4% Real Estate Commission Explained (2024 Update)

Traditionally, real estate commissions were often as high as 6%, with 3% going to the seller's agent and 3% to the buyer's agent. However, there’s a growing trend toward lower commission rates, like a 4% real estate commission. These lower rates can offer substantial savings for buyers and sellers, making home buying and selling more affordable.

A recent National Association of Realtors (NAR) settlement affects real estate transactions and how agents work, potentially making lower realtor commission rates more common. These changes will help create a more transparent and competitive market, potentially driving down real estate transaction costs.^[1]

Understanding these changes can help home buyers and sellers negotiate lower rates with agents, such as a combined 4% commission rate with 2% going to the buyer’s agent and 2% to the seller’s agent. You may also have more options for local discount brokers and low commission real estate agents that charge less than traditional rates.

What is 4% real estate commission?

A 4% real estate commission currently represents a significantly lower rate than the traditional rate. In this situation, the total commission paid on the transaction is 4%, split between agents.

For example, a 50% split is common, where the seller’s and buyer’s agents each receive 2%. However, other split combinations, such as 3% and 1%, are possible. The split is agreed on before contracts are signed.

A 4% commission structure can provide lower earnings per transaction than a traditional 6% commission rate:

• A 6% total commission on a home that sells for $300,000 would amount to $18,000, with each agent receiving $9,000 in a 50/50 split.
• But a 4% commission would be $12,000, with each agent receiving $6,000.

The savings from a 4% commission versus a 6% commission rate can be significant for sellers, who traditionally pay the commission. Sellers can use the savings to assist them with other goals, such as buying another property, saving for retirement, paying for healthcare costs, traveling, and more.

Impact of recent NAR settlement

The recent NAR settlement attempts to increase transparency and competition in the real estate market.

"Agents might need to justify their rates based on the quality of service they provide, potentially leading to more competitive pricing and tailored service practices," states Lorelie Abedes of Click Cash Home Buyers.^[2]

According to NAR,^[3] changes are expected to occur on August 17. Some of the new rules buyers and sellers should familiarize themselves with include:

• Prohibition of including agent compensation on MLS listings. Agents won’t be able to post how much they get paid, which may focus attention more on the services offered than cost.
• Elimination of mandatory subscription to the MLS. Being able to choose which listing services to use may help reduce overhead costs and provide more flexibility.
• Written agreements between buyers and their brokers are required. Buyers and brokers must officially formalize their arrangement with a written agreement to help ensure transparency in rates and services provided. “Buyers can no longer jump from one agent to another while testing out who they fit best with,” states Marcia Socas, a licensed realtor, author, and investor.^[4]

While the settlement doesn’t specifically address the amount of commissions, many experts believe it may lead to lower commission rates throughout the industry.

"This settlement encourages more competitive commission structures, potentially reducing costs," states Dimitri Zubrich, a Re/Max Affiliates realtor. "It might also increase private sales." Additionally, this may encourage a shift toward alternative models, such as flat fee or discount brokerage that provides a set, lower total rate.^[5]

Jonathan Faccone, managing member and the founder of Halo Homebuyers, recommends sellers and buyers research and compare agents. "This settlement may lead to more competition in the market, providing buyers and sellers with more options when choosing an agent."^[6]

Why would agents accept a 4% commission rate?

Agents might accept a 4% commission rate for various reasons.

For one, lowering commission rates in competitive markets can attract more clients. This can help agents secure more listings so they can close more deals. By taking a volume-based approach, agents can compensate for the lower rate per transaction.

Certain markets, situations, and property locations and conditions can also impact rates:

• Some properties may not require as much effort to sell, allowing agents to work for lower rates.
• In some areas, agents can represent the buyer and seller, called dual agency. The agent may accept a lower commission rate in this situation since they aren’t splitting it with another agent.
• Finally, agents helping clients sell their current home and buy a new one may also offer reduced rates for handling multiple transactions.

Agents representing high-value properties may also be able to provide lower commission rates since commissions can still be significant even at a lower rate. For example, a 4% total commission on a $1 million property is $40,000, with a 50/50 split providing each agent $20,000.

Pros and cons of a 4% commission realtor

Pros

✅ Save on agent fees

✅ Potential to price your home more competitively

✅ Attracting more buyers, leading to a fast sale

Cons

❌ Reduced marketing budget

❌ Less agent time if the realtor has an extensive client list

❌ Potential for newer or less experienced agent

Hiring a 4% commission realtor provides several benefits. Perhaps the most significant advantage is the savings on your agent fees, allowing sellers to keep more of the proceeds. Sellers may also be able to price their home more competitively, helping them attract more potential buyers. The increased competition from buyers may also lead to a faster sale.

