fee services might only list the property on the MLS, while others provide more comprehensive support. Discount brokerages operate similarly, offering reduced commission rates for a scaled-back service model. These alternative models present a trade-off between cost savings and the level of professional service and support received.