5% Realtor Commission Explained: Can You Pay Less?

Costs can creep up when selling your home, especially realtor commission rates. While rates vary per state, agent, and local market, sellers traditionally pay 5-6% in commission when selling their homes.

However, recent market shifts and new policies following the National Association of Realtors (NAR) settlement could lower commission rates across states. The settlement aims to create a more transparent and competitive market, potentially driving down real estate transaction costs. Additionally, sellers will no longer be required to pay for the buyer’s agent.

Sellers and buyers have always been able to negotiate a lower rate with agents. Understanding your area’s average rate can help you determine a fair rate. You can also look for low commission real estate agents or discount brokers who offer traditional services for less than your area’s average commission rate.

» JUMP TO: What is 5% commission? | NAR settlement impact | How to get a 5% rate (or lower) | Alternatives to 5%

What is a 5% real estate commission?

A 5% real estate commission is the 5% of the home’s final sale paid to agents as their commission. Most agents don’t earn a salary; instead, they rely on commissions from the sale of homes for their income. Here’s how it works:

• In a 5% commission structure, the total commission is split between the seller’s and buyer’s agents.
• Typically, the agents will split the commission fee 50/50, with the seller’s agent earning 2.5% and the buyer’s agent earning 2.5%, for example.
• However, the agents can make different arrangements, such as 3% for the seller’s agent and 2% for the buyer’s agent. The split is 100% negotiable but is determined before the home's sale.

Reducing the commission rate down from 6% to 5% can lead to significant savings for sellers.

For instance, 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 5% commission would be a total commission of $15,000, with each agent receiving $7,500 (this lower rate can save sellers $3,000).

Additionally, sellers may no longer need to cover the full cost of realtor commissions. Changes based on the recent NAR settlement mean buyers will be responsible for paying their agent’s fee — not sellers. However, buyers can negotiate with sellers to see if they'll pay for part or all of the buyer’s agent fee.

Will the NAR settlement bring down commissions?

The NAR settlement introduces changes that will increase transparency and competition in the real estate market. 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 may make negotiating a 5% commission fee or an even lower rate easier.

“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 more alternative models, such as flat fee or discount brokerage that provides a set, lower total rate.

“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.

According to NAR, changes are expected to occur in August 2024. 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 on MLS listings, which may focus more on the services offered than cost.
• Elimination of mandatory subscription to multiple listing services: 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: They 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.

Stay tuned for more updates on the NAR settlement.

How to get a 5% commission rate (or lower)

One of the most effective ways to secure a 5% commission rate or lower is to use a low-commission realtor. These agents specialize in offering reduced commission rates while still providing comprehensive services. This can be the best option for most sellers as it combines professional real estate services with significant cost savings.

One advantage is that sellers don’t need to negotiate for a lower commission rate — it’s part of their business model. Additionally, many low-commission agents advertise prices below 2.5%, which would be their split in a 5% commission rate structure. You could find an experienced agent willing to work with you for as low as 1.5-2%, saving you even more.

However, be sure to thoroughly vet agents before signing. Some agents may compensate for the lower commission by taking on a high volume of clients, leaving them less one-on-one time with you. Additionally, newer agents may offer lower rates to build their business but might not have the experience or connections of a higher-rate agent.

When comparing agents, it can be helpful to consider services like Clever Real Estate and Ideal Agent. These free services provide multiple vetted, local matches so you can find an experienced agent who fits your needs.

However, low commission rates can vary by service, so it pays to shop around. For instance, Clever Real Estate pre-negotiates a 1.5% listing agent rate, while Ideal Agent typically offers a 2% rate.

Alternatives to low commission agents

Selling without a realtor

You can avoid paying an agent listing fee by selling your house without a realtor, called For Sale By Owner (FSBO). You may even avoid paying a buyer’s agent fee once the NAR settlement goes into effect.

In addition to saving money on commission costs, FSBO allows you to completely control your real estate transaction. However, selling a home on your own does take a significant amount of time and energy. You may also need to pay other professionals for help with the contract and negotiations, tasks the realtor normally handles. So, you’ll need to decide if the potential savings are worth managing the sale on your own.

Selling to a cash home buyer

Selling to a cash home buyer works well if you want to sell your home fast with little to no effort. However, you’ll want to compare their offer to what you could make on the open market to ensure a fair price.

The advantages of selling to a company that buys houses for cash include:

• Closing fast
• Avoiding making repairs
• No need for home showings
• Few to no contingencies, reducing the chance of your deal falling through

However, there are potential cons to selling to a cash home buyer, such as:

• Sales price is usually below market value
• Fewer potential buyers than a traditional sale, leading to less competition
• Limited ability to negotiate terms and price

Negotiating with a realtor yourself

If your area doesn’t have access to free agent matching services, you can always negotiate directly with a realtor to try and reduce the commission rate. This can be a useful tactic if you have a home that’s in excellent condition or a great location, or if you’re in a seller’s market.

However, you’ll want to do your research first so you can offer a fair commission rate. Take time to understand your area’s local commission rates since these vary by state, market, and services offered. When shopping for realtors, interview several to compare commission rates and services, and create competing bids for your listing.

But keep in mind that negotiating takes time and doesn’t always work. A recent industry study found only 22% of home sellers successfully negotiated a lower agent rate. That’s another reason why low commission realtors are so valuable to sellers looking to save on commission.