But you’ll also want to consider potential drawbacks. Agents with lower rates may operate with closer margins, such as a reduced marketing budget. This could potentially limit the exposure your property receives.

Agents who take a volume-based approach may have less time for each client due to managing a more extensive client list. Also, some agents may offer lower rates to build up their practice. These newer or less experienced agents may not have as much local market experience or connections, potentially impacting service quality.

How to get a 4% total commission rate

Research your local market

Understanding your local market and average commission rates is essential to effectively negotiating realtor commission rates. When researching, identify the average rates for your market. This can serve as a benchmark for your negotiations and help set realistic expectations.

"Buyers and sellers should talk with agents," recommends Lorelie Abedes. "Ask about their services, experience, and market knowledge." You can also gather information by checking online resources and looking at recent home sales data in your area. Be sure to look for recent sales that are comparable to your home.

Negotiate a lower rate

Before you start negotiating realtor commissions, consider what you can offer potential agents to help support them working for a lower rate.

For example, highlighting your property’s strengths can help you justify a lower commission. Properties in excellent condition, in a seller’s market, or in a prime location are easier to sell and likely to sell faster, giving you more room to negotiate. You may also be able to justify reducing the rate if you’re buying and selling with the same agent.

When shopping around for agents, be sure to interview several realtors. This will allow you to compare commission rates and services and create competing bids for your listing. Use your research of local market rates and your state’s average commission rates to help justify a lower rate if an agent asks for a higher rate.

Lastly, consider initially asking for a rate slightly lower than what you’re comfortable with. This allows room for negotiation without exceeding the rate you want.

Use a discount broker

A discount broker or low commission agent is a company or agent who sells your home for less than the average real estate agent commission rate in your area. Discount brokerages provide an alternative to traditional agents, often providing essential or full services at a lower rate.

Rates can vary, but are generally significantly lower than traditional rates. For instance, some low commission agents and companies may offer listing services for as low as 1.5-2% instead of 3%.

When researching discount brokerages, pay attention to their services compared to traditional agents. Additionally, make sure their services provide the assistance you need. Some companies may offer a comprehensive service, while others’ services may be more limited due to the reduced rate. Before signing, talk with the agent or broker to ensure they fit your needs well.

Here are discount broker options:

1. Clever Real Estate

Clever Real Estate offers a service to find high-quality agents who offer a lower commission. Clever matches you with vetted agents in your area who sell for only a 1.5% listing fee. This service is advantageous because it connects you with multiple agents, so you can select the person who best fits you and your situation. Furthermore, you can request more matches if you don’t initially find an agent.

Clever helps connect you with top-rated, local agents from known brands like Century 21 and Coldwell Banker. The experienced agents in Clever’s network have already agreed to provide a lower commission rate, reducing your need to negotiate.

Clever’s service works well for anyone looking for a top-quality agent willing to work at a lower rate. Advantages of this free service include eliminating the need to negotiate, having a guaranteed 1.5% commission rate, and being able to select from a wide number of agents.

However, you’ll want to ensure the selected agent provides all your needed services. Some services, like home staging, may or may not be included or only offered as an add-on service. So, you’ll want to research and interview agents before signing.

2. Redfin

Redfin is a legitimate discount brokerage that provides a 1.5% listing fee to sellers or a 1% listing fee for clients who buy and sell. Their agents provide the typical services you’d expect from a traditional service.

Redfin uses a team-based service model to provide lower rates. This means you'll work with multiple team members at different stages of your real estate transaction instead of one agent or contact, allowing Redfin to take on a higher volume of clients.

Redfin is one of the largest brokerages in the United States, with coverage in most major cities. This service is a good fit for people who want to save on fees and don’t mind a team-based approach. Redfin also makes it easy to manage your listing online or through the app.

However, you may not receive the same one-on-one time with agents. Also, Redfin does have minimum fees, which can vary between markets. So, it’s important to verify the minimum fees to ensure you don’t end up paying more than 1.5%, especially if you sell a lower-priced home.

3. Ideal Agent

Ideal Agent is an online platform that matches clients with full-service, low-commission agents. This company matches you with top agents who will work for a 2% listing fee. While this is lower than industry standards, there are other similar services whose agents will work for less.

Ideal Agent does charge a $3,000 minimum fee. But this will only affect people selling homes for less than $150,000.

Ideal Agent’s free matching service is available nationwide. The company reports matching with top brands like Keller Williams. This service is great for people seeking help finding a quality agent willing to work at a lower commission rate. However, similar services are available that will provide lower pre-negotiated fees than that offered by Ideal Agent.