How Does a 3% Commission Realtor Work?

Real estate commissions still follow a hundred-year-old policy established in 1913 by the National Association of Real Estate Exchanges — the NAR’s predecessor. This policy declared that selling agents should split their commissions with buying agents.

At the time, the total commission was around 2.5%. Still, the percentage rose considerably over the years because the commission structure encouraged buying agents to partner with selling agents offering higher fees.

Today, the combined commission is close to 6%, meaning each realtor makes around 3% on a sale. You can expect to pay close to $27,000 in commission if your home sells around the $442,000 median listing price.

But the time of a traditional 3% commission looks like it’s on its way out with a recent NAR settlement. This ruling may lead to lower rates by dissolving the current commission model.

How the 3% commission model works

The 3% commission model splits a total commission of 6% between the buying and selling agents. The home seller typically pays all the realtor fees when the sale closes. Then, the selling agent divides the commission between both parties.

Here’s what typical combined real estate commissions look like at different price points:

• $24,000 on a $400,000 home sale
• $36,000 on a $600,000 home sale
• $60,000 on a $1m home sale

Each realtor's commission rises proportionally with the selling price, but the required work rarely reflects that pay increase.

Current technology allows most buyers to find homes they like before showings, eliminating much of the time requirement many past buying agents needed to hunt for houses on their buyer’s behalf.

And in hot markets, selling agents spend less time looking for potential buyers than they would otherwise.

Changes in commission are here

In November 2023, a recent lawsuit against the NAR challenged the century-old process of sellers paying for both commissions, claiming that the structure overinflates commission prices.

While the NAR denies any wrongdoing, the organization agreed to a settlement in March with plans to make the following changes:

• Selling agents can’t advertise buying agent commissions on the MLS
• Buying agents must sign a written agreement with a client before showing houses
• Buyers will be responsible for paying their agents

These policy adjustments took effect on August 17, 2024 and should open the floor to more negotiation. As a result, the market should trend toward lower realtor fees that are more beneficial for homeowners.

How to pay a 3% total commission rate

Even with the new policy changes, it may take a while to reap the benefits of the NAR settlement. But if you want to sell your home soon, you can access lower commissions without waiting for new policies to take effect. Here’s how:

1. Reduce both agent's commission

You can negotiate commission for a 1.5% rate from each realtor, but the process is challenging. When negotiating, it’s essential to communicate clearly and identify your leverage, including:

• Your home’s value and buyer demand
• The number of listers in your area
• Potential referrals for future sales

Highlighting these potential selling points could sway agents to lower their commission fees and save you money.

2. Eliminate one agent from the sale

Dual agency is a real estate tactic where one agent represents the buyer and the seller during a real estate transaction. Working with a dual agent can reduce the overall commission to 3% because they don’t need to inflate their realtor fees to cover two agents.

If you go this route, it’s important to remember that a dual agent is serving you and the potential buyer. This structure may encourage your realtor to cater to one party’s needs over the other.

Another drawback of dual agency is that it isn’t available everywhere. The strategy is illegal in Alaska, Colorado, Florida, Kansas, Maryland, Texas, Vermont, and Wyoming.

3. Sell to a cash home buyer

Selling to a cash buyer, such as Doug Hopkins, is a great way to eliminate commissions. Rather than working with an agent, you sell directly to a company or individual buyer.

This process simplifies selling your home, but it comes with a couple of drawbacks:

1. You won’t make as much profit. Cash buyers typically buy homes as-is and pay well below fair market value for the convenience of avoiding the traditional process. Getting multiple offers is crucial to see who offers the best deal.
2. You’re selling "by owner." Selling your home without the safety net of a real estate brokerage requires extensive knowledge of the market. Unseasoned sellers should seek the help of a real estate expert to ensure the cash deal is legit.

Leveraging the help of a cash buyer network like Clever will help you get the most out of your cash sale and eliminate these potential pitfalls.

The bottom line

The recent NAR settlement points toward future shifts in the real estate market that may save homeowners money on realtor fees. But you don’t need to wait for the entire market to shift to take advantage of lower commissions.

Negotiating lower commissions, opting for dual agency, or selling to a cash buyer can cut your commission rates in half. You could also work with a home-buying network like Clever.

Working with Clever can score you 1.5% realtor fees and maximize your profits when selling your home. Clever negotiates with reputable realtors from leading brokerages to save you thousands over traditional fees.